RURAL CREDITS

Wairarapa Age, 12 August 1926, Page 5

RURAL CREDITS

ROYAL COMMISSION’S REPORT

IMPORTANT PROPOSALS

POOLING OF FARM SECURITIES.

STATE LOAN FREE OF INTEREST.

The report and recommendations of the Royal Commission on Rural 'Credits were laid on the table of the House of Representatives yesterday afternoon by the Minister of Finance (Mr. Downie Stewart). As may be seen from the summary which follows, the Commission ma kps important and far-reaching recommendations. It proposes a pooling and mobilisation of farm securities through the agency of co-operative associations and societies. The Commission advocates substantial State assistance by grant and loan in the preliminary stages of the scheme.

(By Telegraph.—Press Association.) WELLINGTON, August 11.— The members of the Royal Commission Were: Percy Harper Cox (banker), James Jacob Esson (adviser to the Treasury), and William John Polson (Dominion President of the Farmers’ Union). Pursuing its inquiries into the subject of rural credits, the Commission visited States in Europe, Canada and America. The Commission was not able to visit Egypt as originally intended, but from inquiries made it is understood that the principles' of rural credits as applied on the Continent have been adopted there and applied to meet peculiar Egyptian conditions. As a result of their investigations, the Commission have come to the following conclusions:— (1) The administration of rural credit should be vested in a separate branch of the State Advances Office, to be designated "The Farm Loan Branch,” with such further additions in regard to representation or agencies as may be found necessary to extend the functions of the said office in conformity with this proposal. (2) It is desirable to incorporate a system of intermediate credit for the use qf agriculture. A Fann Loan Board. (3) A Farm Loan Board, consisting of the State Advances Board, supplemented by three representatives of agricultural and pastoral interests, two of whom shall represent long-term borrowers and one users of the proposed intermediate credit, should be the executive body to inaugurate and control an extended system of rural credit. (4) Registered eo-operative societies, the sum of whose capital and reserves is not less than £2500, and whose membership shall not be less than thirty, may on hypothecation of their securities, if the Farm Loan Board so decides, be eligible to receive advances for the purpose of intermediate credit of not more than eighty per cent of the value of such securities. Bodies of bona fide farmers of less than twenty in number who form registered co-operative rural intermediate credit associations with a capital of not less than £5OO, may, upon pooling their securities obtain such advances, not exceeding eighty per cent, of the value of these securities, as the board may decide. (6.) The amount of advance granted and the margin of security should be decided by the board in each individual case. (7) The system and method of valuation adopted by the State Advances Office should be followed for long-term loans, but that valuation should be based on the productive value of the' land ascertained over a period of at least five years, and the amount advanced should not exceed two-thirds of the valuation. (8.) It should be the function of the Farm Loan Board to classify the securities offered and establish maxima amounts per acre in the respective classes, beyond which advances may not be made. A State Grant. (9.) For the purpose of establishing intermediate credit and extending long term rural credit, the Minister of Finance should be given power to expend a sum not exceeding £20,000 for preliminary expenses, also to make advances of public moneys to the Farm Loans Branch for terms of not less than ten nor more than twenty years upon which no interest shall be payable for the first ten years, but thereafter interest to be paid at the rate of five, per cent, per annum, provided that the aggregate amount so advanced for both purposes shall not exceed £500,000. (10.) Local advisory committees should be established in connection with long-term loans when and where the 1 arm Loan Board may deem it advisable. (11.) In the case of any divergence of views regarding the value of securities between such advisory committee and the Valuer-General, the decision of the Farm Loan Board should be final. (12.) Provision should be made for loans to be increased on the basis of the improved condition of the property, or in recognition of instalments already paid. Aiding Settlement. (13.) In order to facilitate land settlement, the Farm Loan Board should have power to grant applicants for selection, in the case of land which is Offered for closer Settlement, an additional ten per cent, based on the board's valuation of the land. (14.) A borrower from the Farm Loan Beard on ’ ng-term mortgage should submit evidence that he is twenty-one years of age i a British subject, and has been resident in New Zealand for three years, that he has had three years’ experience of farming and that he possesses average ability and capacity, is of good character, and is actually in bona fide occupation or intends to occupy land upon which the loan is to be made. Where the applicant submits

sufficient evidence that he has had three years’ experience of farming in the British Empire, the Board may reduce the term of residence to one year. (15.) The amount advanced to each borrower should not exceed £7OOO. (16.) Pr«tferente should be given to applicants for loans of £lOOO and under. Rates Of Interest. (17.) The rate of interest on bonds or stock should/ not exceed 5| per cent. (18.) The Farm Loan Board -should be given power to authorise the issue of mortgage bonds or stock for varying periods in consideration of the type of farming employed and, when consider- : ed desirable in the case of virgin lands, to suspend the amortisation payments by borrowers for a period not exceeding five years, provided that the area of the security does not exceed 200 acres, and that the motgagor continues to duly work his land and to effect improvements. (19.) The issue of land mortgage bonds should not at any time exceed the value of mortgages held as a security therefor. (20.) Interest charges to borrowers should not exceed the rate paid on mortgage, stock or bonds by more than one per cent. (21.) Stock and bond holders should have the first charge in priority to all other charges upon:— (a) All mortgages to the Board or to co-operative associations or societies. (b) The amount held by the board upon loan from the Government. (c) The capital liability of all shares in associations or societies, but not so as to prevent an association or society from dealing in the due course of its business with properties and moneys subject to such charge in accordance with the provisions of the proposed law. Borrowing Powers. (22.) The Farm Loan Board may. borrow* with the consent of the Treasury, upon the security of all or any of its assets for the purpose only of providing funds to redeem bonds or deposits at maturity if moneys in the ordinary account and in reserve are insufficient. Such securities to have priority to the floating charge previously created. (23.) All moneys so borrowed should be repaid out of the first capital money received by the issue and sale of land mortgage securities to replace those redeemed. (24.) Money borrowed under these provisions to be upon such terms and at such rates as the Farm Loan Board, with the concurrence of the Treasury, deems necessary and expedient. (25.) Legislative provision should be made for giving land mortgage stock bonds or securities the same favourable position as that accorded State securities and those of local bodies. (26.) Borrowers to be given cash instead of bonds, and the Dominion Treasury should be appointed to issue bonds and to act as fiscal agents lor the scheme. (27.) A borrower should be entitled to pay off the amount of his mortgage or any portion thereof by presenting to the Farm Loan Board on any interest period after the expiry of the first five years debentures, bonds or stock of the same series as those issued against his mortgage and his mortgage indebtedness should be relieved accordingly, and such bonds or stock duly cancelled. (28.) The Farm Loan Board should have the right at any time to buy in the open market its stock or debentures and to cancel the same and thereupon to release a proportionate amount of the mortgages securing such stock or bonds. The Standing of Securities. (29.) Securities issued at the instance of the Farm Loan Board under authority of the suggested legislation should be deemed to be securities in which public moneys may be invested. (30.) In the interests of bondholders, three custodians of mortgage securities and collateral deposited against the issue of laud mortgage bonds, stock or ’’securities, should be appointed. The Superintendent of State Advances, the Audit Office, and one to be nominated by the Minister of Finance are suggested. (31.) Provision should be made for inscribing stock of £lOO and over at the option of the investor and custody of small holdings of bonds for payment of intciest to savings bank accounts should be free of charge. (32.) In order to promote and encourage thrift, bonds should be issued in denominations of £lO and upwards. Savings Bank Investment. (33.) Savings Bank systems should be promoted for the purchase of bonds. (34.) The annual report and balance sheet of the Farm Loan Branch to be presented to both Houses of Parliament if sitting within six weeks of the end of the financial year, or if not sitting then within ten days after the commencement of the next ensuing session. (35.) Shares in co-operative associations established for the purposes of

I credit to be £1 ar.d shares in all new co-operative societies taking advantage of the proposed intermediate credit should be limited to £l. (36.) The Farm Loan Board should be given power to at any time demand and enforce the sale of intermediate credit securities. ($») In casO of societies or associations usihg the intermediate credit, the provisions of the Companies Act, 1908, should be applied where consistent. (38.) An adequate system of warehousing produce is necessary in order to simplify the process of making advances against produce. Legislation should be enacted to provide for the licensing and bonding of public warehouses storing agricultural products under renditions tending to establish the integrity of their receipts and make them generally acceptable as a security for loans. (39.) The principles embodied in the draft of the suggested legTslation sub- ■ mitted ir. an appendix should be adopted and applied. Drafts of two suggested Bills to give effect to the recommendations are attached to the report.—(P.A.)

A STATEMENT PROMISED. In the House of Representatives yesterday, Mr. G. W. Forbes asked whether legislation dealing with rural credits would be introduced. The Minister of Finance (Mr. Downie Stewart) replied that when the report of the Commission came on for discussion in a few days, he hoped to make an announcement on that question, and also in connection with the Bank of New Zealand proposals. FARM FINANCE. PRODUCTIVE VALUE OF LAND. AS BASIS OF CREDIT. (“The Age” Special—By Telegraph). WELLINGTON, August 11.—“ In those countries where credit facilities are lacking, farming is generally less efficient and settlement is retarded,” states the Royal Commission on Rural Credits. “The New Zealand producer in marketing his produce is handicapped by distance and the costly delay which must of necessity elapse before his saleable product can be disposed of. Higher transportation charges have also to be taken into account. If the New Zealand producer is to retain and improve his position on overseas markets he should enjoy at least the same financial advantages that are open to his principal competitors.” The Commission in its report surveys the credit facilities provided for primary producers in Canada, the United States, South America, France, Germany, Denmark (where the farmer may transact every class of business through co-operative associations), Holland, and Belgium. Throughout its eighty page report, the Commission has in mind the application to New Zealand conditions of the experience of other countries. It assumes the need for credit for the produers, and states the problem as one of how to apply it wisely and economically. Land Values. The first point discussed is how- to create confidence in land investments, the Commission declaring that the standardisation of land values is important, and that the basis of all satisfactory rural co-operative credit systems is the ascertained productive value of land. 1 1 The effect of adopting this principle has been to establish a check upon land speculation, and whilst not depreciating values, has prevented sharp disturbances of values in those countries where, conditions being normal, co-operative rural credit is largely used. The most desirable means of relieving congestion in cities is the provision of homes on the land for landless people. Unfortunately farming does not make a sufficiently strong appeal. Its benefits are not always commensurate with its risks and disadvantages. Capital is necessary and the return from capital is not large. The quantity and quality of crops are affected by accidents of harvest, disease, pests, weather, etc., which are entirely beyond control of the farmer. Live stock is liable to accidents and losses from disease and other causes against which insurances are effected on the Continent and in America. The speculative hope of enhanced value therefore influences many rather than a keen interest in primary production. The need is for a method which will not encourage speculation in land, but will make farming more attractive to those who are eager to work. No better plan has presented itself to the Commission than a soundly administered system of rural mortgage which provides capital for the development of the farm at reasonable rates for a long term with amoritisation provisions. The acceptance of this system all over the world has been a most valuable factor in the closer settlement of land; it has reduced charges for interest, given security to both mortgagor and mortgagee, and by its tendency to stabilise land values has diminished land speculation. How Values Are Assessed. The Commission states that the New Zealand State Advances margin of security of seventy-five per cent, has proved sound. It is greater than the amount loaned by important institutions in Europe and America. It is essential to success, says the report, that valuations should be on a sound and conservative basis. The embarrassment of at least one of the Canadian schemes is to some extent due to a failure to ascertain the true productive value of land over a sufficient period. On the other hand, too conservative values will likewise militate against success. On the Continent land cannot be mortgaged for more 4han two-thirds its value, and in most cases the amount loaned is less—not exceeding fifty per cent. The Commission’s opinion is that in Now Zealand the system and method of valuation adopted by the State Advance Office should be followed for long-term loans, but that valuation should be based on the productive value

of land ascertained over a period of at least five years, and the amount advanced should not exceed two-thirds of the valuation.