Dominic is correct in noting that, even in the medieval period, it is conceivable that gold could be "turned into" food. Sure, the marginal returns will decline, but the idea that the feudal economy ever had marginal returns below zero seems rather untenable.
However, in terms of game mechanics, it makes total sense to restrict the effect on food production. Otherwise, it would be conceivable to support a city (like Paisly) almost exclusively from, say, a townsland and a small rural (Chesland and Maeotis), and that is evidently not how the game is intended to work.
