FARMERS’ FINANCE

Hawera Star, Volume XLVII, 24 March 1928, Page 6

FARMERS’ FINANCE

SHORT TERM LOANS.

EXPLAINED BY MINISTER.

ADDRESS AT OTAKEHO

About one hundred residents of the Otakeho and surrounding districts assembled in the Otakeho hall last evening, when, in response to the invitation of the Otakeho Farmers’ Association, the Hon. O. J. Hawken, Minister of Agriculture, rendered an address concerning phases of the Rural Intermediate Credits scheme and replied to a wide range of questions on the subject. AH. E. T. Burke, president of the Otakeho Farmers’ Association, occupied tlie chair, and among those in attendance were Messrs C. Freyberg, of Hawera, district intermediate credit supervisor, W. D. Armit (New Plymouth), E. Long (Manaia), and S. Blake (Hawera), members of the provincial district board, and Mr. E. K. Cameron (Hawera), secretary of the South Taranaki Association. Apologies for absence were received from Messrs D. L. McKay (New Plymouth), chairman of the district Board, and H. E. Abraham (Stratford), one of its members.

Welcome greetings to Air. Hawken as the Alinister of Agriculture and as the district’s representative in Parliament, and to the visitors officially connected with the rural credit scheme, were voiced by the chairman of the meeting, who expressed the opinion that the Alinister’s address would hold particular interest to the locality, as the farmers of the Otakeho district had been among those who agitated for the establishment of an agricultural banking scheme. “I am not going to say that the Rural Intermediate Credit Act embodies all that has been asked for,” continued Air. Burke, ‘‘but it is a matter for congratulation * that the Government has shown its realisation that improved conditions of finance are badly needed to keep the farmers going."

DIFFICULTIES CONSIDERED. “The Intermediate Credit Act has caused a great deal of interest, particularly among farmers who are hard up like myself,” remarked the Minister with a smile in introducing his subject. The Act, he explained, was one of the results of consideration given by the Government to the difficulties confronting farmers throughout the Dominion in arranging finance. The origin of the difficulties which culminated in the crash in farming finance dated a long way hack. For many years land rose gradually in value, and farmers buying at high rates, particularly in Taranaki, had been compelled to make payments through instalments on milk cheques. The system of buying on heavy mortgage, without proper provision in many instances for ultimately meeting the obligations involved, had been a fruitful source of trouble, and, when values, which had risen to a very high level, began to decline, many mortgagors who sought renewal found that the necessary value was not there.

Realising that the finances of the farmer were not in a good state, the Government sent a commission to inquire into rural credit systems operating in other countries, and as a result the Rural Advances Act of 1926, dealing with long term mortgages, had teen put into force the session before last. That Act had been in operation for about Twelve months and oyer £1,000,000 had been loaned through it. Last sessioTi the Government put through the Rural Intermediate Credit Act to provide for assistance in general farming operations through short-dated loans, the Government putting £400,000 free of interest behind the soheriie for ten years.

SOUTH TARANAKI FIR,ST. “The Government thoroughly appreciates the fact that farmers have to obtain money for stock and generdl purposes, and the Act certainly has many advantages over the old systems under which finance has been secured; but the Act must be administered with care,” continued the (Minister. "The administration is vested in the Intermediate Credits Board appointed by the Government, and under the provisions of the Act loans of up to £IOOO may he obtained for periods of from six months to five years. Loans may be granted for improvement of land, erection of buildings, purchase of stock and plant, payment of liabilities of the applicant, or any other purpose in relation to farming operations that may be approved by the hoard.” District boards working under the central board were being established, such as that already formed in Taranaki. Operating with the district boards would he co-operative credit associations in the particular districts, and the first such association to be registered, the speaker understood, was the South Taranaki association. The number started so far was five.

The object of the associations was to obtain funds from the board and rc-lend the money to its members upon securities to be approved by the board. An association could be formed by a group of not less than 20 farmers, each member being required to take up shares on tlio limited liability principle to the extent of* ten per cent, of the amount of the loan to bo raised by him, and bo pay in cash five per cent, of the value of the shares before the loan was paid over. Thus if a loan of £‘2oo was wanted the borrower would have to take up shares to tlio nominal value of £2O, but would actually pay only £1 before getting the loan

“The reason why each member of the association is called on to take up shares is to guarantee himself and the other members,” said Mr. Hawken, “and in the event of loss or deficiency in security the full value of the shares could be called up.” The loan would be secured to the association by a mortgage on land, stock, or chattels, or on approved personal security, and money would ho lent to the extent of eighty per cent, of the security. When a loan was advanced, the borrower would arrange ,with the board as to when repayments would be made. It was expected that the rate of interest would be 6£ per cent. This did not include sinking fund, and was much, cheaper than could he obtained otherwise, the bank rate at present being 7J per cent.

When a member’s loan had been repaid to his association he had a right to surrender his shares and receive their value, conditionally that his retirement would not cause the membership to fall below twenty. If he so wished he could retain the shares and so help the association.

INDIVID CAD GUARANTEES

“There is also the individual method of obtaining grants apart from the associations. This, is tha one to which Mr Poison objects,” continued the Minister. “The provision was framed to meet the case of farmers who have not th@ opportunity of joining an association, and under it a; man, by finding a guarantor for 20 per cent, of the amount wanted and also giving the required security, may obtain a loan without the intervention of an association.”

Ms the security against loans accumulated bonds would be offered to the public in the' same way as was done with the long term credits in denominations of £SO or £IOO, or whatever amount tne lender was prepared to give. Loans were made against security; behind this 1 was the guarantor, autr-be-hind that was the £400,000 being placed by the Government to the credit of the associations. How much mony would b? required it was very difficult to say. The auctioneers right through New Zealand had practically financed flip farmers wanting stock, and in this respect the Dominion was unique. The extent to which that system would' be continued was problematical, hut no doubt a, considerable volume of business would still be carried on in that way. The intermediate scheme would, however, prove much more economical to the farmer; the auctioneers usually charging 8 per cent., while 15 per cent- had been known to he charged for renewals. The new scheme would’ want the support of investors in r-espect of bonds as well as borrowers of loans, and in the case of the former he thought the lenders could he assured tlic security would be good. OPPORTUNITY TlO' FACTORIES.

Dairy companies would be in a very good position to make use of the Act to help suppliers, as, with an agreement respecting milk supply, the companies could guarantee the single borrower, white tliey cou'ld aLso holp in tho establishment of associations. “I am convinced,” said the Minister, “that when the system gets going the farmer will find it a most useful mo-bod of obtaining money on the best possible terms. I appreciate the very (rroat difficulties confronting the man on the land, and how ruinous it is •f he cannot secure money wanted at the proper time.” Following his address, the Minister implied to a series of questions. Answering Mr C. A. Burke, he said proposed l interest on loans was at present per cent, though the rate might vary from time to time. “'Only 5 per rnnt. of shares liad'to be pal'd originally, said the iMinister in replv to Mr J. D. Bashford. The Act provided that up to 7 per cent interest could loe :r>aid otl sliaxos, and. at* wa-s probaVe that a guarantor was entitled to interest. The guarantor of an individual borrower was responsible for the final 20 ner cent.

CO-OPERATIVE PRINCIPLE

Replying to Mr N. C. Innes, the Minister said that in the event, ef the failure of members of an association, only the unpaid amount of shares could be asked of others. The strong feature of the association scheme, however, was that it was to the advantage of each member t-o see that his neighbour did not play ■ r £ucxs and drakes” with money advanced .and consequently the cost of supervision was reduced to a minimum. “Is one association responsible for losses in others'?” asked another inquirer. “No,” replied the Minister, “the associations are quite separate. Tt is preferable that, a good membership be maintained, as losses shared by a large number would not press so heavily on the individual.” “No, they are the great unpaid. They got expenses only,” s'aid the Minister when Mr T. Eaves asked if the Central Board members received remunerations. In the establishment of district boards, the central board appointed two members only, the other three consisting of the District Public Trustee, the t.’Onnnissioner of Crown Lands and a representative appointed by the auctioneers ’ association.

After giving replies to further questions the Minister outlined briefly the principles of the long term loans scheme. He explained that this was administered by the State Advances I icpartnnenit and was quite ‘distinct from the intermediate credit scheme. The maximum amount of a loan under the long term was £5,500 and repayment was extended over 30A years. The rate of interest was a-J per cent, and to this was added one per cent, sinking fund. The amount which could be advanced Was 66 2-3 per cent, of security. - In older countries there was said ho be practically no less under the long credit method of advance, the liability being spread over a- big group.

SMALL, INVESTORS’ CHANCE. “It will probably be some time before the people of New Zealand realise how goad they arc,, ’ ’ said the Minister in referring to the rural -credits bonds. “It is very difficult to invest money in small sums such as £SU or £lO6 oj] good security, and these bonds are a Very attractive proposition. People desirous of. investing small sums would benefit by putting tlic money into these farm, securities. The bonds arc quite negotiable and could be sol<! readily on the .market if the money was wanted another purpose.” In .moving a vote of thanks to Mr Ifavvkcn for the information made available, the chairman characterised the long term loan as the ideal method of arranging finance. “I am sorry the Government has not given us the agricultural bank, but I am very pleased that it is taking action to help the farmers. The Government, undoubtedly realises how much it is needed,” said the chairman.

The vote of thanks Was carried by acclamation.

Thanks for the courteous attention accorded his address and the meeting’s expression of appreciation were voiced by the Minister. In reference to the subject mentioned by the chairman he remarked that it was difficult to see 3list how an agricultural bank would confer the greatest possible benefit. I‘t appeared that such an institution would have to ant largely on the lines adopted by other banks, whereas to benefit the farmer in the same manner as the intermo'diate credit scheme could do, it. would be essential that the assets were not tied up, but u ore flexible re that when re-payments were made the money could be re-lent readilv.