FARMING FINANCE

Taranaki Daily News, 28 November 1934, Page 7

FARMING FINANCE

PRACTICE IN BOOM TIMES EFFECT ON POSITION TO-DAY. COMMENTS BY CORRESPONDENT. (To the Editor). Sir,—Since the appearance of my letter in your paper- several correspondents, all of them presumably farmers, have attacked me and my statements in no uncertain terms. But an analysis of their letters will prove that they have been merely begging the question, and have avoided the issue raised. To carry the matter further may I quote from the report of the Dairy Commission, par. 134 p. 60:—“The frequent transfer of properties from 1918 onwards was accompanied by an inflation of land values and consequently of the mortgage load. Ths amount of cash paid by purchasers was in many cases small. In many cases, too, properties were exchanged without a cash deposit. Frequently, the object was to resell at a higher' price rather than to farm the property. These speculative transactions were generally accompanied by heavy stock and chattels mortgages. Hence, the ultimate holder of the property often found it difficult or impossible to reduce his mortgages from income, particularly when prices receded. As an indication of the frequency of transfers in the North Island subsequent to the war, the Land District of Taranaki may be taken as reasonably typical. The total number of farm holdings in the Land District of Taranaki is 6,326, with an aggregate area of 1,211,808 acres of improved land. From 1918 to 1923 inclusive 6,428 transfers of rural properties were registered—a number equal to the present holdings in the district and embracing a total area of over 1,000,000 acres.’ From 1918 to the. present date, 12,386 transfers have been registered, for the district, embracing approximately 2,000,000 acres. . It. is safe to assume that many of the present holdings have not changed hands within the past sixteen years, and therefore a large number must have been transferred more than once during that time. This movement has led to a state of chronic instability, which can best be expressed in the words of a witness well qualified to give a sound opinion:— ® ‘ln Taranaki and probably throughout New Zealand a common and perhaps almost universal practice has been to- acquire land by the payment of a small cash deposit ranging from, say, 10 to 30 per cent., the remainder of • the purchase-money being partly raised and ‘left’ on mortgage. Most of these transactions have been from the beginning unsound and a potential source of insolvency. Even with the continuation of what up to 1929 were regarded as reasonably stable conditions, the owner (so-called) was unable to meet his capital obligations when due. In a large number of cases he could not rely upon any accumulation of savings or profits, and he could not refinance because no lender -*yould advance 90 pfer cent, or even 70 per cent, of the value of the security. The limit of advance which could reasonably be relied upon was two-thirds of a mortgagee’s valuation; and, assuming stable conditions, this 66 2-3 per cent, is probably no more than 50 .per cent, of the owner’s valuation or purchase price. This ‘potential insolvency,’ as I call it, remained concealed for many years, simply because the rising wave of prices allowed an owner to sell out, or to secure a higher valuation, or to ob- ■ tain a renewal of his mortgages. A subsidence of the wave has now revealed the true position, and the point is that the depression has not primarily caused the present insolvency of so many, but is rather the searchlight which has revealed it. This fact appears to have escaped general notice or has been conveniently overlooked by those interested from the mortgagor point of view.’” The crux of the matter is contained in the last sentence but One. To quote one of the writers in a leading New Zealand journal: “During the good years warnings were treated with impatient contempt and now, as always, the prudent and the foolish [farmers] are equally involved. While it is true that you cannot eat your cake and have it, it is often possible to eat your cake and then get a slice of somebody else’s cake as well, and that is the motive behind farmer-inspired demands for fresh forms of land credit to-day.

“The Dairy Commission was quite wise to these facts, and describes them in masterly style. They quote with approval the diagnosis of one witness who refers to the system of purchasing land on ridiculously small instalments down, the balance being furnished by a. mortgage as big as could be got, and then a ‘mortgage back’ to the previous vendor speculator. “To call such people owners of the land in any real sense is ridiculous, and when we are told of farmers ‘walking off. their land’ it is well to remember that many of them, and those the ones in the most unsound position, never had much interest in the land to lose. The system worked, though inherently unsound, as long as further fictitious sales of a like character could be made at a rise, but it was. bound to fall at the first breath of receding values.”—l am, etc« ACERBUS. New Plymouth, Nov. 27.