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Agricultural Credit

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AGRICULTURAL CREDIT. The credit needed in agri culture is of two kinds. The first is long term credit, required to facilitate land purchase or the execution of improvements; the second is short term or personal credit, required to finance the growing, harvesting or marketing of crops, etc. Systems of agri cultural credit as they exist to-day in various parts of the world may be roughly distinguished according to whether they are based on a co-operative principle or not. Co-operative credit has been successfully developed in Europe (with the marked exception of Great Britain) and in India. In most of the newer countries co-operative systems have been relatively unsuccessful, and other means of financing agriculture have had to be found.

Great Britain.

There are very few British institutions spe cifically engaged in providing credit for agriculture, the bulk of farm credit being furnished by the joint stock banks and trades people, insurance companies and private mortgages. In regard to long term credit, two institutions (the Farmers' Land Purchase Company and the Lands Improvement Company) have, however, sought to specialize in this business. The former has aimed at lending money on mortgage for land purchase, but its operations have been on a very restricted scale. The latter, founded in 1858 and operating under special acts of parliament, has lent upwards of £ 13,000,00o for the purpose of carrying out certain types of land improvement. Apart from these, farmers and land owners have mainly had to rely for long term loans on bank over drafts secured by the deposit of title deeds and private mortgages. In regard to short term credit, for several years prior to the World War attempts were made to establish co-operative credit societies in Great Britain on the Raiffeisen model (which had had such widespread success in Germany and other continental countries). In 1910 there were 31 co-operative credit societies in Great Britain with 663 members; during and after the War there was a substantial decline in their number and membership.

In 1922 the subject of credit was considered by a committee appointed by the Minister of Agriculture, and its report was published early in 1923. Its recommendations were adopted by the Government, and the Agricultural Credits act 1923 was passed in July of that year. The objects of this measure were : (I) to enable persons who bought their holdings during the currency of the Corn Production acts (April 5, 1917 to June 27, 1921) when prices were exceptionally high, to obtain mortgage loans from the State repayable within a maximum period of 6o years; (2) to establish co-operative credit societies with powers to borrow from the State. The latter were based on limited liability, each member being entitled to hold any number of Li shares upon which 5s. had been paid up, and to borrow in proportion to his share holding. The credit societies could borrow from the State Li for each share so held.

Under the first of the above provisions, mortgage loans were granted to the gross value of £5,000,000. Very little interest was, however, taken by farmers in the formation of co-operative credit societies, only nine societies being actually registered under the act, of which four never commenced operations. In view of the small response to this measure, State advances to credit societies were discontinued in March 1927. Subsequently, the Government stated its intention of introducing a bill dealing with this subject.

Germany.—Germany may be regarded as the birth place of co-operative credit in Europe. The typical organizations have been the Landschaf ten or Credit Unions (for long term credit) and the Raiffeisen banks (for short term credit) . The former originated as far back as 177o, and gradually extended not only in Germany, but to Denmark, Hungary, Russia, Poland, Norway and elsewhere. The basic principle was the issue by the Landschaft of bonds based on estates mortgaged in its favour—the bonds being secured upon the collective guarantee of the members of the Landschaft. The borrower was paid not in cash but in bonds which he could realize on the market. He had the right to repay by annuity or by special instalments, or to cancel the loan by purchasing and tendering bonds. Landschaf ten bonds were re garded as first-class securities, and during the period 1910-14 were quoted on nearly equal terms with the loan bonds of the empire. The principle of the Raiffeisen banks, which were em powered both to make loans and to take deposits, was originally that loans were secured by the collective unlimited liability of all the members. Limited liability was, at a later date, adopted by a small number of these societies. In some cases they added to their credit business that of purchasing supplies for the mem bers, such as seeds, fertilizers, coal, etc. Under Raiffeisen's personal guidance the local credit societies were affiliated to central loan banks, which subsequently received assistance from the State. The wonderful growth of these societies into a vast banking organization, without incurring . any serious losses, is perhaps without parallel in the history of finance. In 1924, out of 38,00o registered agricultural co-operative societies in Germany over 19,50o were rural banks.

The post-War inflation in Germany, involved the whole credit organization in acute difficulties, and with the collapse of the paper mark, confidence was destroyed and depositors ceased to lend their money. For ,these reasons German agriculture found itself faced with an extreme shortage of capital, interest rates rose to a very high figure and farm mortgages became, for a period, un obtainable. After the stabilization of the currency and the in troduction of the rentenmark, drastic reorganization of the credit machinery became necessary. A central institution of agricultural credit, the Rentenbank-Kreditanstalt, an off-shoot of the Renten bank, was established, which operated through the previously existing credit institutions. Ultimately, with the aid of loans raised in the United States, the situation was considerably relieved and rates of interest substantially reduced.

France.—The conspicuous feature of agricultural credit in France is the State subsidy which it carries with it. Under the Maine act of 1894 all or part of the members of one or more agricultural syndicat could constitute a credit society, whose capital was obtained by subscription of members. The credit society became a filiale of the syndicat. A considerable growth of these societies took place with the assistance of a voluntary organization which prepared model rules. In 1897 it was made a condition of the renewal of the charter of the Bank of France that it would place at the disposal of the State without interest 40,000,000 francs, together with an annual share in the profits of the bank, for the assistance of agricultural credit. In regional banks were created, the members of which were the local credit societies, and the above subsidy enabled the regional banks to reduce their rate of interest to the credit societies, and con sequently to provide cheap credit to farmers. The number of regional banks in 1921 was 69, with nearly 5,00o credit societies affiliated to them. The extension of the system to the provision of long term credit was made under Acts of 1910 and 1920, which permit a maximum loan of 40,000 francs to individuals to facilitate the acquisition and management of rural properties.

Canada.—InCanada credit unions have been more successful, and over 150 with a membership of more than 66,000 have been organized since 1906, mainly in Quebec and neighbouring prov inces. By a number of acts the provinces of Canada have also sought to extend the facilities for short term credit to farmers. These include the Livestock Encouragement act 1917 of Alberta, under which persons may form an association and jointly apply to the Livestock Commissioners for a loan ; the Livestock Pur chase and Sale act 1913 of Saskatchewan ; the Rural Credits act 1917 of Manitoba, and a similar act in Alberta, both designed to promote co-operative credit. Mention should also be made of the Ontario Farm Loan act and the Agricultural Development act passed by the Ontario Legislature in 1921—designed both to assist land settlement and to provide short term loans. As regards long term credit, legislation has been enacted by the separate provinces. Manitoba passed Manitoba Farm Loan act, which became effective in 1917, and was subsequently amended in 1919 and 1921. The act established the Manitoba Farm Loans Asso ciation, which serves as the lending agency between the provincial government and the farmers, and is governed by a board of five members including a Commissioner of Farm Loans. Loans are secured upon first mortgages on farm lands and are repayable by annual instalments in 3o years. Saskatchewan has passed legislation on similar lines (the Saskatchewan Farm Loan act 1917), and Alberta has followed the general lines of the Farm Loan act in the United States.

Australasia.—Thedevelopment of agricultural credit has received and is still receiving a considerable amount of attention in Australia and New Zealand. In most States of Australia State credit institutions, such as State savings banks, make a speciality of providing agricultural credit. A number of acts have been passed in recent years dealing with the subject of rural credit, among which mention should be made of the Common wealth Bank (Rural Credits) act 1925 making provision for financing producers' organizations in marketing their produce. An account of these measures is to be found in the Australian Year Book 1925. In New Zealand a Royal Commission on rural credit published a report in 1926 which was followed by two acts of parliament, the Rural Advances act 1926 and the Bank of New Zealand act 1926, both designed to assist the development of long term agricultural credit.

India.—Thedevelopment of agricultural credit in India has mainly followed the European model, and has made consistently steady progress. The first act legalizing co-operative credit so cieties was passed in 1904. This act was replaced by an Act in 1912 which closely followed the English Friendly Societies act and permitted other forms of co-operation. The number of rural credit societies under this act exceeds 40,000 and these are mainly modelled on the Raiffeisen plan.

act, societies, term, co-operative and loans