In Italy, parmesan is as good as money

By Alessandra Migliaccio and Flavia Rotondi
Bloomberg News / August 16, 2009

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The vaults of Credito Emiliano SpA hold the pungent gold prized by gourmands around the world - 17,000 tons of parmesan cheese.

The regional bank accepts parmesan as collateral for loans, helping it to keep financing cheese makers in northern Italy amid the worst recession since World War II. Emilia Romagna-based Credito Emiliano’s two climate-controlled warehouses hold about 440,000 wheels worth $187 million.

“This mechanism is our life blood,’’ said Giuseppe Montanari, 65, a cheese producer and dealer who uses the loans to buy milk. “It’s a great way to finance our expenses at convenient rates, and the bank doesn’t risk much because they can always sell the cheese.’’

So precious is the cheese that each 80-pound wheel, worth about $426, is branded with a serial number so it can be traced if it is stolen. Thieves tunneled into one warehouse in February and made off with 570 pieces before they were caught by police.

“Thank heavens we caught the robbers before they grated it,’’ said William Bizzarri, 58, who manages the cheese vaults.

Nestled in the valleys of Italy’s Emilia Romagna region, southeast of Milan, Credito Emiliano has been using parmesan as collateral since 1953, entrusting management of the cheese to a unit called Magazzini Generali delle Tagliate.

The bank offers loans for as long as 24 months, equal to the time it takes the parmesan to age, at the euro interbank offered rate, plus 0.75 percent to 2 percent, Bizzarri said. The bank gives producers as much as 80 percent of the value of the product, based on current market prices.

“Parmesan cheese has been used for financial operations since the Middle Ages,’’ said Leo Bertozzi, head of Italy’s Parmigiano-Reggiano Producers’ Association. “This is both due to its value, since each compact wheel holds the equivalent of 550 liters of milk, and the fact that aging takes years, making financing necessary until the product can be sold.’’

The bank considered taking prosciutto ham, another of the region’s specialties, and olive oil as collateral, but such products are harder to store and brand, Bizzarri said.

Emilia Romagna is the only area in the world legally allowed to use the “parmigiano-reggiano’’ name for the hard, dry skim milk cheese that was first made in the region around 1200. Sales of parmesan equaled $2.19 billion in 2008, 25 percent from exports, according to the producer’s association.

Once the bank accepts cheese as collateral it oversees the aging process, which includes turning the wheels several times a week and checking periodically for cheeses that have gone soft.

When loans aren’t repaid, Credito Emiliano sells the cheese collateral to recover its investment, returning any difference to the producer. This makes the operation low risk for the bank, Bizzarri said, adding that very few producers default.

Producer prices for parmesan averaged $10.33 a kilogram in July, down from $10.65 in January, according to data from the Parmesan Producers Association in Reggio Emilia. Prices peaked at $13.30 a kilo in January 2004.