Mr. PARENT:

For a copy of (a) an agreement No. 14332A, dated 24th of October, 1929, between the Montreal Cotton Company and the Minister of Railways and Canals, (b) an agreement or sub-lease dated 26th of October, 1929, between the Montreal Cotton Company and the Beauharnois Light, Heat and Power Company regarding a lease No. 14332 as renewed by an agreement No. 14332A, (c) an agreement with the Montreal Cotton Company of the first part, the

Beauharnois Light, Heat and Power Company of the second part, and His Majesty the King, represented therein by the Minister of Railways and Canals of Canada, of the third part, giving consent to and approving of a sub-lease from the cotton company to the power company of lease No. 14332 as renewed by agreement No. 14332A, (d) an agreement with the Montreal Cotton Company of the first part, the Beauharnois Light, Heat and Power Company of the second part, and His Majesty the King, represented therein by the Minister of Railways and Canals of Canada, of the third part, giving consent to and approving of the terms of a sub-lease from the cotton company to the power company in respect to the lease No. 13978, as renewed, (e) an agreement with the Montreal Cotton Com-panv of the first part, the Beauharnois Light, Heat and Power Company of the second part, and His Majesty the King, represented therein by the Minister of Railways and Canals of ada, of the third part, giving consent to and approving of the terms of a sub-lease from the cotton company to the power company of lease No. 11925 as renewed by lease No. 21516.

Mr. STEWART (Leeds):

For a copy of all contracts for air mail service entered into or in force during the year 1929.

Mr. FOSTER:

For a copy of all letters, telegrams or other documents, received by the Minister of Labour, or the Minister of Immigration and Colonization, in connection with the request of the Canadian International Paper Company for the admission of one or more lumber scalers from the United States into the province of New Brunswick.

Mr. ALFRED SPEAKMAN (Red Deer) moved:

That, in the opinion of this house, consideration should be given to the setting up of a system of intermediate credits for agriculture.

He said: In discussing this question of agricultural credits an international authority used this method of illustration:

"The use of credit in agriculture may be compared to the use of water. If the water is brought into the field at the right time in the proper way and in proper quantities it will prove invaluable, but if the field is flooded or if the water is applied at the wrong time it will be destructive."

I shall attempt to discuss this subject from that point of view, Mr. Speaker, realizing that

300 COMMONS

Agricultural Credits-Mr. Speakman

credit overdone or used to too great an extent or in an improper manner, is more likely to defeat the object sought than to bring it into effect. All of those-and I imagine that includes most members of this house-who are familiar with agriculture and who have considered the subject of credits as applied to agriculture, recognize that there are three distinct phases, or methods of using credits, three distinct fields of agricultural credits. The first is that covered by the term "long term credits". Up to a short time ago that field was covered mainly, and indeed wholly, by the different mortgage companies who loaned money for various purposes on the security of the land. The distinction which might be drawn between the three forms of credit, which generally have been recognized as long term, short term, and intermediate, depends on three distinct factors. They are the term of years for which the money is loaned, the security which is asked and the purpose to which that money is devoted. In the case of long term credits the only security asked or accepted is the security of the land mortgaged, the reason obviously being that land alone, of all agricultural property, is not subject to change or fluctuation or to serious depreciation. It is there at all times, and always' possesses a certain value which renders it a proper form of security. The purpose for which the money is used under the long term form is, as a general rule, either for the purchase of land, for the renewing of existing indebtedness on more favourable terms, or for the erection of permanent improvements which, being of major value and permanent in character, should be paid for over the long term of years during which they retain their full measure of usefulness.

I might point out before I enter upon my subject proper that it was only after years of discussion and consideration that we took the final step in this country to place the Canadian farmer in a situation comparable to that occupied by farmers in most other countries by providing him with a form of credit suitable to his needs in that respect. It is too early at this stage, Mr. Speaker, to say with any degree of certainty or definiteness just how successful that attempt has been. We are still in the experimental stages. We do not know just how far the system of long term farm loans, our federal farm loans which we have inaugurated will prove satisfactory to the farmers w'ho will use the credit thus supplied, and that being the case it would be premature for me to pass any definite opinion upon what has occurred. I simply say this, that in the case of this act as in the case of most other acts, and in the case of this scheme

as in the case of most other schemes, certain weaknesses have become apparent-weaknesses to which I will refer very briefly a little later on- and for the remedying of which I propose to offer certain suggestions.

Since Canada became a nation, we have had a system of short term loans, familiarly termed bank loans, and up until but recently, and in the field which I propose to discuss even at the present time, it is the only form of loan which is acceptable to the farmer or to any other person. It has been the experience not only of farmers but of bankers and business men that the loans provided by the banks under the system which they must follow, under the conditions which must be imposed, are neither suitable for the purpose of agriculture nor do they meet the need which obviously exists. The reason for that is two or three fold. In the first place, the time for which the money may profitably be loaned by any bank is too short for it to be of any great value to the agriculturalists although undoubtedly it is suitable to many forms of commercial activity. I have no criticism at all to offer of our banking system; it was designed and has proven suitable to ordinary merchandising and ordinary commercial life, but the very conditions under which the money is loaned, the very terms upon which it is advanced are obviously suited only to that kind of business where the turnover takes place very frequently and at short intervals. In agriculture the obverse is the case. Even with the most successful farmer, the farmer who is so happily situated in regard to climate, in regard to soil, in regard to his own abilities, as to secure a crop once every year, cannot by any stretch of the imagination have more than an annual turnover. Twelve months must elapse even under the most happy conditions between one crop and another. It is obvious therefore, that a loan which can profitably be advanced only for a term of three months, with possible renewal for six months, cannot under any conceivable stretch of imagination meet the case.

Another point which renders this form of credit of very little value to the farmer is this. Owing to the fact that the return received, on the most happily situated farms, is so moderate, the interest rates charged by the average bank are too high to enable- that money to be used with any degree of advantage. We have provided for the farmer who wishes to borrow money for long terms up to 25 or 35 years to be used for certain specific purposes. In our banking system we have ready access, provided the security can be offered, to credit for certain short terms

Agricultural Credits-Mr. Speakman

and temporary purposes but, as I have stated, that is of very little use to the farmer, although he can and does make use of bank credit in some instances. For example, he may borrow money from the bank for the purchase of seed, hoping that within six months or so his crop will have matured and he will be able to repay the loan. He may borrow money for the purpose of buying feed for the same length of time. He may borrow for the purpose of paying his taxes in order to keep himself in good standing in the municipality and to avoid the penalities which are attached to delay in the payment of taxes. He may borrow for various temporary purposes to meet temporary necessities, but there is one class of farmer of great and of increasing importance for whom no adequate provision has been made, and that is the farmer who is anxious to go into mixed farming. the man who is anxious to build up and develop a dairy herd or to purchase young stock for the purpose of maturing and fattening that stock and placing it upon the market at the most favourable time and under the best possible conditions. To him a bank loan is of little value, and indeed the experience in the past of stock owners, those men who build up dairy herds or who buy young stock for the purpose of marketing at a latex date, has not been happy.

I may say-using the personal note moment-arily_that I am one of those men who from time to time have handled stock. Personally I have not been faced with the neccess-ity of borrowing money for that purpose, but I have seen farmers in my neighbourhood and I know of farmers throughout the whole province and the whole of Canada who have been so unfortunate as to incur that indebtedness. With what result? This was the result that followed almost invariably and which resulted in the partial bankruptcy and sometimes in the total ruin of those men. They borrowed a sum of money, adequate as they thought for their needs, with the assurance of the bank that the}7 would be able to renew the note from time to time as necessity demanded. But with the fluctuations in the market, very frequently the banks called their loans at a time when the stock was not matured, or not fit for the market, or when the market itself was not in a receptive condition, and they were faced with one or the other of these two alternatives. They were forced to put the unfinished stock on the market and take what they could, with a certain loss of money, or they were forced to borrow from some other quarter in order to meet the deficiency. The inevitable result was this: many of those men,

who in good faith entered into the business of stock raising or the preparing of stock for the market, found themselves forced to dispose of that stock prematurely and approached bankruptcy through the losses which they incurred.

Those of us who have been familiar with this situation, and who believe as I believe that stock farming is and should be a permanent and important part of our agricultural system throughout Canada, believe that we should have a system of credit which would be particularly suited to that particular industry, a system of credit under which money could be borrowed in reasonable quantities and under strict business principles, but which would be devoted to the purpose of purchasing young stock and which would be available for that purpose until that stock could be matured to advantage. If that were done, we believe that the business of raising stock, the mixed farming which we believe will be more and more the basis of successful agriculture, will again come to the front as a flourishing, important and profitable branch of this industry.

Now, what suggestions have we to offer and in what way has this situation been met in other countries? I am mentioning other countries for one reason above all others. In Canada we have been watching developments in that great country to the south and there we have found not only that the importance of agriculture has been fully realized, but that governments, both federal and state, municipalities, banks and all other financial organizations, have placed at the command of the agriculturist almost unlimited credit to be used for his particular industry. The United States has set aside vast sums of money to enable the farmers, if possible, to get on their feet and place themselves in a more fortunate position than that which they at present occupy. Indeed, to me it has been an occasion for pride that to a very great degree the Canadian farmer has been doing for himself, and asking for no governmental assistance in it, things which the United States farmer has looked to his government to provide for. The Canadian farmer, at his own expense and on his own initiative, has inaugurated marketing systems, which, in spite of temporary setbacks, in spite of adverse marketing conditions, will, I believe, place him upon a much firmer basis in the future than that which he has occupied in the past. In many lines of endeavour our farmers are showing themselves full of initiative, independence, and ready to do for themselves what they can do instead of asking for governmental assistance.

Mr. McQUARRIE:

What would be the

security?

Mr. SPEAKMAN:

I was just coming to

that. The next point is the security to be offered, for as I indicated at the opening of my remarks, the differences between these various forms of credit can be classified under three heads: (1) the term of years for which the money shall be loaned, the long term loan being limited to a maximum period of some thirty-five years, and the short term loan being limited to from three to six months; and for intermediate credits we suggest a term of from six months up to three or possibly five years; (2) the class of security which is demanded. In the case of long term credits, land is the only security accepted. In the case of bank credit the personal note and the personal obligation of the borrower, backed and seconded by the endorsement of some other dependable person, who would in turn assume his obligation, is the security usually asked for. In the case of intermediate credits, the security always demanded is a chattel mortgage on the stock itself, supplemented by other chattels of a marketable character.

Naturally and obviously in lending this money, strict business principles must be applied, and for the sake of the farmer of the country, of the institution which lends the money, no more money should be loaned than may be adequately secured by an approved form of security. I am not one of those who believe that the lavish expenditure of money, the wide-open power to borrow in any amount regardless of security and of the use to which the money is to be put, is a good thing for anybody. But I do think that credit wisely applied and judiciously extended is the very lifeblood of all business though in this case, as in the case of all other countries where the system is applied, the security is the chattel mortgage upon the stock purchased, supplemented by chattel mortgages upon other marketable security of a class which will not deteriorate too rapidly.

The purpose for which it would be applied would be, as I have indicated, the purchase

of young or dairy stock with the object in view either of building up a dairy herd or of maturing and fattening that stock, and placing it upon the market at the best possible time and in the best possible condition.

I have indicated, then, the terms, the life of the loan, the security, and the general purpose which I have in view. I am asking that this subject shall be sympathetically considered. I have intimated that in my opinion the best place for its proper consideration would be the banking and commerce committee, and I suggest that when the subject is being considered by that committee it consider also the question of long term credits, the functioning of the present act, and the various complaints which have arisen from time to time, together with the possibility of some improvement in the regulations. I have said that I am ready and willing to accept an amendment to that effect to bring about the reference of the question to a committee; and assuring the house that I have not brought the matter before it without realizing what it means, without realizing the dangers and the difficulties which an injudicious use of credit might bring in its train, I would urge that this proposal be considered sympathetically in the hope that some system of credit suited to agriculture, and suited particularly to the stockmen and mixed farmers of this country, may be provided and put into force.

Mr. SPEAKER:

If there are no other

speakers-

Mr. SPEAKMAN:

I was going to suggest

an amendment that the matter be referred to the banking and commerce committee, as there is no specific mention in the resolution of the method to be employed in giving the consideration which I ask.

Hon. CHARLES A. DUNNING (Minister of Finance): I think both the substance and form of the presentation by the hon. member for Red Deer (Mr. Speakman) of this subject of intermediate credits merited far more attention than they received. I confess that I had some difficulty in following him because of the difficulty in hearing all that he said.

I gathered, however, that the hon. member traversed the ground in connection with what is sometimes called the blank spot in agricultural credit; that is, that area between the short-term credit, well provided under the terms of the Bank Act, and as extended by the chartered banks of the country, and, at the other extreme, the long-term land mortgage system. In between, as my hon. friend states, is the problem of supplying the kind of credit on chattle security adapted for various forms

Agricultural Credits-Mr. Dunning

of agriculture, and particularly for the industry of stock raising. The subject has been studied at various times on behalf of Canada, the last report being, I believe, that of Doctor Tory, which was made available in 1924 and out of which grew the long term farm loan system which is now in operation. The Canadian farm loan system has been in operation now for several months. Loans have already been placed, I believe, in six of the provinces, and under the terms of the act approximately $1,608,000 has been loaned.

My hon. friend made reference to the developments which have taken place in this connection in the United States. It will be remembered that, following many years of study by numerous commissions the United States finally adopted what might be called a comprehensive agricultural credit system, changing in some respects their method of dealing with short-term credits for agriculture as well as with intermediate and long-term credits. Experiments in this connection have been going on for several years. Although perhaps it is a little too early yet to state just what the results are in the United States, so far as the successful operation and attainment of the objective is concerned, I have some information here regarding the operation of intermediate credit institutions in that country which might be of use to the house at this juncture.

Under the system which was evolved as the result of years of inquiry in the United States, there was included the establishment of twelve intermediate credit banks. They were established in the same cities as the federal land banks, and were set up as separate corporations, although having the same officers and boards of directors. Each of these intermediate credit institutions had a capital stock of $5,000,000, entirely subscribed by the government of the United States. These institutions also have power to issue debentures up to ten times the amount of the paid-up capital and surplus, the security to be cash, or paper representing loans. In the case of these United States intermediate credit organizations the method of doing business is not directly with the farmer. The loans are made from the twelve national intermediate credit institutions through the medium of state or national banks, trust companies, agricultural credit corporations, incorporated live stock loan companies, savings institutions, cooperative banks, cooperative marketing associations of agricultural producers, or other federal intermediate credit banks. That sounds rather complex, but my point is that the federal intermediate credit system of the United States

operates by discounting the paper of other institutions, and not by discounting the paper of the farmer direct.

I have here a diagram from Doctor Tory's report indicating the relationship of the various unit parts of the United States scheme, and in that connection I note that a form of joint stock land bank was established as part of the intermediate credit system of the United States, having a direct relationship with the federal farm loan board. Eighty joint stock banks were provided for, with a capital of $250,000 each. I understand that this part of the United States' development in connection with agricultural credit has not been so successful in operation as the other portions of the system; or perhaps it would be fairer to say that weaknesses have developed in connection with joint stock land banks to a greater degree than they have become apparent in the other branches of the system. For instance, three of the joint stock land banks have been placed in receivership with outstanding liabilities of more than $70,000,000, namely, the Kansas City Joint Stock Land Bank, Kansas city, Missouri, the Bankers Joint Stock Land Bank, Milwaukee, and the Ohio Joint Stock Land Bank, Cincinnati. The fact that these institutions are in difficulties, however, does not necessarily mean that the whole structure is inadequate or inefficient, and it does not mean that the twelve intermediate credit institutions set up under the same authority are in any difficulty. But it is a little too early for us to say that the institutions evolved by the United States as a result of their exhaustive inquiry are yet past the experimental stage. I think my hon. friend from Red Deer who has given some study to this matter will agree with that statement.

It is important that we should profit by the mistakes of our neighbours, whatever they may be. I am more concerned with profiting by their mistakes than I am with following their example along many lines. In this regard allow me to quote from a report of a study of recent economic changes made in the United States in 1929. This study was undertaken by a national committee, not any voluntary organization, with Herbert Hoover, now President of the United States, as the head of it. The remarks made in connection with the credit situation as it affects agriculture are, I think, particularly useful to us in this discussion. Mr. Hoover's committee says, and, remember, this is in 1929, quite recently:

Agricultural Credits-Mr. Dunning

Many rural districts were inadequately served with credit in the years shortly before the World war when the rural credit agitation first came to an acute stage. With the passing of the Federal Reserve act, the Federal Farm Loan act, and the Intermediate Credit act, the way had been paved for the removal of many difficulties; though obviously no mere passing of legislation can create a desired volume of credit, or suitable administration of its extension. In practice, "sympathetic" officials in some of these institutions have extended lines of credit involving losses of some magnitude. These losses, however, will doubtless be absorbed in our structure without serious harm, distributing scarcely avoidable losses to shoulders more able to bear them than those on which they originally fell.

The main point, however, is how the extension of credits is to be suitably adjusted to the productive organization of our agriculture in the future.

That is significant as indicating that the United States do not yet regard their system as working perfectly or even satisfactorily. The report goes on:

Perhaps we may grant in a broad way that the several pieces of rural credit legislation already enacted have tended to put the credit resources of the country at the disposal of the agricultural industry upon terms as advantageous as those available to other industries and adapted to the peculiar requirements of the business and those who are engaged in it. We must not. however, put the cart before the horse. Adequate credit facilities will not create a satisfactory credit situation for agriculture, but on the other hand a satisfactory basis of credit must precede the extension of loans.

That is the precise difficulty that the United States scheme is meeting in operation, the finding, not of the money to loan, but of a satisfactory basis upon which to extend the loan; which is of course a fundamental problem in connection with any credit scheme. The report continues:

Even those farmers who in the years just following the war laid stress on the ability of liberal credit extension to serve them in the deflation period have seen the limitations of such relief measures and have coined the phrase "You can't borrow yourself out of debt."

That is all I wish to quote from the report, merely by way of giving information to the house how sympathetically official United States' opinion regards the experiment which has been conducted in that country and the operation of it.

So far as Canada is concerned, we could of course approach the matter from the point of view of enlarging the powers of the chartered banks to take security. We could, if we wished-personally I doubt the wisdom of it -permit our chartered banks to take classes of security which would enable them to enter more largely into what is known as the inter-2419-20

mediate credit field. In fairness to our banks,

I think it should be said that although not having the power to take the kind of security which is taken in other countries, our chartered banks do in fact materially facilitate the very operation of live stock production and so forth which we are discussing, and which require in reality a longer term of credit than the ordinary three month note. But I doubt very much, Mr. Speaker, if this house would care to go on record as considering it desirable that there should be a widening of the security-taking powers of our chartered banks along this line. The criticism of course is that to the extent to which banks do tie up their funds in long term loans their position is thereby rendered less liquid. And I have the old fashioned idea of a bank; its first essential should be that it is a safe place in which to put money; its lending features are secondary from my point of view. Unless it is a safe place to deposit money it will not last long as a bank. And to the extent that we permit the tying up of deposits for longer periods than prevail under the present law, to that extent we are opening the possibility at least that depositors might not be able to get their money out on demand.

Mr. STEVENS:

To what extent has the

rural credit measure passed some few sessions ago relieved this situation which the hon. minister is now discussing?

Mr. DUNNING:

There was no rural

credit legislation. That is a distinction which I want to draw. Rural credits, as I understand it, is a broad term which includes lending of all kinds to rural people; that is to say, it includes any system of short term lending, of intermediate lending, and of long term farm mortgages. This parliament, I would say to the hon. member for Vancouver Centre (Mr. Stevens) dealt with just one phase of that in its legislation enacted, I think, in 1926. The one phase which this parliament dealt with then was the long term mortgage credit phase of the problem.

The phase we are now discussing is different entirely. In the United States, as I have indicated, separate organizations are created for intermediate credit. True, they are under the same general management, but I submit it would be impossible for such institutions to be under the same general management as long term credit organizations if the intermediate credit organization were itself dealing directly with the farmer. The fact that the twelve intermediate banks in the United States are dealing, not with the farmer, but with the other organizations, which in their turn dis-

Agricultural Credits-Mr. Dunning

count the farmers' paper, renders it possible and practicable for the administration of the intermediate credit bank to be the same as that of the federal farm loan institution. There is a wide field for speculation as the manner of dealing with the actual administration of such an organization. In the United States the organization does not itself deal directly with the farmer but with organizations of various kinds which in turn deal with the farmer. The intermediate credit organization discounts the paper of various types of organization which, under the law, deal with the farmer with respect to the credit, and are in the first instance responsible for so doing. Therein lies a very important aspect of the problem. The United States farmer who borrows under the facilities provided by the intermediate credit portion of their farm loan legislation deals with some local organization which is wholly responsible for dealing with him. The intermediate credit institution has nothing whatever to do with the individual farmer. It does not lend money to the individual farmer, does not realize upon the security, if it is necessary to realize upon it; but the local organization is able to send that farmer's paper in as an individual piece of paper to combine *with all the rest of its loans of a similar class to the intermedia te credit institution and borrow itself on the amount of paper discounted en bloc. In Canada it would be rather difficult to organize in such a way, as I think my hon. friend from Red Deer will appreciate. Our conditions are different, and there are many parts of the United States from which complaints on that ground are coming at the present time, the ground being that the situation of the people in many parts of the United States does not permit of the establishment of the initial institution through which the discounting is conducted that it is difficult for them to create the kind of institution which can qualify as a discounting organization under the terms of the intermediate credit legislation by borrowing from one of the twelve intermediate credit banks.

I did not intend to go on at length in connection with this matter, Mr. Speaker,-

Sir GEORGE PERLEY:

Referring to the question asked by my hon. friend from Vancouver Centre (Mr. Stevens), I do not think the minister has answered it as I had expected he would. He asked whether the present system of long term rural credits did not go to relieve the situation. He referred to stock raising. As I understand it, if a man has a farm free of mortgage he can go to this board

IMr. Dunning.]

and get a long term rural credit for the purpose of raising stock, or doing anything else in connection with the improvement of the farm.

Mr. DUNNING:

I am sorry I did not get the point my hon. friend from Vancouver Centre was making. The legislation which passed this house in 1026, being now in operation, contributes in some measure toward the supplying of funds to farmers for stock raising, provided the farmer has real estatesecurity to offer and is in a position to take a long term loan for it. In actual practice- and I speak as an individual who raisesstock-if a man is really thrifty in his farming operations he does not regard it as goodbusiness to take out a thirty-year loan for the

purpose of financing the growing of stock which must, of necessity, come to maturity, if it is to be profitable, in three years.

Sir GEORGE PERLEY:

Surely he is not obliged to take out a thirty-year loan. He can take a shorter loan.

Mr. DUNNING:

Not under the terms of the federal farm loan scheme which passed this house. It is a long term loan system.

Sir GEORGE PERLEY:

Surely that cannot be the case. Can he not take it for a shorter term?

Mr. BROWN:

Is there not a provision

in the bill whereby the loan can be repaid after five years?