APPROVAL OF FARMERS

Press, Volume LXXI, Issue 21418, 9 March 1935, Page 20

APPROVAL OF FARMERS

MORTGAGE FINANCE PROPOSALS GOVERNMENT'S ACTION APPRECIATED ADDRESS BY MR MACHIN AT METHVEN \ unanimous motion expressing appreciation of the Government's attempt to rehabilitate farmers' finances was passed by a large meeting of farmers at. Methvcn last evening aftei Mr William Machin had explained to them the provisions of the National Mortgage Corporation Bill. Mr C. C. Winn, president £>f the, Methven branch of the New Zealand Farmers Union, presided. . "The Mortgage Corporation Bill is a courageous attempt on the part of the Government to dispel the inertia which has descended on farm mortgage finance in New Zealand, and as such it should be given favourable consideration," said Mr Machin. "The first proposals of the pamphlet issued by the Minister for Finance in November last have been amended in the bill, following discussions between the Minister and those whose daily work it is to deal with this subject. I can say that in these discussions the Minister has been most fair and reasonable, and in whatever final form the act appears Mr Coates should be given a great deal more credit than he has received.

Necessity for the Bill -In 1925 an average bale of New to 1933 the average price of this same bale paid the inierest on £l5O at 0 per cent.; this year the same unit may pay the interest on £2OO, last year it paid the interest on £320," continued Mr Machin. "Whether you take butter, or cheese, or wheat, or meat, the same inability of a unit of produce to command its former purchasing power or paying power is manifest. "Townsmen will say that faimeis aie not the only people receiving reduced incomes; they remind us of 20 per cent cuts in salaries and wages and interest rates- But the drop in Jarm produce prices has been 50 to 60 per cent. In 1927-28-29 the price of an average bale of New Zealand wool was £2l. In 1930 it dropped to £l2 12s, or 40 per cent, in 1931-32-33 it dropped further to an average of £7 13s a bale, or a drop of more than 60 per cent. During the period from January, 1930, to October, when wool prices had slumped fiom 40 to 60 per cent., bank overdraft rates of interest on best accounts were actually raised from 61> per cent, to 7 per cent., and it was not until, the end of 1932 that they were reduced by half per cent, to 6 per cent, from the 1929 level. "Compared with the figures of 1929, New Zealand interest rates are now down by about 25 per cent. Wages are reduced by 20 per cent., but farm export prices are down 47 per cent. Obviously prices reduced to 53 per cent, cannot pay over 70 to 80 - per cent, costs. Something had to be done. "I interpret the Government's Mortgage Corporation proposals as intended to do three things:— (a> Provide the farmer with cheaper mortgage money and cheaper mortgage finance facilities generally, so as to lower his costs. <b) Give him the benefit of the amortisation principle under which he can pay off his mortgage by small halfyearly instalments. (c) Renew the disturbed confidence of investors in land securities by spreading their loans over a large number of properties and mortgagors so that if a proportion of the interest is lost the loss is spread and nobody suffers much. "A Matter for the State" "Some say the State should not interfere in this matter, but the crisis, without exaggeration, has obviously be- i come a matter for the State. Our primary production is the basis of our economic structure in this Dominion. I do not say it is the whole structure any i more than that a man's legs are his while body, but it is so important to us all that the disaster has been so great and so prolonged that individual action cannot meet it, and the State must take some general action. j "Other states have had to take col-1 lective action, notably Great Britain, and the British Government is actually standing behind both the English Mortgage Corporation and the Scottish Corporation with financial assistance. Special Agricultural Credits Acts of Parliament have been passed as the charters of these corporations, in Great Britain. There is no beating about the bush in these English and Scottish acts. Listen to what they say: an act to secure by means of the formation of a company and the assistance thereof out of public funds the making of loans for agricultural purposes on favourable terms and to facilitate the borrowing of money on the security of agricultural assets and! for purposes connected therewith.' "Half the capital was taken up privately and the other half was lent by the government free of interest for 60 years. The Scottish Corporation was also given the sum of £1750 .per annum for 10 years by the British Treasury for administration expenses. The act empowers the British Treasury to procure the underwriting of all the debentures which will be issued at 3J per cent., repayable up to 60 years, and the treasury itself may take up one fourth of the debenture issue and pay for it out of the Consolidated Fund. There is only one director nominated by the British Treasury. The remainder of the directors are appointed for periods of three years in rotation by the annual general meeting of the corporation. Dividends at the rate of 5 per cent, per annum cumulative are paid on the private share capital. Loans are granted up to two-thirds only of the value of the land securities, and are made for periods up to 60 years. The repayment of interest and sinking fund is covered by 5 per cent, annually, paid half yearly. The debentures are trustee securities. The English Corporation is a much larger one than the Scottish one, but is a counterpart of it. "Quite a number of the questions which are at the present time agitating critics of the scheme in New Zealand have become commonplaces in what is probably the soundest country In the world during the last few years," Mr Machin said. Cheaper Money for Farmers "Some have stated that cheaper money for farmers would be an evil, and all sorts of dire results are prophesied, bul cheaper money Has been Imperatively necessary for five years, k There is now more than £40,000,000 I lent on deposit to banks in the DoI minion, much of it at rates from 1 A I per cent to 2 3 t per cent., and probI ably the whole not averaging more I than 2J per cent. This proves that [ folk are willing to accept low rates of Interest if they can get safety, and the

problem is how to make these low rates available for farmers —really how to rearrange mortgage finance at cheaper rates which shall help to bring farmers' costs within farm prices. Critics should remember that no industry can live if its prices continue less than its costs. , "I do not think there is room just now for much further money to be invested in farm mortgages. Some mortgagees would probably take out their money if they could, but the great majority want to leave it where it is, if they can see some method of putting their investments on a better basis. This plan is an attempt to provide a channel for readjustment to lower rates of interest by spreading the risk. . "It is said the scheme is unsound and that the corporation will not attract investments. I think that much depends on the manner in which it is worked and the future course of events in the money market. In spite of the fact—and I am glad of it—that there is no Government guarantee of either share capital or bond investments, prudent administration should not only command the confidence of investors, but it should give benefits to the thrifty and conscientious bor- j rower ! "Some object to private shareholders. Personally I think that this is an advantage, for these shareholders will meet annually to criticise the accounts and policy. They will be alert and careful of their investments, and the knowledge of this will have a good influence on the directors and the conduct of the corporation. Moreover, the private profit to be made out of the corporation by these shareholders is small, and limited. and can be easily carried. "Some desire the corporation to be on a co-operative basis, and the 2 per cent, which all will contribute to the: general reserve, and the balance of the profit going to the Government gives it a community character. l notice that some farmer critics are so individualistic that they press for the 2 per cent, reserved to remain the property of the individual who contributes it. In a new departure hke this there is sure to be diverse points of view. It may be that this judicious mixture of State interests with the driving force of private enterprise will teach us something. j Method of Operation j "How will it work? I assume the corporation's directors will formulate an enlightened policy in accord with the times for dealing with the State mortgages taken over, and especially new mortgages. It is no use people objecting to this; to-day we are living in a very different world from that of six years ago, and we must act accordingly. The policy in operation will either attract or repel the flow of capital required by its bond issues. The corporation will decide at what rate to issue its bonds and the periods they shall run, the lending rates to farmers and the rates and periods of the sinking funds. It will need a policy on land valuation, and a policy for weighing up borrowers, so as to lend them no larger sums than each man's shoulders can carry and service. Easy money is the evil, not cheap money, and the £2OOO man must not be lent £4OOO because others borrowed this much. "I am not sure that the legal permission to borrow up to 15 times the corporation's capital and reserves is not too high, but if in practice the State genuinely takes full liability for all the eventual losses on the mortgages in transfers then the risks on the new business should be sufficiently covered. "There has been some criticism of the special reserve of £2,570,000 to be handed over in local body There seems to be no doubt that this is a genuine reserve, definitely lent by the State until an equivalent sum is built up out of profits, ana I would personally regard it as a gilt-edged reserve such as any business would be glad to have. Rate Exemption r * "Concerning the vexed question ol' the corporation's"exemption from rales and taxes on the mortgages taken over from the State, I cannot agree that this is unjust in this case, although I hold the general opinion that the State should not have privileges as a mortgagee which are denied to the private mortgagee. It could not be expected that in this Act for a special purpose the State should deliberately take the occasion to alter its customary policy over rating; nor could it be expected to load on to the mortgages it transfers to the corporation burdens and liabilities which do not at the present time belong to these mortgages. "The corporation should take oyer these mortgages with no further liability than they carry at present, and if it is desired to alter the law on this subject, let it be done by an act for this definite purpose governing the future. I think it is sufficiently fair for the corporation to have no privilege over rates and taxes on its own new business. A Steadying Effect "If the corporation is a success it should have a steadying effect on farm finance generally. 1 favour the provision that mortgages should be repayable on the sale of the property, as this will discourage capitalisation of any advantage in interest rates. The right to repay mortgages with bonds which can be purchased on the open market will be useful. It will probably tend to hold the price of the bonds steady and provide a convenience to some mortgagors. "I am glad the maximum proportion to be lent is not more than two-thirds of the valuations. That proportion is high enough to even the best mortgagor. Much criticism has been directed to the proposal that the corporation shall have power to lend 10 per cent, extra in special cases, which 10 per cent, will be guaranteed by the Government under the terms of the Rehabilitation Act. Now, we dont know what the Rehabilitation Act will contain, but there is surely no objection to the Mortgage Corporation being given power to do the business. Any one of us would gladly lend money to be guaranteed by the Government and we would do it with confidence. It will be a matter for the wisdom of Parliament to decide whether the corporation will be asked to do this. The corporation cannot be blamed for having the power or doing the business if it is offered. Restoration of Confidence "Who can say whether the institution will flourish and do good to our main industry? It will certainly widen the field of facilities for farm finance. It will promote competition of an attractive character, especially to those whose arrangements it will suit. It should help in restoring the weakened confidence of lenders and potential lenders to farmers. It does away with the direct activity of the State in this class of business and is in line with Ihe new policy of independent business boards, such as the Railways Board and that of the Central Bank. It has good auspices, and the opportunity for a hopeful adventure at a time when prudence seems to be stuck at the bottom of a well. "In many of the objections to it, I discern manoeuvring of political and other interests. This nation and other nations have decided that in this prolonged crisis the old ways are not enough, and we must carve out additional ones. Much detail of the width and the surface and the grades and other things will be perfected by future experience, which we do not now possess. Personally, as a matter of principle I would rather have seen the Government lay down guides for its nationals, both borrowers and lenders, to follow in general equity to the community under the special conditions of to-day, but as a matter of practice it is probably the soundest thing to put into the field another competitor with no monopoly and no special privileges and leave it to work out its own salvation in common transactions." At the conclusion of the meeting Mr Machin answered many questions and was accorded j a hearty vote of thanks.