Contents:
Introduction
Government Policy for Farm Credit
The Depression and Pricing
Marketing Boards
The Establishment of Milk and Wheat Boards
Debt Adjustment
Rehabilitation and Insurance p. 3 p.4 p. 4-5 p. 5-6 p. 6-7 p. 7-8 p. 8-9
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Introduction
The topic area that will be covered stretches over a three decade period from around 1910 to 1940 and deals with many areas of the economy that were faltering through this period. This was a time of great instability that required various government adjustments as a means of coping with the tough times.
This starts out with some of the issues arising in farm credit. The price of land and capital was increasing as the amount of land available was becoming scarce. Thus the farmers of the time required more credit to obtain the capital. The only source they had up until this point was private lenders who offered high interest rates and only over shorter terms. So there needed to be some government intervention to increase the length of loans, decrease the interest rates, though mainly they were needed to promote competition in farm lending.
The onset of the depression came about in the late 1920’s and endured through much of the 1930’s. There were numerous detrimental effects to farmers during this time period. The main economic effect was lower farm incomes due to a decrease in the price of farm goods. Farming took huge hits in terms of pricing due to an overall decrease in demand for the products combined with an increase in farm production in Canada.
Voluntary cooperatives were formed to cope with the weak bargaining position of farmers. By creating an orderly disposal of products, it was thought that a higher, more stable price could be obtained. However, non-cooperators tended to benefit from the efforts of the cooperators and sometimes ended up more prosperous than the voluntary members of the cooperatives.
The next step was to form compulsory cooperation through the formation of marketing boards. Marketing boards were formed for wheat and milk. Due to drastic price decreases in these two areas of production, the government intervened to set up control mechanisms which would ensure fair prices for the producers during this time of uncertainty.
Another problem arising during this time period was the issue of debt. Prior to
WW1 prices were high and demand was there, so farms incurred debt as a means of expanding their practices. Following the war, prices and demand dropped off significantly, and farmers were left with large debt and lower than anticipated incomes. The government took measures to adjust the outstanding debt.
To make matters worse, crop failure and drought occurred during this difficult time in the deflationary economy. The government was once again called upon to set up programs to revitalize the farm land and to compensate the farmers.
Through this brief overview, we can understand that this time period was plagued with economic disaster and that farmers required great support from the government in order to survive. Now we will more specifically discuss these areas that I have touched on.
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Government Policy for Farm Credit
Up until the First World War, private enterprise supplied most farm credit in the form of loan, trust and insurance companies. At times, provincial governments made grants specified for agricultural purposes in various ways such as drainage. However, starting in
1913, farmers started to want more government support. Prior to this time, private loans were issued all the time with lending firms having plenty of money and little worry about handing out loans. It was at this time that grain prices were quite good to the extent that most farmers were able to meet their financial commitments.
However, with the demand for land increasing and the value of decent land on the fall, farmer's costs started going up. While these problems were starting to develop, the amount of loan capital was declining. The eventual outcome was an increase in interest prices. It was at this time that the supply of loan money for the United Kingdom was also declining. Also, the Balkan wars were going on at this time and that led to the end of supplies being received from France, Belgium and Holland. In addition to this, corporate leaders believed that the economic and agricultural boom in the west had passed its peak. As a result, farmers faced the problems of high interest rates and difficulty in obtaining loans.
Farmers began to complain about the high interest rates as well as the idea that the standard
5 year lending period on loans simply wasn't long enough. They also believe that short and long term credits were few in number and that they lacked competitiveness.
What became of this was the intervention of the government. Provincial governments in each of the three Prairie Provinces began lending money to farmers to create more competition among corporate leaders and firms. In Ontario, leading firms had to leave the farm lending field altogether and turned their attention to other possible investments simply because farmers weren't using them. In 1921, the Ontario government sponsored farm loan associations whereby it advanced money to individual farmers for long term mortgages because of the withdrawal of private investment.
In the Maritime Provinces at this time, there was little government spending during the twenties and thirties to encourage new settlement rather that assist farmers.
Finally in 1923, a special parliamentary committee was assigned to draft a report inquiring into the issue of agricultural conditions. What arose from this report was he recommendation of a study of the problem of agricultural credit. Because of this recommendation, the Canadian Farm Loan Board was established in 1929. Also concluded by the Agricultural Committee was that agricultural credit was to expensive and that government lending would help to make credit more affordable. The goals of the Farm
Loan Board were to provide competition for private lenders, ensure more competitive conditions and to lower interest rates. The Board also did not seek business through advertising which proved it was there for the sole purpose of supplementing the supply of credit.
The Depression and Pricing
The Depression had a huge impact on agriculture. Public assistance was essential. A striking feature of the Depression was the uneven way it affected different parts of the economy. Farm prices were vulnerable due to the universal slowdown in economic activity.
In the early thirties the Depression deepened and the terms of trade were against agriculture.
Farm income sank and net farm income took a dramatic decline of 533 million in five years.
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Prior to the Depression Federal and provincial government polices with respect to farm income were expressed in measures to improve bargaining position of farmers.
Measures included were;
-farm loans to provide competition in the field of farm mortgages,
-encouraging the development of voluntary cooperatives to strengthen the farmers position in the market place,
-tighten the rules which governed the grain trade, and
-promoting export trade, and making some tariffs favorable to agriculture.
The Depression weakened competition of agriculture pricing. Production for agriculture producers only had a short decline in demand compared to non-farmers.
Agriculture had an income burden due to the Depression, yet outcome declined very little.
Agricultural price decline was due to the effect of the small demand decline combined with the expansion of agriculture’s productive capacity. The response of supply to a decline in demand resulted from the lack of non-farm employment opportunities, which increase the number of self-employed persons in agriculture. Farm production increased in some areas, but was mostly maintained. The non-farm section had to adjust to the Depression by reducing some prices and outputs a great deal. This resulted in small incomes for nonfarmers and farmers, who were hit the hardest.
Farmers had no way to protect prices of their product. Secondary industry was able to maintain selling prices by curtailing production. With farm selling prices so low, the public was convinced that farmers had no position within the pricing system and no bargaining power. In 1934 the Federal government appointed a Royal Commission on Price Spreads.
The Commission was appointed because of the situation of unemployment of labor and the worsening terms of trade for primary producers. The Commission investigated causes of the wide spread between prices received by primary producers and the prices consumers paid.
The conclusion of the spread resulted in imperfect competition replacing atomistic competition or near monopoly of manufacturing and distribution. Primary producers were exploited due to the reduction in competition of manufactures and distributors. They paid the primary producers less and charged the consumers more. The Commission took the view that development of unfair competition should be checked. The commission recommended competition restoration where prices had declined. To restore the competition a considerable degree of government intervention was needed. This included the formation of a Federal Trade and Industry Commission with extensive administrative and investigative powers.
Marketing Boards
Prior to the Depression, voluntary cooperatives were developed. This was basically a group of farmers working together to secure higher prices for their product. The farmers were not forced to join the cooperative, many stayed independent. An effect of being part of the cooperative was the farmers found limits on what they could accomplish. Any benefits in the form of higher prices were shared by non cooperatives. Problems encounters by voluntary cooperative marketing organizations form the background to the Federal support of producer-marketing boards.
1913- The fruit growers of the Okanogan Valley experienced the first limitations on voluntary cooperatives. The purpose of joining the cooperative was to increase the net price
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to producers; initially the results were pretty satisfactory. However by 1920, production had expanded but markets had not. Many growers withdrew and began selling independently when prices fell.
1923- Members were required to sign contracts to strengthen the legal hold on the members of the cooperative. The cooperative now controlled 85% of the product when it started operations. A major problem that occurred was when fruit was stored until later in the year by the cooperative, it reduced supplies going to the market in the early season. Non cooperatives were then able to sell their products at higher prices after harvest to nearby markets without having to pay any shipping or storing fees. Due to this many members broke their contracts and sold independently.
1927- The legislation was requires to have all growers to participate in order for the cooperative to work. The passed the Produce Marketing Act, which provided a
Committee of Direction with power to regulate all aspects of marketing, to set prices, to collect a levy to cover operating costs, and establish equalization fund.
1931- The Act was declared ultra vires (in excess of legal power) on the grounds that it regulated inter provincial trade and the levy instituted an indirect tax, both of which were beyond legislative authority.
1929- The start of the Depression had farmers seeking ways to increase their market power. Since the province did not have the power, producers pressed for Federal marketing legislation.
1934- The National Products Marketing Act was passed. They could exercise the powers outlined in legislation or delegate them to local producers’ boards; the latter thereby received wide powers to control the sale of producers to form pools, and to levy equalization fees on farmers and processors.
1935- The Act was declared ultra vires by the Supreme Court of Canada on the grounds that the Federal government could not regulate trade in provinces.
1937- Several provinces passed legislation in order that the kind of control envisioned under the Federal Act could be continued within the boundaries of a province.
The introduction of the marketing board legislation indicated that governments agreed with farmers that there were shortcomings in the buyer-seller relationship.
The Federal Natural Products’ Marketing Act was due to the crisis in farm prices and incomes of the Depression. This Act represented the culmination of attempts by farmers to control the sale of farm products. Governments aided and encouraged the movement by providing legislation, grants and loans for cooperatives and also assisted in the organization of cooperatives.
Establishment of Milk and Wheat Boards
Prior to the early 1930’s the prices of milk supplied was generally negotiated between distributors and producers. As the depression became a larger issue it seemed necessary for the government to intervene, and because of falling prices and instability of the product
Provincial Government Milk Boards were created. The government created these boards with the view that they would be temporary, and that the only reason they were necessary was because of the emergency situation (that being the depression), but in actuality the boards still exist and have been extended powers. The main purpose of the boards was to set prices for consumers and producers, control the number of distributors and to exercise general supervisory powers.
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In the early 1900’s everything pertaining to the wheat markets ran smoothly. There was an expanding world market, international trade was free, and major importing countries were expanding to absorb Canada’s, and other countries exports. Seeing as there was hardly any wheat production going on in Europe the price of the commodity stayed relatively high.
Many things happened after the war to begin to diminish the prices of wheat the first being that Canadian supplies were steadily increasing because of land opening up and steady settlement. The second reason that prices and sales of wheat were decreasing was because production in Europe had opened up, and the last reason that the wheat market was diminishing was because of the decrease in population trend that was occurring in several countries. All of these factors created a large carryover of wheat after 1926.
The government viewed the wheat situation in the thirties as an emergency arising out of the depression. There was great market uncertainty and costs of production were rising. In 1930 a wheat marketing emergency occurred, and it all started when the Wheat
Pools proposed to make an initial payment of $1 for the 1929 crop, to be financed by commercial banks. The price of wheat started to fall becoming closer and closer to the initial payment, and commercial banks requested additional collateral so the provincial governments were brought in to underwrite all loans. When the price of wheat finally dropped to 50 cents the federal government came into the situation and made the necessary guarantee on the condition that a government appointee became manager of the Central
Selling Agency of the Pools. McFarland was appointed to this position, and the federal government once again became involved in the marketing of wheat as it had been from
1917-19. McFarland’s general policy involved the buying and holding of wheat futures supporting the current market price. The government took a five year gamble which crop failures in United States and Argentine in 1935 and small crops in North America in 1936 made it possible for the government to win.
In 1935 the Canadian Wheat Board was established, and producers could sell through the open market or through a government board where a minimum price was guaranteed. In 1936 and 1937 the Board agreed to buy at a fixed price of 87.5 cents, but the price in the open market never fell under 90 so most farmers did their marketing through the open market. This increase in the price of wheat did not stay long because of large crops in
1938-39, and prices once again were seen decreasing.
Debt Adjustment:
During the latter years of World War I, farmers expanded their operations a great deal due to raising commodity prices and an ever-rising demand for food in North America and especially Europe. At this time farmers acquired more land and purchased newer and larger equipment to accommodate the increased workload.
After the war however the economy experienced deflation instead of inflation, so as a result many farmers were in debt and couldn’t cope with post war surpluses of food, which led to a decline in commodity prices. The average incomes for prairie farmers were declining at a rapid pace, leaving many farmers scraping to make ends meet.
Saskatchewan and Alberta were the first to accept responsibility for the problem of debt. Saskatchewan introduced debt adjustment legislation in 1922 and Alberta in 1923. Its objective was to arrange compromises in the case of farmers who were unable to meet their financial obligations. It started out small but grew quickly when the problem appeared to be widespread across the prairies. In both provinces agencies were able to get repayment terms extended to allow the producer more time, or in some cases to get the obligations reduced
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altogether. The federal government even stepped in and cancelled much of the debt owed by producers on account of advances for the purchase of seed and livestock feed. By 1927 the problem had almost gone away and farmers were making more money due to high yields, high commodity prices and credit was easy to obtain for major capital purchases.
This changed again in the 1930’s. Year after year of drought or even complete crop failure, led to increased cases of farmers not making their payments on time or even not at all. The small amount of production that they did harvest barley paid for the input costs let alone payments on capital purchases. The problem was large enough to require public measures.
In all but the Prairie Provinces a farmer-debtor, the same as any other citizen could seek relief under the Mortgagors’ and Purchasers’ relief legislation. Due to a large amount of farmers in debt trouble the western Provinces revised the legislation to increase the authority of the debt adjustment boards. They unfortunately only acted as an arbitrator between the farmer and the creditor because the provinces lacked constitutional authority to simply reduce the debt. These efforts led to the postponing of payments, which led to an accumulation of arrears of interest. With the depression dragging on and on the debts were increasing instead of decreasing.
In 1934 the feds passed legislation called the Farmers’ Creditors
Arrangement Act, which created boards of review with power to adjust outstanding debt. It gave benefits similar to those of bankruptcy legislations without the cost of proceedings.
It was easier to have voluntary debt reduction in the east because the farms were smaller with lower debt, and their creditors were private individuals. It was easier to persuade the creditors to be lenient. It proved more difficult in the west because of the larger farms with large debt. The three provinces worked with the feds to have voluntary debt reduction. It was a small amount compared to the entire burden of debt. The Boards of Review ordered reductions based on the producers’ ability to pay and productive capacity of the farm.
Easterbrook reports that in all Canada by 1938, 31,700 cases had been reviewed and indebtedness amounting to $158 million had been reduced by $54 million.
Rehabilitation and Insurance
Crop failure had occurred periodically from the 1890’s up to the 1920’s. But none had experienced it on such a grand scale as they did in the 1930’s. Year after year of crop failure and a depression in farm prices led to economic problems of great proportion.
Farmers in the 30’s had to rely on government assistance for the purchase of seed, fuel, and repairs. They even needed relief for food, clothing and fuel for heat. The mass expansion of agriculture in the west had led to the breaking of land that was not well suited for cultivation. The settlers didn’t realize the effect it had on the soil. The severe effects on the prairie economy suggested the need to examine the use of marginal agriculture land. Out of these combined disaster of drought and depression led to two significant pieces of federal legislation:
The Prairie Farm Rehabilitation Act of 1935
The Act provided the feds and provinces to work together to carry out rehabilitation on the prairies. Its main objectives were conservation and the efficient use of agriculture resources.
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They originally thought that some financial assistance would make the necessary adjustments needed. But it was later realized that more direct participation was needed.
This led to changes in cultural practices, water development, land utilization, and resettlement.
This led to increased research in soil productivity and the development of drought resistant grains and grasses, pasture improvements, and better cultivation methods to conserve moisture. And helped farmers reclaim or control the drifting of topsoil. It sponsored demonstrations of new cropping and tillage practices.
Water conservation was vital for farm survival so with government assistance water co-ops were started and dams and dugouts were constructed for the watering of livestock.
Land that was not suitable for cereal production was acquired by the government and developed into community pastures. Which left more productive land in grain production and less productive land that was subject to drifting was seeded back to grass for increased livestock production. This practice led to increased farm incomes.
The act also provided resettlement of farmers from drought stricken areas to those, which received more precipitation. This led to the expansion of the agriculture frontier.
Unemployed people living in urban centers were encouraged to settle on the new frontier as well.
Prairie Farm Assistance Act of 1939
It was designed to provide a measure of financial assistance to farmers who had experienced crop failure in areas where average yields were well below those needed to survive.
The act provided for a levy of one percent on the value of all prairie grain marketed through regular channels. The revenue so derived went into the Prairie Farm
Emergency Fund, which was then used to indemnify farmers in areas where the yields of crop had been below an acceptable level. The feds undertook to pay all the costs involved in the administration of the program. They even subsidized the fund when the revenue from the levy was insufficient to meet the indemnities.
Although the PFAA contained some elements of insurance it was conceived primarily as a program to meet an emergency. The payments were minimal and were looked upon as assistance rather than insurance.
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