Dusseldorf The Hochland private cheese dairy is currently on an inglorious list from Yale University, dubbed the “Hall of Shame” by the press. In the negative ranking, economics professor Jeffrey Sonnenfeld branded the company from Heimenkirch im Allgäu because it continued to do business with Russia despite Putin’s attack on Ukraine.
“Yale University demands that companies must choose which side of history they are on – good or bad. That’s a completely unacceptable simplification,” says Peter Stahl, CEO of the family business, which operates three plants in Russia with 1,600 employees, angrily.
“Of course we condemn this war,” emphasizes Stahl, who comments in detail on this for the first time in the Handelsblatt. “From our ethical point of view, however, the whereabouts of a German food company in Russia has no influence on the course of the war or Putin’s decisions.” It was a misjudgment that the abandonment of the plants would antagonize the Russian population against Putin. On the contrary: Putin’s narrative that the West is an enemy and a threat is being reinforced by the withdrawal of Western companies.
Western sanctions were intended to target those who caused the war, not the Russian people. “That’s why we decided to continue producing food from Russian milk for the local market. Of course we stopped advertising, especially on Russian state television, and put investments on hold to set an example,” says the Hochland boss.
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The cheese manufacturer is not the only company from the German dairy industry that is sticking to business in Russia despite criticism. Ehrmann and the German industry leader, the DMK cooperative, are also continuing to operate their plants. One evaluates “permanently the current events”, said Ehrmann recently. DMK did not comment on this.
Hochland: Market leader in the second most important sales market, Russia
According to its own statements, Hochland is the market leader for branded cheeses in Russia and also a leading supplier of cheese to the catering trade. Russia is the second most important market for the people of the Allgäu. Hochland achieves almost a quarter of its group sales there. The share of sales in Russia is slightly lower than the share of sales, the reason is the devaluation of the ruble in recent years. Hochland’s group turnover rose slightly in 2021 to the company record of around 1.7 billion euros.
The Heimenkirchers have been opening up Eastern Europe since the early 1990s. When import duties rose, Hochland opened its own plants in Poland, Romania and Russia. In 2000, the first production line in Russia was put into operation as a tenant in an Ehrmann plant in Raos near Moscow. In 2004, a separate factory for processed cheese followed. In 2011, a fresh cheese factory was added near the Ukraine, where Almette and the white cheese Fetaxa are produced. Grünländer hard and semi-hard cheese has been produced at the Belinsky plant since 2017.
The 55-year-old is the CEO of the Hochland private cheese dairy. The business graduate came to the Allgäu family company 28 years ago.
(Photo: Highland)
Hochland has invested heavily in Russia over the years – more than 150 million euros in total. The strategy paid off. Since Russia imposed an import ban on dairy products and raw materials in August 2014 in response to EU sanctions following the annexation of Crimea, Hochland has produced about 95 percent locally. Competitor Valio from Finland, on the other hand, was hit hard by the import ban and lost its market leadership.
Stahl also sees a duty to the local workforce. “We also bear moral responsibility for our 1,600 highlanders in Russia. The question is how our Russian management will fare if we shut down production unnecessarily.”
The Russian lower house is discussing a bill that would make local managers liable to prosecution if they comply with western sanctions. According to observers, there are also personal consequences if your employer withdraws from Russia.
Moscow is also discussing the expropriation of Western companies. Hochland thinks that’s unlikely, but not out of the question. DIY store operator Obi has given away its 27 Russian stores to an investor to prevent expropriation. dr Oetker recently sold its food factory to the Russian management.
“If we were to give up our business in Russia, no Western company would be an option as a buyer – if only because of the fear of reputational damage in the home markets,” says Stahl. “If in doubt, you would have to sell the works to Russian oligarchs – for an apple and an egg. Who would be served by that?”
According to Stahl, selling Russian plants to local management is not a long-term solution. “Whether the works are in Russian or German ownership has no overall influence on the course of the war.”
>> Read also: Four problems that make withdrawing from Russia so complicated for companies
The commitment to Russia is not without controversy among Hochland employees. “There are certainly many questions about business in Russia among our workforce in Germany, Poland and Romania, which we also discuss – on the intranet, in discussion groups and at a manager conference. We also feel the criticism from the public,” emphasizes Stahl.
Missing spare parts jeopardize production
“Holding on to business in Russia can damage a brand in the long term,” says reputation expert Bernhard Bauhofer from Sparring Partners. This is especially true for consumer goods companies. Persil manufacturer Henkel bowed to pressure from shareholders a week ago and withdrew completely from Russia. Small and medium-sized companies are often less able to compensate for a withdrawal from Russia than large corporations, Bauhofer points out.
Hochland has not experienced a shitstorm like Ritter Sport. According to Stahl, the discussion about engagement in Russia is overshadowed by huge cost increases in the dairy industry for energy, raw materials, logistics and packaging. All manufacturers would have to raise prices massively and quickly. These price increases would currently have a strong influence on the purchase decision.
Meanwhile, production in Russia is more difficult. “40 percent of the spare parts from one of our dairy technology suppliers are on the EU’s dual-use sanctions lists,” says Stahl. “Because spare parts are missing, we may have to stop one or the other production line in Russia.”
Hochland’s 20-year success story in Russia has come to an abrupt end since the attack on Ukraine. “We didn’t make any money in Russia in the first quarter. We don’t know how we can keep the production going – and whether we will still own Hochland Russia at the end of the year.”
It is much too early for a final decision on the Russian business. The family company thinks in terms of generations. “We hope that there will not be two economic blocs and a new iron curtain. Then I can hardly imagine a future for Hochland in Russia,” stresses Stahl.
He hopes for a post-Putin period of peace and reconciliation, in which Russia will find its way back into the international community.
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