FARM OVERHEAD CHARGES.

Press, Volume LXVIII, Issue 20494, 12 March 1932, Page 10

FARM OVERHEAD CHARGES.

PLEA FOR REDUCTION OF INTEREST. (SPECIALLY WRirriX FOR THE PRESS.) [By Dr. I. W. Weston, Farm Economist, Canterbury Agricultural College.] Overhead charges comprise interest on the farmer's own or borrowed capital. rent, rates, and land tax. These charges amount to from 30 per cent, to CO per cent. of.total expenditure on the average larni, and, on tho over-capi-talised farm, where working costs are cut to a minimum, amount to 75 per cent, or more of total expenditure. Tho largest overhead charge'on the farm, and the largest single item of all expenditure, is that of interest. J.t is largely interest payments that necessitate tho collection of rates and land tax. Where the farmer is working on borrowed . capital the amount paid for interest will, in many cases, exceed the amount paid for all working expenditure, and, in some cases, exceed farm income. Moreover, while almost nil other charges have been reduced, overhead charges to the farmer who still has an equity in his property have remained the same, or actually in; creased. The following returns of incomo and expenditure for 18 farms in which tho owners still have an equity, but in which interest is paid on both land and stock, illustrate the position of the farmer working mainly on borrowed capital. .

An Extreme Case. In the case of these rarms, overhead charges amount to more than 50 per cent, of all expenditure, and more than 80 per cent, of the total income received. In the extreme case, interest paid is equal .to 80 per cent, of all expenditure, and more than double the farm income, ais shown by the following example:—

lUiiO-1 .. K!3. -,U4 L ii b y.oIY "At present prices the position will .continue until the owner's equity has entirely vanished, or until relief is obtained under the Mortgagor's Relief ■ Act, When the owner still has a considerable equity in the property, until a flat rate deduction in all interest payments is made generally, this relief is not easily secured, and the position becomes progressively worse. At the same time, working expenditure is reduced to a minimum, and interest payments are increased, as shown by the following returns for a farm for 193031 and as estimated for 1931-32.

The above figures seem to show the definite necessity for a reduction of all interest charges by at least 20 per cent. Other Charges Falling. Jt may be contended that these are extreme eases, and tliat the land is. overcapitalised. This contention does not alter the. fact that while other charges are being reduced, particularly wagfis, overhead charges should alsT lie reduced Nor dees it alter the fact ihat. with the fall in prices, the farmer is paying back in overhead charges double or more than double tlio anion nt of purchasing power he borrowed in the years 1920-30. Any farmer who came of age or returned from the Great War. and engaged in farming in this period, must find himself merely through the fall in prices; overcapitalised, either with respect to his own or to borrowed capital. The savinz tvpe of farmer, and the -good farmer still has an equity in lus farm, but is watching it slowlv disappear at the present time, merely' through the price fail. Prices, The fill l J i'i° es that has occurred is shown by the following table,

Tlio fall in l iri^s is largely due to monetary' deflation. - Many in New Zealand can still recall the period ot monetarv deflation in the .years from isan lOflf) when there were "soup kit-chens-'in Christchurch," when "threemin'rters of the landowners who lield dear land were ruined,'' when 10,000 nersoms left New Zealand in one year. was actually an. appeal to the

President of the United States tor assistance to emigrate, and the Government had to come to tho rescue oi the Bank of New Zealand. This period of falling prices came to an end largely as an outcome ot increased gold production and improved banking methods. Many economists in the years after tho war, as an outcome of past experience, predicted a similar fall in prices. They advised against returning to the gold standard on the pre-war basis as involving n too drastic deflation, and as increasing tho real burden of all fixed debt charges. In particular Mr J. MIveynes definitely advocated that banking policy and the rate of interest should be consciously adjusted to the end 'if maintaining stable prices. This is a matter that should he attended to. In the meantime since the present price fall is partly man-made, it appears equitable that a reduction in all interest charges should be made, at least while prices remain low.

Workhead in? - Total 'J'otul expenincome. diture. diture. diture. £ £ £ £ 1030-1 . . 18,6*7 15,131 14,163 29,002

FAJIM A. Over- 'Workhead ing Total 'I'otal pxpen- cspenYear. income. diiure. diture. diture. £ £ £ £ , .. RS3 2.041 476 2.517

FARM B. Over- ' Workhead ing Total Total expenYear.. income. diture. diture. diture. £ £ £ 1S30-1 .. 923 8G7 823 1,696 1931-2 .. 711 goo ■ 29S . 3,200

Highest price Price i ill period 1920-30. 1931. £ S. (I d. s. d. B utter-Ut l? er , !h i 9 in 1901 8 lo X p a ;r fat iarrws at A<l<iirgtn.i . - 2 « in 1324 15 Ciossbred vool, per lb :\lt»rino wool per lb 1 BJ for 192 i 2 41 for 1921 6i-