RURAL CREDITS.

Hokitika Guardian, 20 January 1923, Page 4

RURAL CREDITS.

Till-: POSITION IN NEW ZEALAND

A Uriel survey ot rural credit in New Zealand." a paper Uy Professor .1. li. Condlillc. ami .Mr 11. Ticlsliaw, of Canterbury College .was read at thn Science Congress in Wellington. The following is a brief summary of the rcp.rt: A brief description ot the various Ivpes of New Zealand farming is sufficient to show the variety of busi-

nesses comprehended under tne eeneiai description of rural industries. Iho differences of industrial structure which iire disclosed indicate that the demand for credit in the rural industries is not simple, hut composite, and built up from many demands for dillcrcnt puinoscs. 'Clio problems ut rural credit

arc perhaps the most important economic problems confronting New Zealand at tiie present time. Over 00 per cent of the Dominion's purchasing power in the markets of the world is supplied

i by the pastoral industries alone. The 1 importance of thv primary industries ! hardly he over-estimated J and I farming, s- iiuieli as any other "i/pe ol | basinets, depends upon the and kind of credit available. The capital which is needed for the efficient working of rural industries is i mostly borrowed. There are many ■ kinds of capita! required on a farm, ! and, therefore. many purposes foi 1 which civiliL must he available to Ibn i farmer. It is possible, however, to j draw a broad and important distinction | bet ween tic more permanent fixed I capital required for the purchase of I land, implements, and that stock which becomes part of the working machinery of iho farm: and the less rigid, more temporary advaiues required lor the provision of circulating capital available for speculative dealing in stock, the payment of wages, current exetc. The first typo of credit corresponds to the share capital or do bent ores used in industrial enterprises. I (be bitter to l lie hank overdraft, j In order to meet the demands for I rural credit of various kinds, a <om- | plicated organisation has been built | up. The bulk of the fixed capital required for the purehas of land, implements. stock, etc. is secured by mortgages and lixed for a definite fairly lengthy term ol years. A lair proportion of this credit is provided by private individuals, and business toms, such as land agents: a good deal also, bv the commercial agency and quasi-co-operative companies. One ol tiie most undesirable tea Hires ol tinwhole problem is the fact that the siib- ■ stantial commissions to he made on : salt's and exchanges oi properties, j often induce such concerns to advance credit mi farming enterprise-. which. I even in the boom period, are iimincialK j risky a.ml which, as soon as depression comes, become bankrupt. I The activity of the 'slate Advances ' |,. Settlers Department has done smnej ibiug in make the provisions ot 11 1 - ! ir.-ci’f capital easier for the farmer; but I the limitations of the advances limy be | realised when it is pointed out that l the average advance i,- UID. widen i must rank as n lir.-t mortgage upon lequato security. The temporary toriii' oi iredtt. well the more risky portions e! the |i- ... | e.ipita! reqntl I'd. are provided by | the various comtnereia! agencies. I lie i I'liiei Ol these are i be agency companies i and the qua.si-cti-npi'rnlive larmefs’ as | as i:■ i■ - ' firms mlvatue ered.it 1 to I a niters it, Ita| overdrafts j secured ttlieii land, crops, etc., but dei pending in the main upon the personal s, corky of the ftinner. Here, again, | the co" nos inn of the financial with the I eoliiinoff itd side of the business is a ! source el danger. Musi of l he credit. which is idea tied t" the tnrmcrs must i I e obtained from tlm banks at current | rales of interest. ’! !a- profits made by • l be tires irum (!■'■ rMui rat charged to the farmers docs lilt!" more than cover administrative charges ami risks. ; The real profits are obtained in the main ir in eommo ; sams on ibe -ale of k:ml. stock, wool, mops, etc.; profits | on i be merchandise, household requij sites, implements, seeds, etc., which | lbe farmer is aide to acquire only by j willing a cheque on his ovcrdralt. The ■ compelilinn between agency companies j loo' resulted in such free advances of credit for all purposes that many farmers have been placed on the land who i are eelir.'iy dependent financially upon 1 the companies. The control exercised j hi the financial concerns over the ! working farmer amounts at times alien-, t lo peonage. Although, speaking broadly, the feint 1 slock banks prefer not to finance farmers directly, in the long run whatever credit is advanced to the farming industries comes from them and is mi- , del- their control. It i' advanced to 1 tie farmers through agency companies, ; lean and finance companies, etc., who : take the risks and make I heir profits out of the connexion which they are able to get with the fanning community. It is within the power of the banks lo raise the rate of interest on . overdraft s or otherwise restrict the, issue of credit so as lo limit the ad- ! Vances which these intermediaries are aide to make to the farmers. Similarly. ii. and when, those concerns ago in de lenities owing to their advances he- 1 e..ming "I'niaen" in a tilin' of depression, the diib ullies quickly recoil up- < n the bank's. The banking crisis of Is!.';! wo;s caused in ibis way. 1 The present economic position of New Zealand despite the welcome re-' vivid, lias in it elements, which should cause considerable anxiety. As a resell ol the post-war boom loliowing . upon the prosperous war period, which in turn followed twenty years of almost uninterrupted prosperity. the ; various credit agencies (and the Cloy- ; eminent] have been so free in their beaming of farmers that the chief industries of the 'Dominion are in many eases seriously over-capitalised. The hcavv and growing burden of the public debt is paralleled by the great amount of mortgages owing, to which j must be added the substantial advances which are secured in other ways than by mortgage. The prospect is uncertain, but the condition of Europe is sufficient to make it clear that there can be no immediate return to pre-war prosperity which depended upon a constantly rising price-level. The present indications are rather for a generally f iling tendency of tiie price-level. The present welcome reaction from the unnaturally low level of prices in the panic stage of the crisis cannot long be maintained. In view of these facts, ami especially since it is clear that the rural industries are suffering not so much from n shortage of credii '•••• moment as from unsound finance resulting front too much credit in the immediate past, in economist can view with equanimity schemes which offer oven a danger of further inflation of credit. The solution of tiie Dominion's economic difficulties will not he found in a further era of cheap credit based either on borrowing or internal inflation. The .chenie for TJural Credit Associations is idmirable within limits ; but it can do ittle or nothing to assist the present • liflioultios. Much the same may lie aid of the proposal for a State Bank. < f such schemes are used to provide ; nore liberal credit facilities in an en- ? leavour to evade recognition of .the j -lain facts of the present situation, the esiilt will he disastrous. There !« ' c inch to he gained from the building e

up of true co-operative associations to act ns a go-between for the fanners and the banks; but such associations, il kept, to thoir legitimate sphere, would do nothing to solve the present

problem of over-capital’-ation. Jt is to ho remembered that, the longest and most severe financial depression experienced by the Dominion was the period of falling prices from I - 73-Is!!.'). The difficulties of that period wore very largely due to unwise borrowing and a consequent land boom in the early ’seventies, resulting in over-capitalisation which finally recoiled upon the banks.