Interestingly, Parmesan cheese has been used for financial operations since the Middle Ages. 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. 

It is all the more important today, since Italy is facing its fourth recession in seven years, with the economy likely to shrink 5.3 percent this year, the worst contraction on record. Fortunately Italy has not had the Upheaval as in the US , since the Mortgage Market is more sensible, as is the use of Credit Cards. 

Bloomberg News; By Alessandra Migliaccio and Flavia Rotondi; August 12, 2009 

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 cheesemakers 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 132 million euros ($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 300 euros, 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 apprehended 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. 

550 Liters of Milk

"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. 

"It's easier to steal or replace them," he 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 1.54 billion euros 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. As a master tester taps each cheese with a small metal hammer, Bizzarri listens for hollow sounds that would indicate the wheel is a "dud" and result in its disposal. 

Like a Check

Most wheels pass the test, said Bizzarri, who sold financial products and managed bank branches before taking over the cheese unit. After a year they are branded with the parmigiano-reggiano logo and serial numbers and tags. 

"It's just like a bank check," Bizzarri explained. "If we catch any thieves in time we can easily trace the cheese" 

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 7.27 euros a kilogram in July, down from 7.49 euros in January, according to data from the Parmesan Producers Association in Reggio Emilia. Prices peaked at 9.36 euros a kilo in January 2004. 

"Fortunately, prices have now stabilized and while the global economic crisis remains a concern, consumption, including sales abroad, is holding up," Bertozzi said. 

Economic Boost 

Credito Emiliano has almost 6,000 employees and 590 branches, mostly in central and northern Italy. First-quarter net income fell 75 percent to 11.8 million euros on lower commissions and trading losses of 33 million euros. 

While cheese accounts for less than 1 percent of the bank's revenue, the unit is important because it helps keep parmesan makers in business, bolstering the local economy, Bizzarri said. 

Italy is facing its fourth recession in seven years, with the economy likely to shrink 5.3 percent this year, the worst contraction on record, according to research institute Isae. 

"The government has been asking banks to help the economy and keep lending, but credit quality is a problem these days," said Edoardo Liuni, an analyst at IlNuovoMercato.it in Rome. "With this system, defaults are less likely." 

While other local banks have at times had similar programs, and larger institutions sometimes accept high-value goods such as art as collateral, Credito Emiliano is the main bank offering loans to Italy's 429 parmesan producers, Bizzarri said. 

"It's not our main source of funds, but it helps producers and shows there are more ways than one to keep doing business," he said. "Let's say it's a way to put our heritage to good use." 

http://www.bloomberg.com/apps/news?pid=email_en&sid=aT_bQ9tRAhrw

The ANNOTICO Reports Can be Viewed (With Archives) on:
[Formerly Italy at St Louis]