Italian industry

All shook up

Aug 19th 2012, 14:47 by D.L. | MILAN http://www.economist.com/node/21560710

IVANO CHEZZI still remembers the scene of destruction as if itwere yesterday. When he arrived at Albalat, the dairy in Albareto of which heis chairman, after the earthquakes in Italy’s Emilia Romagna region on May20th, he saw thousands of wheels of Parmesan cheese shattered beneath the highshelves where they had been maturing.

Valerio Gatti had an even more vivid experience. When the earthshook again nine days later as he oversaw cheesemaking at Latteria Tullia inRolo, he watched helplessly as stockrooms burst open and Parmesan wheels werecatapulted out.

Now, three months later, both Mr Chezzi and Mr Gatti are stillworking to get their businesses back on track. And they are not alone: althoughthe region is known for its Parmesan cheese and other gourmet food, it is alsoa centre of manufacturing with many small and medium sized firms, which makethings from textiles to ceramic tiles and medical equipment to otherengineering products.

In fact, the tremors, which are not infrequent in Italy, were thefirst to have hit one of the country’s major manufacturing centres. Hence thehuge cost to the region, which used to generate nearly 2% of Italy’s GDP:more than 5 billion euro. Some 5,000 factories were seriously damaged and16,000 workers laid off.

Cima,based in Mirandola, makes cash-handling machines and security entrances to keeprobbers out. Even before the earthquakes sales had fallen from30m euro before the economic crisis to 22m euro last year. And Nicoletta Razzaboni, thefirm’s managing director, had been hoping for an upturn. Instead, the tremorshave brought fresh challenges.

When Ms Razzaboni saw the damage to her firm’s raw materials warehouse(pictured), she thought repairs would be possible. But the second quake dashedthat idea. The 2,000 square meter building had to be demolished and a huge tenterected nearby. Worse, many firms that work for Cima, which focuses on R&D,quality control and testing, have also been hit. “Three have temporaryproduction units in our tent,” says Ms Razzaboni.

Similar stories can be heard all over the region. Recovering finishedproducts and raw materials from the debris, rebuilding or repairing buildingsand machinery, keeping customers loyal as deliveries slip: these are only someof the problems firms had to tackle while facing large unexpected costs andlost sales.

Cima must find the money for the tent and to rebuild its warehouse,though much of the cost will eventually be met by insurers. “We’re fortunate inbeing liquid and don’t need bank finance,” says Ms Razzaboni. Many other firmaren’t so lucky: they had difficulty getting loans even before the quakes andfew are insured.

Albalat expects insurance to cover only one half of its costs. It hadtransferred wheels rescued after the first quake to storage in a town hit bythe second and lost those too—which wasn’t covered by the insurance. With nosales Albalat also has cashflow problems. Milk from the firm’s member farmsmust be collected and processed, so production continues. But the cheese needsat least a year to mature before it can be sold.

Mr Chezzi puts losses at around 14m euro of the 36m euro stock it once had, against which Albalat hadborrowed about 25m euro. “The banks are keeping very quiet,” he says“and haven’t asked for their money back—yet.” Confindustria Modena, the localemployers’ association, expects an economic earthquake in September as banksstart asking and many damaged firms are likely throw in the towel.

Fortunately, some firms are part ofinternational groups. Titan Italia, which makes agricultural wheel rims anddiscs, had to shut down its plant at Finale Emilia. At B.Braun Avitum, aGerman-owned firm making medical devices in Mirandola, production ceased on May29th, though it expects to have all except one part ofthe factory running again on September 1st. Yetmultinationals can move production elsewhere, which worries many in the region.Unsurprisingly, localauthorities are keen to get factories up and running again as quickly aspossible. They have allowed exemptions to regulations that do not involve safety.But for local businessmen the bureaucrats do not move fast enough. Some evenmake unfavourable comparisons with the slowness and inadequacy of Rome’s response to theemergency.

“I would not wish an earthquake on anybody,” says Cima’s Ms Razzaboni, “but MarioMonti, the prime minister, and Elsa Fornero, the labour minister, might haveresponded better had they experienced one.”