AID FOR FARMERS.

Shannon News, 12 June 1928, Page 1

AID FOR FARMERS.

INTERMEDIATE RURAL CREDITS. STEPS TO FORM ASSOCIATION FOR LEVIN DISTRICT. SCHEME EXPLAINED BY MR A. .8, FAIRE. An address explanatory of the Rural Intermediate Credit'Act was given in the Century Hall, Levin, on Friday evening by Mr A. S. Faire, -District Public Tuistee at Palmerston North, wlio is supervisor for the Manawatu- . Wellington District' Rural Credits /Board. As a result, a committee was set up to consider establishing a Rural Credits Association for the Levin district.' The meeting on Friday evening was held under the auspices ,of the Farmers’ Union, and was attended by about twenty-four persons, including several ladies. It was presided over by Mr 11. Denton, president of the Levin branch of the Farmers’ Union, who welcomed the speaker, and said that Mr Faire would be pleased to answer questions at the conclusion of his address. WHAT INTERMEDIATE CREDIT IS , A comprehensive outline of the working of the. Act was given by Mr Faire. He said tlidt the Rural Intermediate Credits Act must not be confused with the Rural Advances Act of 1926, which gave practical effect to the recommendation of the Royal Commission on Rural Credits in so far as concerned long term mortgage credit. The Rural Intermediate Credit Act of 1927 gives effect to the reeommenda“’tion of the Commission with regard to intermediate credit. As contrasted with long term credit, which means farm mortgage credit of five years or over, intermediate credit is credit for a longer period than is contemplated in commercial banking transactions, but of shorter duration then the usual mortgage term. Intermediate credit, therefore, means credit of from six .months to five years, the security for which is generally live stock or nonperishable farm products. The main feature of the Rural Intermediate Credit Act of 1927 is the raising of funds by means of debentures secured upon an aggregate of the assets of the scheme,'; involving no State liability for the debenture. In this respect the Act follows the developments which the Commission reported are taking place abroad in regard to systems of rural finance. In addition, the Act gives scope for collective and individual action upon the part of farmers. •

ADMINISTRATION OF THE SCHEME.

-The Dominion scheme is controlled by a Board consisting of net more than seven members, of whom the Public Trustee by virtue of his office is one, and the other six, which - the Act provides shall include at least one person wi-.h practical experience in farming, are appointed by the GovernorGeneral’s "warrant. The Public Trustee is the principal executive member of the Board, and as such is styled the Commissioner of Rural Intermediate Credit. Colonel J. J. Esson, C.M.G., of Wellington, financial adviser to the New Zealand Government, formerly Secretary to the Treasury and one of the members of the Royal Commission of 1925 on Rural Credits, is chairman. ' Under the Act the Board is to define districts for the purposes of the administration of the scheme, to appoint in respect of each such district a district board which is to carry out such functions as the Board may prescribe from time to time, and the Board is also to appoint a representative in each :such district under the designation of “District Intermediate Credit Supervisor.” The districts have been defined and the members of. the district boards and the d : strict intermediate credit supervisors have been appointed.

The statute gives the Board power to utilise, with the consent of the appropriate authority, the services of any State Department for the purpose general «y of carrying out its duties under the Act. The Board wile operate chiefly through the Public Trust Office, the existing organisation of which is extensive and efficient but the duties associated with the administration of the scheme will not form part of the ordinary business of the office and will be kept' quite distinct from it. FUNDS OF THE BOARD. The funds of the Board are to be provided from two sources: (a) the Consolidated Fund, by way of authorised advances or grants; (b) the investing public, by way of debenture issue. To set the scheme going power is given to the Minister of • Finance to advance to the Board, from the Con-

solidated Fund by way of loan sums 1 up to a total of £400,000. Advances of this description are to be for a term not less than twenty years as may be arranged by the Board and the Minister of Finance. For the first ten years, the advance is to be interest free, and after the expiration of that j, period the Board is to pay interest to the Consolidated Fund at a rate pre-

scribed by the Minister of Finance. Not all of the amounts advanced to theiißoard from the Consolidated Fund are to be made available for investment in the Board’s business. For the protection of debenture-holders, one-third

of all such advances is to be credited to a special redemption fund, which isto be 'invested in Government securities only; and with the resulting income such fund is to be applied only for the purpose of redeeming debentures, issued by the Board. One-half of the net profits of the Board is to be credited to this redemption fund. The remaining two-thirds of advances from the Consolidated Fund is to be employed by the Board in carrying on its business. In addition to advances of this nature upon loan, the Minister of. Finance is also empowered to make an out-right gran to' the Board of a sum not exceeding £IO,OOO to cover expenditure for general administration purposes.

DEBENTURE ISSUES. The legislation gives the Board power, with the consent of the Minister of Finance, to issue debentures restricted as to total amount in that they may not exceed the sum total of the advances from the Consolidated Fund and the amount of the investments of the Board from time to time. The debentures will be for terms of from six . * months to five years and will carry rates of interest not exceeding 6 per annum- The debentures so issued will constitute a floating charge on the Board’s assets, and they are expressly given priority over the claim of the Crown in respect of the advances to • the Board from the Consolidated Fund. The practical, effect of these provisions is to give debenture-holders a first charge over all the assets of the Board, ■ including investments in the Redemption Fund and the mortgages, bills of sale and other investment in-, thip ordary business account of the Board. It may be stated generally that debbntureholders will have a margin over assets, equal to the amount of the original advance to the Board from the Consoli- i dated Fund. '■> <

During the first ten years, the full ' advance .to the Board, including both the portion credited to the Redemption Fund and the. portion employed in the ; business of the Board, is free of interest; and it may be antic'pated that the operations of the Board Vv ill'•'result in the accumulation q£ considerable pro-, fits over this period. Tlffe that profits of tills description are to be credited equally to the Redemption Fund, and to a separate reserve fund, which latter fund may in the - discretion of the Board be either invested in ' Government securities or in the Board’s business. Thus all profits remain with the Board and go to increase the. margin of security for debenture-holders.

The advance from the Consolidated Fund is by way of loan only, and consequently the question of repayment will arise in the course of time. The Act contains a special provision governing repayments; and the practical effect of this provision is that all accumulated profits of the Board and all accumulated interest in the Redemption ' Fund may be applied, for repayments . to the Consolidated Fund, but that the capital moneys in the Redemption Fund or the general business account of the Board may not be used for this purpose. This, therefore, operates to preserve the original margin for de-benture-holders, which was previously described as being of- an amount equal to the total advances from the Consolidated Fund. . . The Board is required to accept at; ’ any. time debentures issued by it, in’ - settlement of amounts owing to it, to the extent of the nominal value of the debentures tendered. I’his provision is v? likely to stabilise the market value . of the debentures; for if they. fall below par in value, it may be ex- T ’- pec.ted that there will be a demand

for them from persons indebted to the Board; who would thus have a means of reducing their indebtedness to a certain extent, without equivalent financial outlay upon their part. CO-OPERATIVE CREDIT ASSOCIATIONS. The first of the methods by which the funds are made available is one whieh.is important and interesting, in that it will provide seope for collective or co-operative action on the part of the farmers. There has for some years past been a demand for the provision of machinery to enable farmers to combine for the purpose of financing themselves as individuals on their collective financial strength as a group. The Act meets this demand; for it provides the means for farmers to unite in forming a special class of limited liability companies—co-operative rural intermediate credit associations.they are called—to obtain advances from the Board, to be lent to the shareholders upon approved securities. Twenty farmers ate ; required to form an association, and the minimum share capital which each shareholder must subscribe for is 25 fl shares. Of course, as in other limited liab :i ity companies, the full amount of the share capital may not be found to be required immediately, and, therefore, in many asr sociations probably only a portion of the share capital may be called up at the outset. A shareholder who obtanis a loan from the Board is required to take up shares to the nominal value of onetenth of the amount of the loan which he obtains; provided that in any case the minimum share contribution is 25 £1 shares, and a person obtaining a loan of under £250 would, therefore, have to take up 25 shares. Once a member of an association has repaid a loan obtained from the association, he is entitled to surrender his shares, and receive their value, provided that his retirement would not reduce the number of members below twenty. To obtain an advance from the Board, an association must put before it a definite proposal. In other words, it does not obtain a general advance from i the Board, and then proceed to consider applications from its members, but, on the other hand, it first considers an application;by a member, and if it approves the application, submits it to the Board for consideration, and after approval, applies for an advance by: the Board to the association of a sum sufficient to enable the latter to grant the advance. , The associations are the immediate debtors of the Board in respect of funds invested by it in this manner, and for this reason there are certain statutory restrictions affecting associations, and the Board is also given some measure of control over them. For | example, the consent of the Board will i have to be obtained to the formation of an association, and once formed the application of profits made by an association will be under the control of the Board, to the extent that the Board may require sufficient reserves, built up before the dividendsi are paid. Again, the local representatives of the Board, the District Intermediate Credit Supervisors, are automatically directors of all associations formed within their respective districts, and the Board is also given power to appoint any other member of, an association to be a director as its representative, a provision designed to meet cases where it is impracticable for the District InterI mediate Credit Supervisor to attend ! all mcetingsrof any given association. 1 In addition to funds from j the Board* itself, associations may, , with the consent of the Board, arrange for temporary accommodation from banks or financial institutions. The obtaining of funds either from the banks, from the Board or financial institutions, and the re-lending of those moneys to share-holders upon approved securities, constitute the exclusive functions of associations so formed, ' and they 'Will have no power to act in any other manner. CONDITIONS AS TO LOANS BY ASSOCIATIONS.

The conditions upon which loans may be granted, with the approval of the Board, to shareholders are closely restricted as regards the purposes of the loan, the maximum amount which may be granted in an individual case, the maximum rate cf interest, and the periods for which the loans may be granted. Loans may only be granted for certaia approved purposes which are set out in the Act as follows:

(a) The clearing, fencing, draining and general improvement of land in the occupation of the applicant. (b; The erection of buildings on any such land.

(c) The purchase of implements, stock, seeds, plants, trees, and other things required in respect of the occupation and use of any land. (d) The payment of any mortgage, debt, or other liability of the applicant incurred in relation to farming operations. (e) Any other purpose in relation to farming operations that may be approved by the Board. No loan is to be granted for a period exceeding five years, for a greater sum in any individual case than £1044, or at a rate of interest exceeding 7 per cent, per annum. INTEREST RATE. For the present the Board has fixed the rate of interest payable by associations at 6 per cent., a reduction of J per cent, from the rate of interest payable by farmers and co-operativs societies borrowing direct from the Board. Associations, however, will not be permitted to re-lend .the advances from the Board at a rat* less than 6£ par cent, and in respect of the margin of 1 per cent, will be required to apply 3" per cent, towards the expenses of management and the other J per cent, to establish a reserve fund. MANAGEMENT OF ASSOCIATIONS. •, The liability of a member of the Association is limited strictly to the/

amount of his share capital, and a member is not required to meet a deficiency caused by failure of another member to meet his obligations except to the extent,of the amount of share capital for Which he has subscribed. For example, if a member takes up only 25 shares he is not liable'for any amount iH excess of £25. Furthermore, the Act provides that capital cannot be called up for the purpose of paying current expenses, but that all capital paid in by members must be at once invested and kept in reserve. The extent to which the capital will be called up will repend on the management of the Association, and if the Association is wisely managed, there is no reason why a member should be called on to pay more than the Is per share which the Act requires him to pay within a year of the formation of the Association. If a member has received a loan from an Association and has paid it back, he may if he wishes, retire from the Association if by so doing he will ncft reduce the remaining members to below" twenty. A member leaving an Association is then entitled to surrender his shares and to receive from the Association the value of-these shares as agreed upon by the member and the Association, with the approval of the Rural Intermediate Credit Board. APPLICATION ±*OR LOAN.

If a member desires to obtain a loan he must first of all complete a printed application form and submit it to the secretary together with an- apnlication for the requisite number of shares to make him eligible to obtain a loan of the amount applied for, and together with an amount of Is per share and a valuation fee which will be estimated by the secretary. The application will then be investigated by the directors, and if the directors are of the opinion that the requirements of the Act have been satisfied and there is a reasonable prospect of the loan applied for being granted, a valuation of the proffered security will be arranged by a valuer approved by the Board. When tho valuer's report and valuation have been received the application will fhen again be considered by the directors and referred to the Board through the district supervisor, together with a request to grant to the Association a loan of the amount recommended, so that the Association may in turn make the required loan tp the member. 'lf a loan is approved the security,given by the member to the Association will be assigned to -the Board, and the loan money will then be made available for the member. The maximum period of any loan granted by an Association to a member is fire years. Applications for information as to the procedure in setting up associations and the course to be followed in submitting applications for loans through associations should be addressed to the nearest district intermediate credit srupervisor. ADVANCES WITHOUT INTERVENTION of association: To provide for cases where the farmers have, not the, opportunity of joinWig or forming associations, the Act makes special provision for farmers to apply for loans direct to the Board. Provision is made that each loan granted under this particular part of the statute is also, in addition to the ordinary bill of sale and other documents of security, to be seeured by a guarantee, from one or more persons approved by the Board, to such amount as may be required, net being in any case less than 20 per cent, of the amount originally granted. Guarantees of loans under these provisions of the Act will be accepted from financially strong companies, such as stock and station agents, dairy companies, farmers' co-operative organisations and the like, and also from private individuals whose financial capacity is established to the Board's satisfaction. The restrictions applying to loans

granted through associations, apply equally, with one exception, to loans granted direct to farmers. The purposes 'of 'the advances must be the same as those already enumerated. The maximum amount is also £IOOO and the maximum rate of interest payable by a borrower 7 per cent. The loans are, however, to be granted repayable on demand, and if no demand is made, then within five years from the date of granting. Where loans are so made repayable on demand, it can reasonably be assured that so long as the security continues to be sufficient and the conduct of the borrower satisfactory, the Board will not take steps to call up the loan within the five-year period, except as many be mutually arranged between the Board and the borrower. One of the dominant purposes of the Act is, of course, security of finance for farmers, and there. may be little doubt that this principle will bo given full effect to by the Board .in handling loans of this particular description. . ■ For the present the Board has fixed the rate of interest payable in respect of loans of this description at H per cent.

The maximum amount which an individual person may obtain on loan from the Board is £IOOO and be is not permitted to obtain a larger amount by making separate applications both through an association and direct to the Board. If, however, a farmer already has obtained a loan of less than £IOOO through an association, or in any other way from the Board (e.g., through bills or promissory notes discounted) he is not restricted from obtaining a further loan, so long as the total of the two advances is not over £IOOO. Loans cf this description will -be dealt with to a large extent by the District Rural Intermediate Credit Boards set up throughout the Dominion. Enquiries in regard to loans should be made in each case to the nearest district intermediate eredit supervisor. LOANS TO CO-OPERATIVE SOCIETIES. The third avenue of investment for the Board's funds is by way of advances to co-operative societies,- meaning by that term bona fide co-operative limited liability companies, the principal object of whieh.is the production er sale of staple, agricultural or pas-

t.oral produces, including live stock, and including also goods manufactured from any sueh products. To be . competent to receive a loan from the Board, ! a co-operative society of this description must have subscribed capital of not less th.an £2500 and be composed of not fewer than thirty members. To a co-operative society fulfilling these requirements the Board may grant advances on the security of any live stock or produce, belonging to the society, of an amount not exceeding 80 per cent, of the fair market value of such live stock or produce. Loans so granted are to be for terms of from six months to three, years, at a rate of interest not exceeding in any case 7 per cent, per annum. The rate of interest on loans of this class has been ientatively fixed at the same rate as loans direct to farmers — viz., 6| per cent, per annum. The Act does not indicate or restrict the purposes for which the Board may grant loans of this description, but it has decided that it will grant loans for purposes connected with legitimate trading, such as to enable the orderly marketing of a society's produce, but ' will not grant loans to assist in the speculative holding of the society's goods. This provision of the Act will enable ! the Board to finance farmers' «o-oper-lative dairy companies, farmers' freezing, works, and all other genuine cooperative farmers' concerns, handling agricultural or pastoral products. DISCOUNTING PKOMISSORY NOTES AND BI&LS OF EXCHANGE. In addition to the three main methods of .'providing finance for rural credit jtt?rposeq,,which I have just describSpiftsi B6Srcf is authorised to carry on the business of discounting promissory notes and bills of exchange. The nature' and limitations of this class of the Board's business are defined by the regulations recently issued under the Act. These regulations provide that in order to enable banks and approved financial institutions to afford financial assistance to farmers, the Board may discount promissory notes and bills of exchange, provided that the maker of the promissory note or acceptor of the bill of exchange, as the ease may be, is a farmer and that the promissory note or bill of exchange is endorsed to the satisfaction of the Board..

For the present the rate of discpunt has been fixed by the Board at 6s' per cent, per annum and the maximum amount that will be discounted in each individual case not to exceed £IOO. This provision affords an excellent opportunity to dairy companies and other similar farmers' concernfes to lassist their shareholders in obtaining. credit at a minimum of expense for immediate requirements such as fertiliser, seeds, etc., without the necessity' of having to raise funds for the purpose. REPAYMENTS. ; In regard to its lending business the Board has decided that it will accept repayment of- loans granted at any time convenient to the borrower without premium interest. As a general rule, also, loans to farmers will be granted on an instalment' basis, under which the loans will be repayable upon reasonable terms by payments spread over the term of the advance. SECURING CONFIDENCE OF INVESTORS. In every loan transaction there must be a sound security for the-amount advanced; because if any other attitude were adopted in regard to the Board's lending transactions, it would naturally follow, that lit'tle confidence would be placed in the debenture issues of the Board. If the farming community is to obtain the maximum benefit from the Aet, the scheme must be administered in sueh a fashion that the confidence of the investing publie will be created and retained. This confidence will not be created unless the .Board adopts a sound businesslike basis for granting loans to farmers. The scheme, therefore, should not be looked upon as a scheme for the assistance of farmers who have no proper security to offer, but a> scheme for providing security of finance at reasonable rates of interest to fanners who have reasonable propositions to offer. A PRACTICAL SCHEME.

The scheme is a practical one, based as it is on the examination and experience of similar systems which have been successfully conducted in other countries for many years past. A similar system was introduced in the United States of America in 1923, and, though the period of its existence has been short, satisfactory progress has been made. The debentures issued by Federal Intermediate Credit Banks in America, which are in the same position as the. Eural Intermediate Credit Board occupies . here, are popular investments commanding very good prices upon the stock market, and a satisfactory inflow of capital for agricultural purposes is provided by these debenture issues.

In conclusion, Mr Faire asked the meeting to consider the advisability of forming a small committee to consider whether an association can be established for this district. If they required any assistance from him in this direction, he would be only too pleased to give it. c The address was listened to attentively, and followed bv hearty applause. ' VARIOUS POINTS ELUCIDATED.

A number of questions were- then asked. In- the course of his replies, Mr Faire said that there was no limit to the number ti *>f members in an association. In dther countries the associations paid dividends every year; that •was not their object, however, as they existed to enable farmers to obtain money at a reasonable rate of interest. If any association found it necessary to call up the share capital, it»wouldhave to give reasonable time to the.subscribers to pay it; the Act was designed to benefit the* farmers and not to harass them. The principal advantage of the scheme was the low rate of interest charged—rat,present H per cent. If the general- interest rate fell, the Board's rate would.fall also. No great expense was anticipated, in the making, of valuations, -.,-,; As a. matter of policy, the mortgage would

be reduced, gradually over five years. Under the Intermediate Credits scheme, land could be used as a collateral security, but tSie main securities were.stock and implements. If a borrower had not repaid all his loan at the end of five years, he could renew it, a new mortgage and guarantee being effected. POSITION OF THE DAIRY COMPANY.

Mr T. G. Vincent said it had occurred to him that some of the applicants would ask the Dairy Company to guarantee their loans. If the company guaranteed a loan to a supplier to the extent of 20 per cent, and he ceased supplying, what remedy would the company have in regard to its guarantee? Mr Faire, replying, said Miat if a farmer asked a stock firm to guarantee 20 per cent., they would get- him to sign ja guarantee givjng them ins business. What was to prevent a dairy eompanv from getting a deed, of covenant; stipu-, lating that, so long as the guarantee, was in existence, the applicant must supply milk from a certain number of cows? If he ceased supplying, the guarantee would stop. All the produce from his cows would then come, .into the hands of the company lo reduce his liability. Mr. Vincent said that this would be practically throwing the onus on to the dairy company. Mr Faire: The onus must.be placed on somebody. When that guarantee is given, is it given out of consideration for the Board or for your own intereats? We are both interested in the man. The company is giving .the guarantee for a purpose—to secure his but-ter-fat. Primarily it is helping the man, to be sure secondarily of his supply. •:<.-... , The Chairman: I don't think that that comes in.

Mr Vincent: On this coast there is not the same competition for supplies that you have in the Palmerston district.

; Mr Faire explained that, where an association was formed, no guarantee j was required; the extra security came in shares.

s Mr S. A. Broadbelt: Would, it not -be. sounder for Mie Dairy Company to form itself into an association and receive the half per cent.? Mr Faire: There is that feature about it. In our district there is very keen competition amongst the dairy companies, and to ensure a good supply they would perhaps guarantee an applicant more freely than you would

here. " ; Mr S. N. Verity: Would it not be 'better to grant the money direct tothe dairy companies, to advance it. ;. Mr Faire: That was suggested before the committee in the House, but they would not listen to it. PROCESS OF VALUING.

■• With regard to the making of valuations, Mr Faire stated that the Depart- _ ment had selected for the work a number of the regular valuers,, and in addition reputable farmers throughout the .district would act in this capacity. An effort was made to secure the services of a competent fi:me-: living near the so as to keep down expenses. Mr W. G. Adkin .said he had been ■one of those who had not. been very convinced about, the movement. . ,He felt that his greatest source of satisfaction was in the wisdom of those, including the Dominion Treasurer and iother men of that stamp, who thought there was a necessity for this Act. Mr Faire said that the officers of the (Department were out ,to administer the Act, with all its disabilities and limitations, and give it every chance to be made a success. They were going to ;no end of effort to bring it before the farmers. ""If the farmers could not see *any virtue in it and it was a failure, jthen" they would not be able co say ithat* such a position was due to .any - ifault of those who were carrying out its intentions.

i The chairman asked for theopinion of the* meeting as to the forming of a committee locally to investigate the scheme. ..-. » ..... i j In response i-to a question, Mr Faire stated that there were several assdciaitions already in, existence—a very jlarge one in Taranaki, and two in Waiikato, one at Feilding, and one in the Wairarapa.\ i Mr Vincent said he was confident jthat there was ample scope for an. association in this,distriet, and he would ■like to see something concrete done m that way immediately, j Mr A. J. Gimblett remarked that -the best procedure would be to form a committee in the first place. This .could become the nucleus of an association, pf it was found advisable that such be :e*tablished. ■ j Mr Broadbelt said he was. satisfied ifchat in this district there was any number of people who would eventually ovail themselves of the advantages of jrural credit. There must be many to whom it would be a great privilege to borrow a few .hundred pounds. Out of the 400 suppliers to the factory, there jmust be a fair number who were struggling. The trouble was to get a rate of interest that was satisfactory; 10 pr 12 per cent, was ruinous for the small farmer. An association would give individuals a chance of getting money at the cheapest rate of interest possible. APPOINTMENT OF COMMITTEE. I Mr Gimblett, then moved and Mr ferity seconded, that a committee to further, the Intermediate Rural Credits scheme be set up, to, consist of Me3sra H. Denton, F. R, Wright, W. G. Adkin, S.. A. Broadbelt, W. E. Kilsby, T. (R. Vincent, and A. J. Gimblett, with Mr Denton" as chairman. } The motion was carried unanimously. i The meeting closed with a hearty vote of thanks to Mr Faire, moved by the chairman and passed by acclamation. • - ~-■■. ■ '•' "