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HomeMy WebLinkAboutThe Citizen, 1988-04-13, Page 5THE CITIZEN, WEDNESDAY, APRIL 13, 1988. PAGE 5. Equity Financing - BY DOUG GARNISS Are you interested in keeping agriculture a vital and successful part of our economy? If you are, I have a suggestion for you - putyour money into agriculture. No, I don’t mean you should buy a farm. But it would be in all our interests to look at an idea that is both old and new - equity financing. Equity financing is one of the ways large companies have grown and been successful around the world. Instead of borrowing money they have sold shares, or equity, in the company to finance their operations or expansion. Instead of having to pay interest and principal each year, the company can pay the stockholders more when profits are high and less when profits fall. Or, if they wish to expand, they may pay lower dividends to finance growth; the stockholder should remain happy because the growth makes his stock worth more. This leaves small business, including farmers, ata disadvantage. They have to pay more for the money they need than the large public company. In the past this did not seem to matter. In the 1970’s, farming looked like the place to be. Commodity prices were high and so were profits. Costs for equipment, fertilizer, seed, borrowing money and other inputs were relatively low. Lenders, as well as farmers, saw this and made new money available for farmers to borrow. Land prices rose rapidly and, because of inflation, so did other costs. Then came the 1980’s. Escalating interest rates quickly caught up to farmers, when commodity prices fell as the whole economy entered a recession. Because farmers have a lot more money invested for every dollar of income they get each year than any other Forum FORUM is a feature of The Citizen which attempts to bring different points of view from area residents to the fore. It is designed to stimulate discussion. FOR UM will appear once a month in The Citizen. If you have a topic you would like to contribute 1,000 to 1,500 words about, please contact the editor. Letters to the editor in reply to the ideas expressed in Forum are also welcomed. business (i.e. a farmer may gross $150,000 on a $1 million investment each year; compared to many other small businesses at $1.5 million for the same investment), a small drop in price quickly hurts farmers, if they have much debt to service. And by the 1980’s many of us had huge debt. That debt remains at over $5 billion in Ontario today, and agriculture still has huge problems. For most of the rest of the economy, the recession was shortlived, with not only a recovery, butalsofor many businesses, such as banks, record profits the last few years. Letter to the editor Softball planning begins before first ball thrown THE EDITOR, Yes, it’s that time of year again! The snow is barely gone and the wind still has a cold chill to it, but it is time to start thinking about baseball. For those people who think that baseball doesn’t start until June, it should be pointed out there are organizational meetings and sche­ duling meetings in April. If you think that ball registration seems early, it is because of these scheduling meetings. If you want to have a particular team play ball you have to schedule their games now - now or never. How do you know you have a team to schedule games for? From ball registration! It is very difficult for us, on the committee, to find coaches for teams we don’t know that we have or not. Only ball registration can The way ahead for farming? Farming in Ontario is a big-money business and new ways of may offer farmers the cheaper money they need to finance their financing farm operations are needed, Doug Garniss, director of operations, he argues. the Ontario Federation of Agriculture says. Equity financing Large companies were able to convert their debt into equity as stock markets rose to record levels. This points the way for a solution to the problems in farming. Land prices have fallen dramatically and other costs, such as interest rates, have fallen or stabilized, while commodity prices have begun to recover. Famers without debt say they have never made more money in farming. But the half of farmers who carry most of the debt are in deep difficulty and are gaining little ground in their fight for survival. Lenders will have to write down debt to the value of the farm, either by selling it or letting the farmer stay there with reduced debt. But this whole recovery has been made difficult by the intransigence with which lenders have treated agriculture. In the good times in the 1970’s they lent money to farmers with abandon, helping to push up land prices and create huge debt loads. But inthecrashofthe 1980’s, they withdrew from agricultural lending, helping to cause land prices to fall and exaggerating the problems in farming. The government lending agency, Farm Credit Corporation, was as guilty of this as any bank; when their role should have been the exact opposite - to lend in the bad times, rather than just mimicking the banks. As a result, different solutions are needed. Equity financing was proposed as an idea by farm organizations such as OFA. The F.C.C. then put forward a proposal for tell us. Do we schedule games for these teams? Only ball registration can tell us. Do we need ball equipment or uniforms for these teams? Only ball registration tells us. We know there are young people around Walton that will want to play ball this summer, but do they or their parents come to ball registration - No, they do not. Do they call someone on the sports club about registration - No, they do not. The attitude seems to be that because the child played last year, the committee should know he’ll play this year and what team he’ll be on. It is not up to the committee to decide this, nor should it be. A 10-minute trip to registration or a five-minute phone call to a member would save the committee hours of phone calls to find out if your child equity financing that was totally unaccept­ able. It would have had farmers and lenders sell land to a corporation which then would lease this land to farmers. The corporation would sell shares to the public - lenders, farmers or anyone else. This proposal dismays me. It would be a spike in the coffin of the family farm, as farmers lost contro) of their farms. It would combine the worst features of absentee foreign ownership, state ownership and the large corporate farm. However, the idea of equity financing remains good. For the farmer, it should give the opportunity to have money invested in his operation to replace borrowed money. At the same time he retains control and ownership of his farm as long as he manages it productively. For the investor, there is also an opportunity. Land and other agricultural prices are low, so there should be potential for growth. As well, the farm should be able to generate a return on investment in its operations at least equal to the interest rate the farmer would have paid a lender. Thus the investor wins both ways, while enjoying a share in owning the farm, knowing that it is being operated by someone with an even greater interest in making it a success. Both farmers and investors should look at equity financing for the individual farm .And government should facilitate the process by creating methods and rules designed not just for large companies to use equity financing, is playing ball. Please make an effort to get your child registered either on Saturday, April 16 from 11 a.m. till 2 p.m. at the library, or please cal! Betty McCallum 887- 6318 or Joann McDonald 887-6570 before April 16. P.S. The Walton Area Sports Club is still short two committee members. Don’t wait to be asked. Continued from page 4 boatbuilder’s creditors when the boatbuilderwent bankrupt. Seems there’s some obscure law that says ifyoubuy something but don’t take it home it belongs to the creditors not you. So this guy and four other people have lost their boats costing from $45,000 to $60,000. Would kind of give you that sinking feeling, Ward said. Ah yes, said Billie, looking at Tim, butthere will bea silver lining to the black cloud somewhere. The lawyers will get plenty of bucks out of it fighting the case. Probably enough, said Julia, to buy a yacht or two themselves. If there was any justice in the world, Ward grum­ bled, the guys who lost their yachts would have been lawyers caught in their own obscure laws. FRIDAY: Billie Bean said he just The worldview from Mabel's DOUG GARNISS but alsofor the small family farm. The family farm can compete with anyone given an equal chance, but this equality can only be ensured by everyone exploring the equity financing option for agriculture. Doug Garniss Is a Morris Township farmer, a director of the Ontario Federation of Ariculture and past president of the Huron County Federation of Agriculture. Volunteer to help out the ball park and your children. Thank you. Joann McDonald RR 2, Brussels NOG 1H0 can’t wait until police cruisers around here get equipped with those in-car computers they have in Toronto. Seems the computers and the radios in the cruisers draw so much power that they drain the battery of the car when it isn’t running. “Wouldn’t it be great just once to pop over a hill going too fast, see a cruiser and know you’re in trouble but then whizz past him while he tries like heck to get the car started?”