DAIRY INDUSTRY

Evening Post, Volume CXX, Issue 6, 6 July 1935, Page 14

DAIRY INDUSTRY

FINANCING • FARMERS,

ADVANCES TO COMPANIES

POSITION" EXPLAINED

A" comprehensive review of the Government's proposals for financing dairy farmers through dairy companies has been-drawn tip by the Minister of Agriculture (the Hon. C. E. Macmillan) for the information of those concerned, and he has also 'issued the following statement embodying the main points set out by him. The proposals come under, three headings and it has been found possible to link up the proposed improvements for which loans will be issued with the Unemployment Board's schemes for the revival of manufacturing trades. Mr. Macmillan referred to the scheme of financial assistance formulated a few-weeks ago, under which advances for this purpose, would be made to dairy factory companies and to dairy farmers at the rate of 4 per cent, per annum. "Under that scheme," said the Minister, "the -Treasury, with the assistance of the Dairy Division of the Department of Agriculture, undertook the administration of loans to be granted under the provisions Of Part 111 of The Agriculture (Emergency Powers) Act, 1934. Applications for advances were broadly classified within three categories:— (a) Applications from dairy factory companies for advances for the purpose of modernising factory equipmeat; (b) Applications from dairy factory ; companies for loans to enable the companies to make advances to dairy farmers for the purpose of improving conditions in and about farm dairies; . ' . -...-• (c) Applications from dairy farmers for loans to improve conditions in and about farm dairies. ASSISTANCE THROUGH , FACTORIES. "It was realised," continued Mr. Macmillan, "that the most expeditious and economical manner in which dairy farmers could finance the necessary improvements to their farm dairies was through the dairy factory companies to which they supplied milk and cream. Though it was open, to a dairy farmer to make direct application to the Treasury for a loan,' it was impossible to avoid incurring delay and .expense through making necessary 'inquiries, obtaining consents of mortgagees,searching titles, preparing legal documents, and in other ways. It was con-, sidered that as the directorates-of the» companies were well acquaihted^ith the circumstances of their suppliers, and were in a position to supervise their finances, the most effective method of enabling dairy farmers readily to borrow money for making the improvements necessary to maintain high-quality production was to lend through the companies, or on their guarantee. The object was not only to make cheap money available to the dairy farmers, but to make it available under conditions- that would involve the borrowers in the minimum of expense. It was contemplated that dairy factory companies, realising the advantage of having, supplies of the finest grade produce secured to them,: would agree to make themselves liable to the Treasury for the necessary advances to suppliers of whose ability to repay on easy terms they were satisfled, and would do.so either by borrowing from the Treasury arid relending to their suppliers, or by guaranteeing advances made directly to suppliers by the Treasury with the aproyal of the companies." . J Mr. Macmillan went on to say that, so. far as advances' !:to dairy factory companies for/ttie purpose of providing alterations and extensions to factory buildings and renewing., plant and equipment were concerned, no difficulties had arisen. "A question, however, has arisen," he said,?'in regardijo. loans made through companies, or lon their guarantee, to dairy farmers. A number of #ompanies have written to the Treasury and the Executive Commission of Agriculture, pointing out that a considerable amount of /work and supervision would be • necessary if . they undertook the responsibility of financing their suppliers, and that some suppliers, though in a basically sound position, would have to be given.extended time for repayment, while an some cases there might be actual losses. These companies expressed their w'il-J lingness to render all the.assistance in, their power, but thought:that they should be allowed to charge their suppliers an additional rate of interest to compensate them for the work and expense incurred in administration. "As a result of the representations made by the companies and the Executive Commission of Agriculture," continued the Minister, "further consideration has been given to the proposals for advances to dairy factory, companies under the authority conferred by. the Act, with particular reference to. the desire of the Government that \ the companies should co-operate with1; the Government with a view to securing improved conditions in and about farm dairies. It is considered vitally important from the point of view of the dairy industry as a whole that improved conditions should be secured at the source of supply with a minimum of delay and trouble, and it was for this reason that the proposal was previously, made that dairy factory companies should lend their support to the scheme by obtaining financial assistance from the 'Government by way of advances to enable them to lend to their farmer suppliers. A low rate of,interest (4 per cent.) was fixed with a view to encouraging dairy factories to take up the scheme, but, as I have already mentioned, it has been pointed ■ out that, as a certain amount of overhead would be incurred by the companies in administering advances made to farmers, it would be necessary for the companies to make a small charge to the farmer, probably by way of an increased rate of interest over and above 4 per cent. ; COST OF ADMINISTRATION. "The Government has now agreed to modify these proposals and to make advances to companies, provided that the companies will guarantee the securities given by their farmer suppliers. The rate of interest payable by the farmer will still be fixed at 4 per cent, and security will be taken in the form ,of endorsed promissory notes, and arrangements will be made to pay to dairy factory companies an amount equivalent to \ per cent, per annum on the amount of advances out-' standing at the end of each half-yearly period. This .J per cent,s it is considered, would cover administration charges incurred by dairy factory companies in making advances. Some companies may prefer to borrow from the Government on the security of a debenture over their assets, and thus make the companies directly responsible to the Government for advances obtained for the purpose of relending to suppliers. In such cases an amount equivalent to i per cent, of the total advances outstanding at the end of each half-year will be repaid to these companies as administration expenses, so that whatever system is decided upon the result will be the same." Mr. Macmillan then referred to an-

companies."

other difficulty that had arisen. While most dairy factory companies had. under the provisions of their articles of association, power to borrow and lend money, a number of 'companies had not provided for such a power. In order to save delay and expense to such companies, it had been decided to issue regulations, under Part IV of the Agriculture (Emergency Powers) Act, 1934, enabling them to borrow and lend money for the purposes contemplated by the Act without it being necessary to amend their articles of association. "There is nothing com- " pulsory about this," added the Minis- ■ ter; "the companies are merely given ; the power, and they are at liberty to . exercise it or not, as they think best." Mr. Macmillan proceeded to discuss the negotiations between the Execu- , tive Commission of Agriculture and • the Unemployment Board, relative to 1 the subsidising of work undertaken ! under the scheme. He said: "The fixe- ■ cutive Commission of Agriculture has for some time been considering ways and means of providing further facilities for .the very necessary improve--1 ment in the quality of butter and cheese. It has been found possible to link up with the Unemployment Board in its activities for the increasing of employment in the engineering and sheet metal trades, as well as in the building trade. The negotiations between the Commission and the board have resulted in the introduction of a scheme which provides for a subsidy on new dairy factories and on new milking sheds on supplying dairy farms, and on improvements to existing dairy factories and milking sheds on supplying dairy farms, and also a subsidy on certain approved equipment of New Zealand manufacture for such buildings. This scheme combines the two essential features desired and I am confident that the modernising of the plant of factories and farms will result in a very material improvement in the quality of the produce. CARE TO BE TAKEN. "Information and the necessary r forms of application for subsidy .may be obtained from, the dairy instructors of the Department of Agriculture, or the Unemployment Board's certifying: officers in all centres, and dairy factory companies and farmers are invited to apply' to .these officers. I trust that the fullest advantage will be taken of the. arrangements which have been made. I should.add that all costs andj prices will be carefully scrutinised by the officers of the Unemployment Board, in order to ensure that the full benefit of the subsidy shall be received by the dairy factory companies and the dairy farmers concerned." The Minister referred to discussions that had taken place between the Executive Commission of Agriculture and the Court'of Review of Mortgagors'; Liabilities.; He explained thatwhile the. contemplated', improvements to \farm. dairies were highly desirable, and were; indeed essential to the. production of; finest grade produce, doubts had arisen: as to whether the repayment ' 'of moneys borrowed to effect these improvements ,'would, in the event of; a; 'dairy.farmer- having to. seek the.pro-; tectiori of relief legislation, be regarded' as entitled to preferential treatment and be included in his budget under the head of "working expenses." Mr. Macmillan said that the Commission had explained to the Court the benefit that would accrue to mortgagors and mortgagees alike> from the expenditure Qf loan moneys on necessary improvements to farm dairies. The mortgagors would be able to continue to supply the dairy factories and would be able to:increase .their incomes by obtaining the premium paid for finest grade milk arid cream,' and the value of their as-, sets would, be enhanced. ' The' Court' had carefully considered the, representations of the Cbmmissiorir; and had dealt with the matter in a circular memorandum addressed by it to the chairmen of the several Mortgage Adjustment Commissions. The memorandum, contained the following paragraph:— "The importance of enabling dairy farmers to obtain assistance to replace equipment and plant in order to comply with the regulations being framed under the Dairy Industry Act with a view to 'establishing amongst dairy farmers "conditioris under which the standard output of butter can be improved is obvious and it seems desirable that advances reasonably and properly made to attain this object should be .encouraged and, allowed to figure in budgets as an outgoing repayable out of revenue during the period of a stay order. . . * It is important that this avenue of finance should not be closed to dairy farmers." The Minister said that he desired to make it clear that, while the Court recognised the necessity of equipping a farm dairy up to the minimum standard required by the regulations governing the supply of milk and cream to dairy factories, it would require a certificate' to be furnished by an officer of the Dairy Division to the Mortgage Adjustment Commission that the ;. improvements claimed for were definitely necessary, as a condition precedent to the repayment of the loan moneys being charged to "working expenses" in the farmer's budget. "The Executive Commission of Agriculture hopes," the Minister concluded, "that the benefits of the scheme that has been outlined will commend themselves to dairy factory companies and to dairy farmers. ' I think. it will be generally agreed that every endeavour has been made by' the Commission to bring forward an attractive and bene-i ficial scheme.'' •'•-.'• . !