Food as collateral isn’t a cheesy idea … or is it?

Why food and drink can make the ideal collateral

Did you know that a bank in Italy accepts wheels of Parmegiano Regiano as collateral for loans? Well, it got me thinking.

While the concept of a cheese bank sounds odd, and a bit archaic, it is actually rooted in timeless economic pillars:

Scarcity.

When we talk about parmesan cheese, we are not talking about the supermarket stuff. Real parmesan can only be produced in Emilia-Romagna from unpasteurized cow’s milk and it must be aged at least 12 months, but generally longer.

Relative stability.

Food historians say that parmesan dates back to the 13th century. It was valuable then and it remains so today. In fact, a mafia gang stole two thousand wheels of Parmigiano-Reggiano from warehouses in Italy and the 11 cheese thieves were thrown in the slammer.

Demand.

You can find a bowl of spaghetti and meatballs on any continent. As such, the demand for parmesan cheese is global. Should the loan default, the bank can easily recoup the loss.

Value.

And what do you get when you combine these factors? Value.

Often, those of us who do not work in the food or farming industry only think of the value of food or drink in terms of what it means to us as individuals while we are at the table: Will it taste good? Is this worth the cost? Will I be satisfied? Delighted? Will it be memorable?

Of course, we know that certain ingredients make a dish worth more. Think of mushroom risotto versus risotto with truffles.

When human civilization evolved from bartering to monetary systems, we lost our connection with the value of what we had to trade. But the idea of the food-based bank brings us back in touch.

The model of the parmesan bank is simple: farmers deposit their freshly made wheels in exchange for loans ranging 18–36 month — the exact time the cheese needs to age before going to market. At the time of withdrawal, the cheese can be sold, giving the farmer the cash to repay his or her loan.

But, this concept can work far beyond cheese. Consider the potential for a champagne bank. Champagne, famously, gets better with age and can only be grown in a defined region of France. It is a luxury good, and can easily be stored in a properly-configured vault. I would like to make a withdrawal now, in fact.

Food has value. Both to those who eat it, and those who produce it. Some people even value it greatly — I consider myself one of them. Hence, I was pleased to read about an institution that treats parmesan like the precious commodity it is.

Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.