Monday 18 December 2017

Cheesemakers show they are up to challenge of soaring Swiss franc

Catherine Bosley

"BLESSED are the cheesemakers," runs a line from the 1979 Monty Python film 'The Life of Brian'.

According to Matthias Kunz, whose company exports Swiss cheese to countries from Germany to Brazil, you can find blessings even in a soaring currency.

The Swiss franc has surged to record highs since 2007, but Switzerland's foreign cheese sales have climbed about 8pc for the past two years.

Kunz's employer Emmi, the country's biggest dairy exporter, expects revenues to grow again this year.

Overall, cheese export volumes have been stable since Lehman Brothers went down.

"The positive thing from the forex [foreign exchange market] pressure is it's challenging us to come up with still better ideas, and to keep an even tighter grip on costs and work harder," says Kunz, who heads Emmi's foreign business. Besides cave-aged cheeses, the company sells yogurts and coffees in cups decorated with the Swiss flag.

An appreciation of nearly 30pc in the franc against the euro since Lehman has provoked howls from some firms -- particularly in metals and machinery and tourism. Some have threatened to move production abroad, and the central bank has cautioned that not all the currency pain has yet been felt.

But exports in the first quarter of 2011 climbed just over 12pc from a year earlier, and in 2010 Switzerland posted the second-largest trade surplus in its history.

A survey this April found most Swiss businesses don't expect much of a hit from the franc's strength, and would rather the central bank did nothing about it.

"If you look at history, Switzerland has always been able to withstand a stronger franc -- by making radical changes, improving productivity, and going for specialisation," Nestle chairman Peter Brabeck told the newspaper 'SonntagsZeitung' last month.

Being able to raise prices, and being in fast-growing emerging markets, has helped. Swiss watch exports rose 32.1pc in April: China bought 44.4pc more and Hong Kong's take soared by 53.9pc.

The Swiss have been here before. The current situation is similar to the 1970s, when inflation elsewhere boosted demand for the Swiss franc.

Then, as now, Switzerland boasted low inflation and joblessness. In 1976, 'Time' magazine said the Swiss economy boasted "successes that are the envy of most other nations".

It's almost the same story today.

Christoph Blocher, a right-wing politician who made his fortune running a chemical company, Ems, said a move out of Switzerland seemed inevitable for his firm in the 1970s. "We looked into alternative locations abroad," he said.

"Back then we exported 30pc. Today, we are exporting 96pc. Switzerland has always been forced by the strong currency to make better and higher quality products."

Overall, the central bank does see growth slowing this year, to about 2pc, from 2.6pc in 2010. But for a developed economy in old Europe, that's not to be sniffed at. Real GDP growth for the eurozone is forecast at 1.5pc-2.3pc by the European Central Bank.

Growth

"We believe the Swiss franc's strength has lasted too long for negative export growth to be seen as an inevitable consequence," economists at the Swiss bank Sarasin said in a research note in May. "It appears that exports are less susceptible to prices than generally thought."

Tourism has suffered, but the weather has been partly to blame: an unusually warm winter left pistes devoid of snow.

Against this backdrop, it's easy to see why the Swiss central bank's unsuccessful efforts in 2009-10 to restrain the franc's rise have provoked such debate in Switzerland: the effort cost the SNB 26.5bn francs (€22.1bn), but people such as Blocher say the strong franc isn't hurting too badly at all.

In an April study of Swiss firms' finance chiefs by Deloitte, 85pc said the currency's strength would not have a negative effect in the next 12 months. The survey also found 83pc were against any further actions by the central bank or the government to counteract the currency's rise.

Even so, the prospect of a further rise in the franc still makes Kunz nervous.

"The big question mark is that we don't know how elastic demand is," he said. "When will Mr and Mrs Mueller in Berlin buy less Appenzeller?" (Reuters)

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