I beg to move the following motion which stands in the names of Senator Counihan and of myself:—
That the Seanad is of opinion that, as the Commission on Agriculture, part of the terms of reference of which was to investigate the matter of the provision of credit for farmers, has suspended its inquiries, the Minister for Agriculture should appoint immediately a committee consisting of agriculturists, bankers, economists, and Departmental representatives, to inquire into the matter of the liquidation of frozen loans, and to make recommendations as to the provision of credit for farmers.
In the absence of Senator Counihan it falls to my lot to move this motion. I take this opportunity of expressing the great sympathy that we all feel with the Senator in the recent sad event which darkened his family life and brought sorrow to his home. The motion asks the House to recommend that a commission be set up which, constituted in a certain way, could investigate the matter of frozen loans to farmers, and in particular go on to make recommendations with a view to improving the provision of credit for agriculture, especially in the present emergency. Perhaps most of my remarks had better be related, at least in the first instance, to the problem of frozen loans. It seems to be the peculiar fate of agriculture, and of farmers in all ages, that they are more the victims of unfavourable economic vicissitudes, and in particular of changes in the value of money, than almost any other section of the business community. I use the phrase "business community" deliberately with reference to farmers, because farmers are, in the economic sense, members of the business community. They are people who have to make their living, as best they can, by the difference between the costs that they incur and the receipts that they get; but they are less fortunately situated than most other members of the business community, because, for reasons peculiar to the nature of their undertaking, they are not in a very strong bargaining position, and, therefore, are more likely to be the victims especially of changes in the general level of prices.
Now, more than 2,000 years ago a very great Athenian acquired a great reputation for wisdom. One of his titles to that reputation was that he liberated the tenant farmers of Attica from a burden of financial obligations which, in the changed economic circumstances of the time, had become literally intolerable for them. Ever since it has been necessary, from time to time, for statesmanship to intervene in order to relieve farmers from the burden of debts which, because of circumstances they could not foresee at the time they contracted these obligations, were impossible for them to repay. Farmers are peculiarly the victims of circumstances. When prices, generally, fall drastically, as prices did fall seriously after 1920, and, again, after 1931, they find, if they have incurred financial obligations at the peak point, that they are technically liable to repay in quart measures what they borrowed in pint measures formerly. Nominally, they owe the amount of money they have borrowed, but, actually, the amount of money that they owe (especially when the prices of the things that they have to sell have gone down), may have doubled or more than doubled in purchasing power, and, although, legally, the contract is for the return of the same amount of money, actually, if the letter of the law is adhered to in such cases, the farmers are being required to repay debts perhaps twice as great as the real purchasing power of what they borrowed. Putting it in another way, the farmer in 1920 who borrowed the price of 20 bullocks might well have to sell 40 or 50 bullocks in 1930, and even more in 1932, in order to repay the nominal amount of his loan.
I am not advocating any general revision of all monetary contracts entered into by our farmers and, in fact, we are fortunate in the fact that, speaking generally, our farmers have kept the banks at arm's length and are not heavily in debt—certainly not indebted to anything like the extent to which farmers in other countries have been indebted. The financial dimensions of the problem which we are considering now are relatively small, and, for that very reason, I think our country has enjoyed a degree of financial stability in recent years which it would not have enjoyed if our farmers had been indebted to anything like the wholesale extent to which they were indebted in the United States of America, in New Zealand and in practically every other agricultural country in the world. The frozen loans which I have especially in view, and which I think ought to be inquired into by an impartial tribunal, are loans incurred before the year 1930, and incurred especially for the purpose of buying land at a time when the price of land was inordinately high in the years immediately after the last Great War. To my own personal knowledge, some of the banks were forward in encouraging their customers to borrow from them for the purpose of buying land at prices which turned out in the event to be quite fantastically high. I say "some of the banks," because, in this matter, not all the banks behaved in the same foolish and ill-considered way. I want to avoid mentioning the names either of banks or individuals, but it is a matter of general knowledge that, in this matter of encouraging farmers, in the peak time of 1920, to borrow money for the purpose of buying land, some of the banks were worse offenders than others.
It might be said that the farmer entered into the contract with his eyes open, but his eyes were the eyes of the financial layman who could not foresee the future, and even the best financial experts in the world did not foresee, in 1920, the extent of the slump that would immediately follow. Still less in 1929 did the financial experts foresee the extent of the economic depression that would afflict the world for the next five or ten years, so that if the farmers may be relieved of responsibility in the matter of foresight, at all events, we may say that the banks, which are supposed to be financially expert, to some extent have a greater degree of responsibility for the consequences of these ill-advised loans than the farmers, on whom in some cases, to my own personal knowledge, these loans were almost thrust by the banks.
This problem of frozen loans was considered amongst other problems by the Banking Commission, but, in my view, it was not adequately considered by that commission, and evidently, judging by the terms of the report, the commission did not regard the problem as one of very grave importance. The commission itself contained a number of experts and a number of cranks, and, in addition to that, it was perhaps not as representative of what I might call the ordinary working farmers of the country as it should have been, and it was not constituted in such a way as to have any instinctive sympathy with the farmers in this particular aspect of their problem. If a commission of the kind which this motion recommends were set up, I think it might well recommend the establishment of a semi-judicial body which in other countries is called a Debt Adjustment Commission. That body would have the function of inviting applications from farmers, the victims of frozen loans, who considered that they had had a raw deal from their banks. It would invite those farmers to state their case to the commission, which would hear the farmers' case and that of the bank, go into all the circumstances of each individual case and make recommendations for a settlement which would meet the equities of the situation, with, no doubt, a right of appeal to a court of law, as is also the position in New Zealand. In fact, such a commission would fulfil much the same function in the relations between the victims of frozen loans and the banks as the Land Commission used to fulfil in coming between the Irish tenant farmers and a landlord system which they were unable to face up to themselves.
In the interval since 1920, and since 1930, there have been individual settlements made by the banks with these frozen debtors, if I may coin the term, and I know that in many cases the banks have let off their debtors with substantial concessions. I have heard of cases where as much as £20,000 was borrowed and as little as £5,000 accepted in full settlement, and, on the face of it, it would look as if in some cases the banks were almost unduly lenient, whereas, in other cases, to my personal knowledge, the banks have been unduly harsh. They seem to have followed a policy of letting down lightly the debtor who made no serious attempt to pay, or who had local influence, or who perhaps was well in with one or other of the political factions. On the other hand, when they came across the honest, hard-working debtor who did his utmost to meet his obligations, they attempted to extract the last penny from him, and when they had got all they could in the ordinary course of the business, they took the opportunity of selling the land for what they could get, being quite content with a very modest price for that land if it went anywhere near liquidating the final balance of the loan. That policy which was followed in some cases is analogous to the policy of fleecing the farmer, in the first instance, then flaying him and finally selling the carcase, so to speak, for what it would fetch.
The banks, in some cases, have been, I think, unduly lenient and, in other cases, unduly harsh, and my case is that there should be a semi-judicial body to stand between the banks and these frozen debtors and recommend an equitable settlement which every possible means should be brought to bear to make effective as between the banks and their debtors. The Government may say that they made a substantial concession to farmers generally by halving the annuities in 1933. Undoubtedly they did, but a general concession of that kind, while a matter of importance to everybody, is no solution of a problem which primarily affects only a minority of some 2,000 or 3,000 farmers. The fact that nine of your neighbours have a concession, the capital value of which might aggregate £1,000, of which your share is £100, is not a great help to you in paying a debt of £1,000, if you owe £1,000, and the other nine owe nothing, so the reduction of the annuities is no solution of this particular problem, which is specific and refers only to some 2,000 or 3,000 farmers.
I want to refer briefly to the experience of other countries where a similar problem existed and where, because the problem was much more serious in its general incidence, in its financial dimensions and affected a much larger proportion of the total agricultural interest, it was seriously dealt with and an equitable solution arrived at. My information about New Zealand is derived from the New Zealand Year Book of 1939. There, a series of Acts were passed, one called the Rural Mortgagors (Final Adjustment) Act, 1934-35, and another the Mortgagors and Lessees Rehabilitation Act, 1936.
The general purpose of that legislation was expressed to be "to retain farmer applicants in the use and occupation of their farms as efficient producers, and to make such adjustments of their liabilities as will ensure that the liabilities secured on any property do not exceed the value of that property". And here was the principle which was given effect to in that legislation: "If the basic value of the applicant's interest in any farm is less than the total amount of the principal and other moneys secured on it, the amount so secured is to be reduced to the basic value. The balance is an adjustable debt which was deemed to have been discharged on a date to be fixed by the adjustment commission." In other words, if a farmer bought a farm for £4,000, borrowing £2,000 from a bank, and in the course of time the basic value of that farm fell to £1,000, then the farmer, instead of being deemed to owe £2,000 for that farm to the bank, would be deemed to owe only £1,000 to the bank for that farm, and the other £1,000 would be adjusted out of existence so far as the farmer was concerned, though, doubtless, provision was made by which the banks were compensated from some other source for the concession which they had to make to their debtors. From information at my disposal, that principle has not been observed in many of the "harsh" cases which have been brought to my personal knowledge.
In the case of New Zealand, as long ago as 1936, 14 Debt Adjustment Commissions were appointed, and the number was increased to 33 in May 1937. These Debt Adjustment Commissions received 15,000 applications. In 1,055 cases voluntary adjustments were made, but in 10,066 cases orders were made by a Debt Adjustment Commission the effect of which was that £4,000,000 was written off the principal of farm mortgages in New Zealand and £1,000,000 was written off the interest of farm mortgages. That would seem to be a lot of money, and so it is, but to get it in its right proportion we must bear in mind that the extent to which land and farming is financed by mortgage debt in New Zealand is very much greater than the extent to which it is so financed here. The total indebtedness of our farmers to the banking system a few years ago was a matter of £12,000,000 or £13,000,000, and I am sure the addition of their debts to financial institutions of every kind would not bring that total up to £20,000,000, whereas the capital value of the assets associated with Irish agriculture must be well in the region of £300,000,000 or £400,000,000. So that the amount of money which our farmers owe, by way of mortgage debt or otherwise, to financial institutions is only a trifling proportion of the total capital value of Irish agriculture. On the other hand, in New Zealand, where these substantial concessions had to be made, the mortgage debt on country land, which was only £20,000,000 in 1900, rose to £50,000,000 in 1914, to £80,000,000 in 1920, to £125,000,000 in 1929, to £135,000,000 in 1933, and is estimated to be £130,000,000 in 1938. That shows that in that period, and especially since the end of the first Great War, New Zealand farmers were heavily increasing their mortgage indebtedness, but at the same time they were substantially increasing their agricultural productiveness for, if we look at the figures for the number of their dairy cows, we find that in 1900 they had only 355,000; in 1914 they had 634,000; in 1920 they had 893,000; in 1929 they had 1,371,000; in 1933 they had 1,846,000, and in 1938 they had 1,873,000—in other words, nearly twice as many cows as we have. So that from the point of view of business enterprise the New Zealanders displayed considerable enterprise in expanding the amount of borrowed capital, while at the same time they were substantially increasing the amount of their agricultural production. We would be in a healthier position if our farmers could safely— and I emphasise the word "safely"— borrow from any source whatever the means of expanding agricultural production, and if we followed in our own case something like the example which the New Zealanders followed. However, the point is that the £4,000,000 written off mortgage debt and the £1,000,000 written off mortgage interest in the case of New Zealand agriculture is with reference to a total mortgage debt of £130,000,000, in other words, something like 3 per cent. of the total amount. Expressed in that form and applied to our own figure, which, in the case of total agricultural loans from the banking system only amounts to some £12,000,000 or £13,000,000, 3 per cent. on that is not a figure that should cause us any serious financial alarm.
New Zealand is not the only country. In fact, I might almost say that ours, and probably Great Britain, are the only countries in which some revision on an equitable basis of agricultural loans has not taken place. The United States of America is another country in which it was necessary to revise agricultural indebtedness and to write down a large proportion of that indebtedness in the years of the great depression. I find from my records that farm debt in the United States of America amounted, in January, 1932, to 12,000 million dollars, of which mortgage debt represented 8,500 million dollars. In other words, mortgage debt was more than two-thirds of the total farm indebtedness. Now, the value of farm real estate in 1920 in the United States of America was 66,000 million dollars, but in 1933 it had fallen to 31,000 million dollars. So that the mortgage debt of 8,500 million dollars, in relation to farm real estate worth only 31,000 million dollars, was equivalent to a mortgage debt representing 25 per cent. of the total value of farm real estate in the United States of America in that year, 1932-33. Now, 25 per cent. of the value of farm real estate is a very big mortgage debt. In our case a similar mortgage debt would be a matter of nearly £100,000,000. We are not faced with a problem of anything like those dimensions. Our problem is much smaller, but a problem of doing justice to a small and unfortunate minority of our farmers. The American problem being what it was, was faced and dealt with. It was dealt with by way of writing down a proportion of the loans in cases where it was utterly impossible for the farmer to meet his obligations while at the same time provision was made by which the farmer thus relieved from an intolerable burden of indebtedness was able to borrow from fresh sources in order to resume full agricultural production. By the 1st December, 1933, 23 per cent. of the former indebtedness of American farmers had been written off. In 81.6 per cent. of the cases voluntary reductions were accepted by creditors in the case of farmers who were able to borrow from other sources for re-financing their old debts—and that brings me to this point, that if you can open a way in which farmers burdened with intolerable debts can borrow for re-financing, they can then proceed to discuss terms of settlement with their creditors, whereas, if there is no possible way in which farmers can get any money at all from any source whatever, then they have nothing to offer their creditors and the situation simply drags on from one year to another until the last state of that loan and that farm is worse than the first.
As already mentioned, the dimensions of our own farm debt problem are not alarming, as compared with other countries, and, probably for that very reason, nothing was done either by this Government or its predecessor to deal in an equitable manner with this old standing problem. I would emphasise that in criticising the attitude of the Government to this problem I am not in any way indulging in Party criticism, because everything which I say of the present Government applies by implication to their predecessors, who also were guilty of criminal neglect in failing to deal with this problem at a time when it was much more manageable in its proportions. It appears from figures given in the Banking Commission Report that our farmers owed the banks in January, 1937, about £12,500,000, but that the banks owed the farmers by way of deposits as much as £35,500,000, so that on balance our agricultural interest, so far from owing money to the banking system, was the creditor of the banking system, but that, of course, does not help matters very much in the case of the 2,000 or 3,000 farmers who are the victims of those irrecoverable loans.
The general relations of our farmers to the banking system are indicated by the fact that that £12,000,000 or £13,000,000 owed to the banks was owed by 125,000 farmers, an average farm loan of about £100 each, and I am sure that in 99 out of 100 cases those loans are a source of mutual advantage to the farmers and to the banks. No problem whatever arises with reference to the farmer who occasionally borrows £100 from the bank to buy stock, and, when he has sold his stock, automatically repays his loan. That kind of loan from the banking system to provide working capital during the period of the year when additional working capital is necessary is altogether admirable, and rarely leads to the problem with which I am now dealing, the problem of frozen loans. The problem with which I am concerned has arisen mainly owing to the ill-advised action of certain banks in advancing money to certain farmers to buy land at fancy prices in the years immediately following the last great war, and the number of farmers who were concerned with that kind of financial transaction is only a matter of about 2,000 or so according to my information.
