RURAL CREDIT.

Star (Christchurch), Issue 16941, 16 January 1923, Page 9

RURAL CREDIT.

POSITION IN NEW ZEALAND. “ 'A Survey of Rural Credit in. Mew Zeai'aud, ’ was the subject of a paper by Professor -i, B. Condliffe, Professor • ! Economics, Canterbury College. and Alt H. JBelshaw, Tutorial Class Leci urcr, Canterbury College, at the Science Congress at "Wellington yester--day. A orief description of the various types «f New Zealand farm! ng is sufficient to show the variety f businesses comprehended under the general description of rural' industries. Tho differences of industrial structure which are disclosed indicate that the demand tor credit in the mral industries is not simple hut composite and built up from many demand? tor different purposes. The prob- }* ms of rural credit are perhaps the most- important economic problems cvmHoming New Zealand at the present i line. Over 60 per cent of ill© Dominion’s purchasing power in the markets if the world is supplied by the pastoral industries alone. The importance i.t the primary industries can hardly }»: over-estimated; and farming, us much as any other type of business, depends upon t-lie amount and kind of , credit available. The capital which is needed for the efficient working of rural industries is mostly borrowed. There are many kinds of capital required on a farm. and therefore many purposes for which credit must be available to the farmer. Jt j ■. > possible, however, to draw n broad | and important distinction between tho i

ii.ore permanent fixed capital required j u r tho purchase of land, implements, and that stock which becomes part bf 1 lie working machinery of the farm; and the less rigid, more temporary advances required, for the provision of circulating capital available for speculative dealing in stock, tho payment of wages, current expenses, etc. The first type of credit corresponds to the diare capital or debentures used in industrial enterprises, the latter to the bank overdraft. In order to meet the demeands for rural credit of various kinds a complicated organisation has been built up. The bulk of the fixed capital required for the purchase of land, implements, stock, etc., Is seoured by mortgages and fixed for a definite-, fairly lengthy term of years. A lair proportion of this cl edit is prodded by, prii ate individuals and business firms such •r.s land agents, a good deni also by tho commercial agency and quasi-co-operative companies. One of the most undesirable features of the whole problem is the fact that the substantial commissions to be mode on sales and exchanges of properties often induce 'such eoncerno to advanoe credit on forming enterprises which, even in the 1 oom perittd, are financially -risky and which, as soon. ae> depression comes, become bankrupt* The activity of the State Advances to Settlers Department has done something to make the provision of this fixed capital easier for the farmer; but -the limitations of the advances may be •realised when it is pointed out that the average advance is £llß, which must sank as a first mortgage upon adequate security* The temporary forms of credit, as veil as the more risky portions of the fixed capital required are provided by tiie various commercial' agencies. The <liief of these are the agency companies and tho quasi-co-operative farmers’ associations. These firms advanoe «iedit. to farmers in tho shape of over- « rafts secured upon land, crops, etc, ?mt depending in the main uj>on the personal security of the farmer. Here egaiu the connection of the financial with the commercial side of the business is a. source of danger. Most of i he credit which is re-loaned to the farmers must l»e obtained from the hanks at current rotes of interest. The juofits made by the firms from the extra rate charged to the farmers -floes little more thou cover administrative charges and risks. The real profits are obtained in the main from commissions on the sal© of land, stock, wool, crops, etc : profits on tho merchandise, househeld requisites, implements, seeds, etc, ■which the farmer is able to acquire vmiy by writing a cheque on his overdraft. The competition between agency companies has resulted in such free advances of credit for all purposes that many farmers have been placed on the land who are entirely dependent financially upon the companies. The control exercised, by the financial concerns ovfir the working farmer amounts at times almost to peonage. Although, speaking broadly, the joint rtock banks prefer not to finance farmers directly, in tho long run whatever credit is advanced to the farming iunustries Comes from them and is under their control'. It is advanced to tho farmer through agency companies, loan and finance companies, etc, who take tho risks and make their profits out •of the connection which they arc able It is within the C power banks to raise the rat of interest on overdrafts or otherwise restrict the issue of credit, st as to limit the advances which these intermediaries are able to make to the 1 armors. Similarly, if and when these , <Y»ncorns nr© in difficulties owing to iheir advances becoming “ frozen” in ,i Tim© of depression, the difficulties quickly recoil upon the banks. The . banking crisis of 1893 was caused in The present economic position of New Zealand, despite the welcome revival, iir.s in it elements which should cause c msiderabio anxiety. As a result of ■ the post-war boom following upon the prosperous war period, which in turn followed twenty years of almost uninterrupted prosperity, the various credit agencies (and the Government) have been so free in their financing of farm- < i > that the chief industries of the Dominion are in many eases seriously < ver-oapitai-ised. The heavy and growing burden of the Public Debt is paralleled by the great amount of : ■ ages • v Mg. to wlnch must he the subs; a ill ial advances which tl an >- mort- • . \ prospect i- uncertain, but tit 1 *• mini on or Europe is sufficient to i ’• r • w that there can be no imar i ■ pi ri v.: r , • m: <i upo.M a constantly ris- ; •: •.•>■!. The ureseut iiwlica- .. - ■ fur a cvncr.dly Killing

uxally low lex-el of prices in the panic stage of the crisis cannot long be main- i tained. In view-of these fact-s, and especially sine© it is clear that the rural industries are suffering not so much from a shortage of credit at the moment as from unsound finance resulting from too much credit in the immediate past, no economist <-an view with equanimity schemes which offer even a danger of further inflation of credit. The solution of the Dominion’s economic difficulties will not be found in a further era of cheap credit based either on borrowing or internol inflation. The scheme for Rural Credit Associations is admirable within limits : but it can do little or nothing to assist the present 'difficulties. Much the same may r© said of the proposal for a State Bank. If such schemes are used to provide more liberal credit facilities in an endeavour to evade recognition of i the pl'ain facts of the present situation, 1 the result will bo disastrous. There is much to be gained from the building up of true co-operative associations to act as a go-between for the farmers and the banks; bub such associations if kept to their legitimate sphere would do nothing to solve the present problem of over-capitalisation. It is to be remembered that the longest and most severe financial depression experienced by the Dominion was the period of falling prices from 1873-189-5. The difficulties of that period J were very largely due to unwise bor- j lowing and a consequent land boom in j the early seventies, resulting in over- j capitalisation which finally recoiled upon the banks. •