FARMING ECONOMICS.

New Zealand Herald, Volume LXIV, Issue 19719, 19 August 1927, Page 14

FARMING ECONOMICS.

INFLATION OF LAND YALUES REAL FACTOR IN TROUBLE. REMEDY IN SLOW REDUCTION. PROFESSOR BELSHAW'S REVIEW. The theory that inflated' land values, to an infinitely greater degree than wages costs and the cost of farm necessaries, are responsible for the straitened cncumstances in which some fanners find themselves was expounded by Professor H. Belshaw, Professor of Economics at Auckland University Coilege, in an address at , the monthly luncheon of the Auckland Chamber of Commerce yesterday. Ihe president, Mr. A. G. Luiin, presided. Professor Belshaw introduced his sub- ; ject, "The Economic Position of the ( . Farming Industry in New Zealand, by . stating that one of the major evils facing society was the instability of pieces. Exhaustive investigations had competed the rather surprising conclusion that wages' and the rest of farm necessities ; had really only a very minor bearing on , the present difficulties of many farmers. The crux of the position lay almost en- < tirely in the aftermath of. purchases of high-priced land and immediately , aft er, the war. ) \ What Index Figures Reveal. c Was the real net income of ihe majority of farmers greater or less than in - ! r the years prior to the. war? It would be conceded by most that the economic position of the farmer was tolerably satisfactory in the years immediately prior to the war. Indeed, apart from temporary set-backs, agricultural and pastoral industries might be regarded as having enjoyed conditions of buoyant prosperity during the whole period of rising prices between 1895 and 1920. ] By a method of index-figures beaming , on the purchasing-power of agricultural 1 commodities in terms of goods at retail j prices, he showed the farming commun- . ity had benefited from the price relation- ( ship during the years 1914-1913, but suf- j fered during the whole of the rest of the J period ex.cept in 1923 and 1925. But practically ever since 1917 the farmer had , been at some disadvantage, as far as ; the relationship. of export prices and 1 prices of household goods was concerned. Like methods brought to bear on the - ratio of export values to wages indi- j cated the dairy farmer had benefited in this respect since 1914, with the exception of the years 1926-Z7, and the farming community as a whole had benefited except in 1922-23 and in 1926. Land Values the Real Cause. While wages had faded to fall in sympathy with export values; it had to be borne in mind that the wage-earner had - • not shared proportionately in the,gains of the years of prosperity. Last year a 10 per cent; reduction in wages would have reverted to the 1914 parity, but would have meant little to the farmer. Certainly the wages burden did not account for any depression. Comparison of export prices with those of farm , requisites since 1913 indicated the dairy farmer had suffered in 1914-15, 1918-20, and very slightly in 1925-26. Farmers in general suffered in 1920-22, but except in 1921-22 the disparity had not been an important element. "The main cause of depression in recent times, in my opinion, has been the high value of land which changed hands . during the years preceding, and up to, 1922," Professor Belshaw said. Lacking an exhaustive inquiry into land values in New Zealand as a whole, one could only take the figures collected for Canterbury, and compared; by means of inwdex numbers, by Mr. R. Rod well, "M.A. Prices and Production. After quoting them the lecturer said it. was likely 7 that many farms were changing hands now at values not appre- ' ciablv higher than those ruling in 1914 ; but.it was fallacious to argue from this that' the inflation of land was not still a factor in the present depression. The important question was, to what extent did present holders purchase land in the past at a figure higher than its present value as a productive agent ? He would be surprised indeed to find that a farmer who paid more for land than its market value in 1914 could earn a larger net income from the same production at the present time. The chances were that farmers who bought land in 1915 and in 1923-24 had paid more for it .than it was now really worth. Extensive Land Sales. (/ He estimated 'the land which changed hands dilring 1915-1924 at slightly under half the total occupied area, and he concluded the annual charges in respect of this land constituted the greatest real burden pressing on the majority of those farmers in difficulties. The remaining 50 per cent, were suffering somewhat from the lag in wages and the disparity between export and retail values, but in respect to such there were no real grounds for pessimism. « Valuations and Mortgages. If the total agricultural indebtedness were conservatively placed at £150.000,000 an annual interest charge of not less than £9,000.000 was represented, and in order to .bring it to the 1914 relationship with export prices it would have to be reduced by at least half. In short, the sum involved in bringing this item to the 1914 parity was four or five times greater than that involved in bringing wages to the pre-war basis. At the saine time the farmer frequently found it. difficult to secure the necessary short period of .intermediate credit on reasonable terms. This was partly due to a lack of confidence on the part of investors and partly to the large volume of credit locked up i,n urban and country mortgages—not far short of £280.000,000 in 1926. Another factor of importance was the divergence of investable funds into tax-free debentures or local body stock, the sum so placed aggregating about £70.000.000. "I conclude then, that at least half the- farmers ar« worsp off than in 1914, : and that the chief burden on them results from inflated land values in the past and from excessive annual charges in respect of mortgages with ;h*> fall in !■ prices," the lecturer said. "An efficient system of credit would do.much to relieve the position: but the only complete remedy was the slow liquidation of the Over-valuation and over-mortgaging of land, painful and unacceptable h s that might be.