1931 FARMERS’ DEBTS 297

FARMERS’ DEBTS IN SOUTH AUSTRALIA AND WEST AUSTRALIA.

The succession of bad seasons in South Australia from 1927 onwards has rendered the position of many farmers precarious in the extreme. The situation has, of course, been complicated by the very low level of wheat and wool prices during the last two years. The problem of enabling the farmer to carry on has occasioned the Government a considerable degree of concern more especially as it is not desired to have the unemployed of the cities reinforced by settlers who have been obliged to abandon their holdings. I n Western Australia, in spite of favourable seasons during recent years, the farming industry appears to be in very bad trim to weather the period of depressed prices for farm products. In that State the causes of the disabilities affecting the agricultural industry have recently been the sub- ject of inquiry by a Royal Commission.’ Even before the com- mencement of this inquiry it had been judged necessary to pro- tect the distressed farmers by legislation in “The Farmers’ Debts Adjustment Act 1930,” which is so similar to the 1929 South Australian measure called “An Act to Facilitate the Adjustment of Agricultural Debts” as to lead to a belief that it was modelled upon the latter measure. Postponing for a moment consideration of these two measures it is interesting to notice the findings of the West Australian Commissioners. For a consider- able number of years past-dating back to the pre-War period- a vigorous policy of land settlement had been pursued, financed in the main by the Agricultural Bank along lines the economic soundness of which I have elsewhere had occasion to question.2 The second branch of inquiry to which the Commissioners were directed by the terms of their commission was the disabilities affecting the agricultural industry in the State, and in particu- lar the main causes affecting the cost of production. Part I of the Report sets out the present position of the wheat and sheep farmers of Western Australia. The figures are staggering, although, of course, it may be easy to over-estimate their im- portance. At 30th April, 1931, the clients of the Agricultural Bank owed more than S14,000,000. This covered all branches of the Bank’s activities, including that relic of the bad season of 1914, the Industries Assistance Board, the Soldiers’ Settlement

1. Report of Roual Commission on the Disabilities Affecting the Aoriculturd

2. Taylor : The Agricultural Bank and Industries Assistance Board. (Mac- Industru of Western Australia.

millan, 1921.)

(Government Printer, Perth) .

THE ECONOMIC RECORD NOV.

Scheme, and the properties taken over from the Group Settle- ment Board as having reached the ten cow stage of development. But the total liabilities of the 20,559 farmers em- ployed in wheat and sheep farming whose position the Com- mission was called upon to consider were actually over €31,000,000. Such farmers held, alienated from the Crown, improved land, 13,703,310 acres, unimproved land, 22,242,820 acres as to which figures the Commissioners drily remark, “one an asset, the other a liability.” However, even in the case of the asset it cannot be valued since a t the present time there is no basis of value. It was held, and it is impossible to dispute the contention, by the Commission that the wheat industry had become so essential to the State’s trading welfare that it must be sustained over the present period of price failure. The only really debatable question is which is better able to sustain it- the State or the creditors of the farmers.

The Commission’s Report then goes on to say that the wit- nesses examined were unanimous in stating the propositions- (1) “the prosperity of the State depends upon the wheat indus- try”; (2) “the present financial crisis has been occasioned by the price failure in the 1930-31 harvest”; and (3) “the render- ing of financial assistance to the farmers a t the present time is a community obligation. ” But the Commissioners themselves, find- ing it difficult to account for such a tremendous accumulation of indebtedness in view of good seasons and good prices from 1915-1931, saw that other factors beyond the price failure of 1930-31 had caused the critical position in which the farmers of the-State found themselves. They suggested (a) the false prosperity caused by lavish and overeasy borrowing; (b) the unlimited extension of credit ; (c) overtrading by merchants in competition for business (agricultural implements and machinery in particular) ; (d) mounting interest rates; (e) the effect of steady increase in tariff; (f) the belief that the strong world prices for wool and wheat would continue (in each case obviously without justification) ; (g) the competition by Associated Banks for business (the villains of so many pieces!) ; (h) the more than forward policy of the Agricultural Bank (the plaything of political enthusiasm) ; (i) the purchase of estates for soldier settlement at high prices (not confined to W.A.) ; and, finally ( j ) the period of high prices for produce, giving farmers a false idea of their prosperity. The Commissioners conclude : “The whole industry was pyramided on good prices and lavish credit with-

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out due inquiry being made into production costs, world produc- tion of wheat and the value of the assets on which such credit was being extended. The Government, through the Lands De- partment and the Agricultural Bank, together with all classes of the community, including Associated Banks, are responsible for the accelerated and uneconomical development of the farming industry in Western Australia.’’

In view of-this comprehensive indictment it is no wonder that a voice raised in criticism from time to time was unheeded. The Report then goes on to point out the almost impossible posi- tion facing the farming community with its load of liability and the prospect of continued low prices for wheat and wool. The farmers are exposed to the danger of dispossession by adverse action of mortgagees or creditors and want relief in the way of a writing down of their obligations and a moratorium. The Com- missioners feel that their desire is incapable of fulfilment but agree that time should be given for them to carry on. The Com- missioners insist upon the obvious fact that reduction of costs of production is imperative. They affirm very strongly that as the State had a deficit in its annual finances, and the loan market was closed against it, finance for carrying on must come from private sources. Two plans limited in time and scope for carry- ing on the farmer by the aid of his mortgagee and other creditors whose interest the Commissioners conceived lay in maintaining him on the land are put forward and will be considered later in this review and compared with the South Australian measure which adopts another principle. These occupy Par t 111 of the Report, the second par t having been used for a brief enumera- tion of other plans submitted which are then relegated to an appendix, some of their main. ideas being incorporated in Par t 111.

Part IV. of the Report considers the position of the Agricul- tural Bank, and finds that one of the chief matters of complaint is the overloading of the Managing Trustee with work as his co-trustees are only par t time assistants. The appointment of two additional whole time trustees is very strongly recommended, and in view of the generally lax supervision, that of a Chief Inspector is also suggested. Criticism of the business methods of the Bank is fortified by a recommendation that the Bank’s policy of developing new wheat and sheep areas should cease and a policy of consolidation be adopted. The affairs of the Bank

300 THE ECONOMIC RECORD NOV.

are described generally as unsatisfactory, and political inter- ference is more than hinted at.

Par t V. deals with disabilities, and here the Commissioners are very much of the opinion that the incidence of our unscien- tific and “iniquitous tariff” is tending to crush the primary producer out of existence. In this conclusion the Commissioners are fortified by reference to The Australian Tariff3 and the evi- dence of Mr. Gregory, M.H.R. The figures which are cited of comparative prices of machinery, galvanised iron, fencing and barb wire are illuminating. The policy of embargo and restric- tion of imports is condemned as injurious to the primary pro- ducer by the imposition of added charges, directly and indirectly. High rates for insurance are also noticed and condemned amongst other perhaps less avoidably high burdens in the form of port and stevedoring charges and freight rates.

The main part of the Commission’s Report deals, as already indicated, with the very difficult matter of arranging how to maintain the farmer and protect him against creditors who may be inclined to make the most of their legal remedies. Here com- parison with the parallel measures in South Australia may be useful. I n each case the effect of the Debts Adjustment Act is to set up a Director whose function is the issue of orders variously called, in the S.A. Act ‘‘a protection certificate,” in the W.A. Act “ a stay order.” The result in either case as with the recently passed Victorian legislation (The Unemployed Occupiers and Farmers’ Relief Act 1931-Part 11.) is, upon the issue of the order, which must be gazetted, to prevent the com- mencement or prosecution of proceedings a t law against the farmer or the enforcement of remedies under existing securities to realise upon the farmer’s assets mortgaged or otherwise charged under such securities. The Director, in W.A., has then to call a meeting of creditors if called upon to do so by any creditor, a somewhat similar provision appearing in the Victorian Act, but in S.A. a majority in number and value of the creditors after being informed of the financial position of the former, is given power to object to the issue of the certificate, which then becomes void. The appointment of a receiver who is to control the property of the farmer for the time being and receive moneys and make disbursements upon his behalf is a feature of the West Australian Act, whereas in the case of South Australia the

3. Thr Auatrdian Tariff: An Economic Inquiry. (Melbourne University Press). 1929.

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Director may direct the farmer’s dealings with his property. Stay orders may be extended from time to time by resolution of the creditors and the farmer while subject to the Act is not allowed to encumber or alienate his property. Certain priorities are then created as to payment of the proceeds of the next ensuing crop. Generally reference of disputed matters arising under the W.A. Act is provided for to a Judge of the Supreme Court; in South Australia Special Magistrates have a general overseeing power.

The West Australian Commission’s Report is, however, most important for the plans suggested for carrying on the farmers for two seasons (till April, 1933). In South Australia last April there was assented to “The Farmers’ Relief Act,” of which the essential feature is that the Board of Management of the State Bank of South Australia arranges for the supply of cropping requisites, household commodities and cornsacks, re- ceiving from the farmers with whom it deals an assignment or lien over the coming crop. The suppliers of such goods to the farmers are to have issued to them by the Board certificates which are t o be given negotiability. Persons who lend to farmers coming under the Act for the purchase of such commodities o r for payment of motor registration fees in respect of motor vehicles owned and used by the farmer on his land or for labour hire in sowing o r harvesting the crop also receive certificates. These certificates carry a right to interest at a rate not exceed- ing 7% per annum and entitle their holders t o preferential treatment in the disbursement by the Board of the crop proceeds. The Board supervises the selling of the crop and the application of the proceeds thereof firstly in payment to the holders of cer- tificates and then equally in liquidation of such liabilities as rent, interest, instalment on machinery, rates and taxes and medical expenses. After these liabilities have been met the Board is to allow the farmer a reasonable amount for sustenance for the year 1932-3. Provision is then made for the further debts of the farmer and any surplus after satisfaction of his liabilities is to be returned to him. The Drought Relief Acts of 1928 and 1929 are extended by this Farmers’ Relief Act.

In Western Australia the unsatisfactory working of the Agricultural Bank and Industries Assistance Board appears to have caused a dislike for the scheme of the Bank or a Government Board carrying on the farmer, and the recommendations of the Royal Commission aim at placing the financing of the farmer

302 THE ECONOMIC RECORD NOV.

for the coming season and its successor in the hands of his prin- cipal creditor, though, of course, as a matter of fact in some 9000 cases the Agricultural Bank is the principal creditor. The plan for. the liquidation of farmers’ debts recommended by the Com- mission is as above indicated twofold-providing first for the case where the settler applies successfully to his principal secured creditor for the necessary assistance to enable him to continue farming operations, and, secondly, for cases where such finance cannot be arranged. In the first case the principal creditor is to arrange with the other creditors interested in the voluntary financing of the settler, who, in return, gives a priority lien over the ensuing crop, clip or stock, and a statutory charge over his lands to secure repayment of the advances. Such priority lien would apparently rank before any existing mortgage, bill of sale or lien, but the statutory charge is to be subject to existing en- cumbrances. The controlling creditor has the collection of crop proceeds and the allocation thereof in briefly the following man- ner. After the costs, charges, etc., of the preparation and regis- tration of the security and expenses of the creditor during the period of control have been met, 5 % of the balance is to be paid to the farmer for his personal use; then debts for approved cur- rent supplies, services or advances incurred in connection with the ensuing crop or clip are to be met, followed by one year% mortgage interest, land rents, rates and taxes and one quarter of outstanding machinery balance within limits of €75 maximum and €15 minimum. Deficiencies in previous year’s payments in connection with the same liabilities are nest to be met, and so on till the stage is reached a t which the suspended liabilities of the settler begin to be liquidated. Any stay orders issued by the Director under the Debts Adjustment Act are to be cancelled upon the application of the controlling creditor when the securi- ties under the plan have been completed. The controlling creditor other than a Bank may be called upon to give security by the Director.

Where the controlling creditor cannot be persuaded to ar- range finance the alternative plan is for a Board of three trustees appointed for the purpose to establish and control a fund from which advances shall be made to deserving settlers. The source from which funds for such advances are to be drawn is left un- certain as between the Commonwealth, the Associated Banks and a sales tax upon flour of E5 10s. Od. a ton. The Commissioners do recommend that the fund shall come mainly from this source.

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For a farmer to come under this plan he must have applied for a stay order under the Debts Adjustment Act and the Director submits his proposals for finance to the trustees, who, if they accept them, place a Receiver in charge of the settler’s affairs. This receiver is to conduct the affairs of the farmer in the same manner as the receiver provided for by the Debts Adjustment Act save that he shall pay out of the crop proceeds 5% of gross farm revenue received to the farmer for his own use, then pay- ment as under the first plan for essential current supplies, after which he begins to recoup t o the Fund any deficiency and inter- est thereon. The receiver, with the consent of the trustees, would have power to create preferences for essential supplies and services. Provision is made for a receiver’s deficiency on the year’s working to be recouped from the fund by the trustees and carried on to next season. The trustees would be vested with a statutory charge over the crop which they may hypothecate to a bank for advances on overdraft to the settler.

Demand is being made in Western Australia that no time should be lost in making effective the recommendations of the Commission more particularly in respect of a sales tax upon flour to set up a fund for the relief of those necessitous farmers who cannot arrange their own finance. The two schemes, as may have been gathered by this time, are each based upon the view that the assistance of the farmer during this critical period is a community obligation, and that no one creditor should be allowed to make good his claims, however good a t law, if both the farmer and the other creditors are going to suffer in consequence. There will be found some, no doubt, to question this interference with what are to a considerable extent contractual rights, and these may point out that the mortgagees and other secured creditors of the farmer are struck by the legislation restricting mortgagees’ rights and also by the financial emergency legislation resulting from the Premiers’ Plan, with its reduction of interest rates by 224%. The only argument in favour of the adoption of the Commission’s Report is the time-worn one of necessity; on all other grounds it seems open to ‘condemnation, and the bene- ficiaries of the plans-the settlers-bear more resemblance to a new species of serf, adscriptzis glebae by bonds of debt, than to free men.

GORDON TAYLOR. University of iielbourne.