FARMING LOSSES.

Manawatu Standard, Volume LIII, Issue 7, 6 December 1932, Page 2

FARMING LOSSES.

(To the Editor.)

Sir, —Vendors of land may co-oporate with purchasers in sharing the risk of loss and gain caused only by the fall and rise of produce prices from a named price convenient to the parties. The present price of butter may chiefly determine the value of a farm. It* is agreed to share loss and gain caused by fluctuation in future prices. A reduction of interest or rent for a falling market, and an addition for a rising market, automatically adjusts the previous valuation of the land. The knot is loosened and primary producers have confidence. A rise in produce prices indicates cheap land, and they share the gain; a fall shows dear land, and reduction of interest or of rent brings relief. Any feeling of uncertainty and of insecurity would be proportional to the degree of co-operation. The parties agree as to the fraction share —a fifth, a fourth, a third or a half; and also at what point sharing shall begin and cease: but details would vary. Consider this farm of 100 acres at £4O, milking 80 cows averaging 3001bs each of butterfat at Is per lb, interest at 6i and £BOO paid down. Normal interest will be £2OB. A penny drop in price means a loss of £IOO for the season, and if a fifth share be taken, interest would be reduced by £2O. Prices changing from 9d to 15d will give this series of payments to the vendor—£l4B, £l6B, £IBB. £2v)o. £228, £228, £248, £268; and to the producer £752, £832, £912, £992, £1072, £1152 , £1232. For each penny the change in the interest is f of one per cent. Other sharing may be more suitable, and limits above and below the named price would probably I be necessary the fractional share of the risk is large. A total loss due to low prices is thus avoided, and this is more significant than the possibility of receiving the whole gain. In the example an alteration of £BO instead of £IOO follows a penny change in price and obviously affords relief in a falling market. When high prices .prevail the vendor, or mortgagee, in his turn, receives £2O extra for each penny rise. Steady returns are received by the primary producer. At the end of a period of years the consideration given for assistance may equal it. And, if not, the difference is only, the adjustment of a previous error in the valuation of the land. If payments for the use of land are arranged in a sliding scale according to price movements of butter, cheese, meat and wool, an automatic adjustment is effected, and it will prove of direct benefit to the parties and of indirect advantage to the community. What producers think of the application of this principle in some form or other is of great significance. It., is a good way of surmounting the obstacle of future prices, and of relating valuation of rural land to productivity. Economically, a farm is worth only what it will produce. As between the parties there is found a fair way of valuing land.

The vendor's co-operation removes anxiety; and lie may readily give a promise for' a promise, especially when he is eager to sell. Very often the circumstances of either party would favour such a contract. And it is voluntary. The presence of such a term in a contract would obviate the necessity for relief in most cases; and is far preferable to a later compulsory alteration of the terms of an agreement; for the producer would be able to meet his obligations, so far as price fluctuations prove an obstacle. All else in the business of farming offers a choice for which a producer is responsible. Relief to mortgagors who are farmers can be given in such a way that there may be no loss after a period of years; provided the consideration for the assistance is the promise of a share in the gain when high prices prevail. Butter prices being down fourpence below a named price, possibly that ruling when the land was sold, the vendor may agree to reduce interest or rent by an amount which the fractional share indicates. Any payment reduced for rendering aid is repaid when prices improve. And if not, it is clearly shown that the purchase price was too high at the time of the sale; and the amount of relief given by the vendor adjusts the valuation. With such an agreement a mortgagee might reduce interest by more than '2O per cent., as he kno«s that lie will be repaid when prices rise. And it is even possible to arrange reiief payments by a slidingscale, so that upon a very high price being received a year or two later, the mortgagee will be the gainer. The principle is not a mere postponement of payments due, nor an absolute forfeiture of money due, but it is relative to price fluctuations. If prices rise then a repayment is made. It would appear both fair and expedient for the primary producers to promote the wide extension of a practice now making its way into agreements, but, probably, too slowly to be of widespread benefit. Fewer cases of hardship would have been observed in recent years in rural districts had some such sclreme been in operation. What Would this have meant in the villages and towns, for greater stability among primary producers promotes progress there? And what of the present and future? There are many with sufficient capital to take up farming, but they hesitate. Could they agree with vendors to share risks in such a way as has been indicated, or in any way that links the idea of reductions in interest in lean years with the reciprocal return of some share of the gain in good times, the feeling of insecurity would disappear, and transfers beneficial to each party would be made. And farms would not so. readily revert to their previous occupiers. Can we estimate the ultimate effect upon our economic condition? There would be no such fear of • falling prices. Whichever way the markets moved, the adjustments previously made would join valuation of land definitely with productivity. It is a practical and practicable proposal of a constructive nature, and can be of immediate benefit from the minute in which the parties apply it, either for the disposal of land, or as a mode of relief; because, apart from its compensatory effect in regulating payments for the use of land to prices received for produce, the principle applied in any form gives the requisite confidence.—l am, etc., H.R.13. December 3, 1932.