Positive demand outlook for herring in East European markets following difficult trading conditions in 2002.

Herring prices reached record high levels in December 2001/January 2002 and subsequently dropped significantly in the course of 2002. Norwegian exporters of herring characterize 2002 as "one of the worst years ever for the industry". However, there are indications that demand will strengthen in the months to come and the industry appears moderately optimistic. There is little hope that the prices will return to the earlier record-high levels. For the first 2 -3 months of 2003, prices to Norwegian fishermen were over 40% down on 2002 levels. Nonetheless, there seem to be more balance between demand and supply which should result in more stable prices.

Significant increase in imports from Iceland and the Faroe Islands

According to Polish statistics, overall herring volume imports decreased significantly during the first 9 months of 2002 while herring prices in PLZ increased marginally. Regarding frozen herring (excluding fillets), imports decreased by 46 per cent in volume terms in the period while prices increased by 11 per cent. Imports from Norway, the main supplier, were reduced by two thirds and partly replaced by frozen herring from Sweden. The Polish figures for fresh and frozen herring fillets also show a considerable decrease (26 per cent) in the same period while prices rose by 5 per cent. Imports from Norway fell by 50 per cent. Norwegian annual export figures for 2002 confirm this development.

Looking at the first quarter of 2003, Norwegian figures show that herring sales to Poland continue to decrease compared to the same period last year.

As expected, Polish imports of herring from Iceland and the Faroe Islands increased more than three fold during the first 9 months of last year. Since 2002 the Iceland and the Faroe Islands have considerably increased their production capacity for fillets and have been able to offer their product at competitive prices. Iceland's potential to stabilise and possibly further increase its market share in Poland will depend on Iceland's herring TAC. This will not be decided before the Icelandic elections in May.

Norway increasing market share

According to a market overview prepared by the Norwegian Seafood Export Council, the Russian market for frozen herring increased in 2002 to more than 294 000 MT. The main supplies of herring to Russia during 2002 were based on domestic catches and imports from Norway. The Norwegian market share has increased steadily since 1999. Trade figures also show that an important volume of frozen herring is exported to Russia from the Baltic States based on herring from the EU and Norway. For the first quarter of 2003, Norwegian export figures show the same volume as in 2002 although average prices in NOK dropped considerably.

Figures for April are expected to reflect both the late Easter this year (when consumption of herring traditionally is high) and the increase in the supply of herring compared to January-February. A considerable increase is confirmed by the Norwegian weekly statistics (week 15) which show Norwegian exports of frozen herring eight times higher than for the same period last year. A continuation of this upward supply trend may limit any price increases expected by industry sources as a result of low stock levels in both Norway and Iceland.

Import demand for herring in East Europe appears to have strengthened particularly in Russia, Ukraine and Belarus. This trend is expected to continue in the months ahead, mainly due to lower Russian domestic supplies compared to last year.

Changed trade conditions for herring as the accession countries join the EU

Negotiations between the EU and the EFTA EEA States (Norway, Iceland and Liechtenstein) on, amongst other issues, trade conditions for fish started in January this year in the context of EU enlargement. As the accession countries become members of the EU in May 2004 their trade in fish with Norway and Iceland will be governed by the EEA Agreement and the bilateral trade agreements between the EU and Norway and Iceland, respectively. A revised EEA Agreement between the EU and the EFTA EEA States was aimed at before Easter. However, Poland surprisingly rejected the draft agreement reached as it in their view did not provide satisfactory import conditions for raw material for the Polish processing industry.

In contrast to the current EU countries the accession countries today import fish duty-free and quota-free from Norway and Iceland based on their free trade agreements with EFTA. As regards herring this will be of particular importance since Poland and the Baltic States import considerable amounts of herring from Norway and Iceland for further processing (as well as for direct consumption). As of 1 May 2004 the tariffs on round herring from the two herring suppliers will be 15 per cent, on Norwegian herring fillets 3 per cent and on Icelandic fillets zero per cent if the conditions on imports from Norway and Iceland to the EU remain as today. In addition, there are duty –free quotas on these products. However, the quotas are small compared to the volumes exported.

Discussions will be re-opened soon and a final solution is expected to be reached quickly. It is also expected that this solution would be along the lines of the trade regime that is in force between the EU and Norway and Iceland today, which would mean a quota system and continued tariffs. However, flaps are likely to be defined as fillets in terms of tariff heading in a revised EEA Agreement. The changes in trade regime is expected to impact the current trade flows in the longer run in the direction of more fillets on the EU market and more round herring on other markets in Central and Eastern Europe (Russia, Belarus, Ukraine).

On the export side the exporters of herring in the Baltic States and Poland will face new trade conditions to the key markets Russia and Ukraine when they join the EU.