A collateral crisis that really grates
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Illustration: Sarah Grillo/Axios. Stock: Getty Images
Extreme heat is testing Italy's cheese banks, the vaults that hold Parmigiano Reggiano while it ages for years.
Why it matters: It's an 800-year-old industry that employs thousands and generates about $5 billion a year — and it actually has something in common with one of the biggest questions troubling the trillion-dollar AI buildout.
Zoom in: The particulars of dairy finance are perhaps as complex as the cheese itself.
- Producers don't want to wait years to turn a profit on sales while the cheese ages — anywhere from one to more than three years. They need regularly recurring income. So, farmers hand over wheels of cheese as collateral for loans.
Friction point: It costs more to store the cheese in the hot summer — temperatures are at record highs, demand for electricity is surging and energy prices are also rising because of the Iran war.
- Plus, cows produce less milk in the heat. When temperatures are above 104 degrees Fahrenheit, "cows spend more time lying down," per Reuters.
Yes, but: There is no evidence that the cheese's value is currently in danger. Credem, a large public commercial bank in Italy, has a subsidiary that runs two big warehouses that store the wheels and handle 2.3 million wheels of cheese a year, its director told CNN.
- The bank has never lost money on these loans, he said.
- "At present, Parmigiano Reggiano production is not at risk," per a statement to Axios from the Parmigiano Reggiano Consortium, the producer-owned group that governs and certifies the cheese.
Between the lines: The key to the arrangement working is the value of the collateral: the cheese. It gets more valuable with age.
- The value of collateral is actually one of the biggest questions in finance right now. Increasingly, GPUs — the chips that are the backbone of AI processing — are being used as collateral for enormous amounts of debt.
- But it's not clear that GPUs hold their value because when technology improves, the older versions typically are worth less.
- In more technical parlance, "Rapid technological advancements may lead to accelerated depreciation, resulting in under-collateralization," as this note from law firm Bird & Bird explains.
The bottom line: Cheese gets better with age, but chips might get stale.
