A credit study on 347 sugar cane farms, Puerto Rico, 1939-1940 by La Colección Puertorriqueña

;

BULLETIN NO. 70

MAECH 1946

A CREDIT STUDY ON 347 SUGAR GANE FARMS, PUERTO RICO, 1939-40

Julio o. Morales and

Daniel Haddock

J52,7i ■' ^3i. University of Puerto Eico

■

Agrieultural Experiment Station Río Piedras, Puerto Rico

AGRICULTURAL EXPERIMENT STATION University oí Puerto Rico Jaime Benítez, M.A,, LL.M Luis Stéfani, M.S

Río Piedras, Puerto Rico Chancellor Vice Chancellar

STATION STAFF'

Arturo Roque, M.S R. Colón-Torres, M.S M. R. García

Director Asst. Director Finance Officer

Animal Husbandry:

Plant Physiology:

, An. Husb., Hcad of Dept. F. E. Armstrong, D.V.M., Assoc. Vet. 'L. Rivera-Brenes, B.S., Asst. An. Husb. J. I. Cabrera, M.S., Asst. An. Husb. R. Hernández, B.S., Asst. An. Husb. 2F. J. Marchán, M.S., Asst. Chem. =1. G. Rieckehoff, B.S., Actg. Asst. Chem.

(Jlírs.)

T.G. Masón, Sc.D., Plant Physiol., Head of Dept. 'E. Hernández, B.S., Assí. Plant Physiol. M. A. Tió, B.S., Asst. Plant Physiol. M. del C. Fernández, Ph.G., Assí. Chem. (Mrs.)

Soils:

»R. Orlandi, B.S., Res. Asst.

J- A. Bonnet, Ph.D., Soü Chem., Hcad of

Agronomy and H^lc^ture;

íR. Rodríguez-Torrent, B.S., Assoc. Soil

Dept.

B. G. Capo, Ph.D., Biom., Hcad of Dept. «P. Richardson, B.S., Affron.

P. González, M.S., Assoc. Agron.

Chem. 3

Gaztambide, M.S., Acig. Asst. Chem.

J. P. Rodríguez, B.S., Assoc. Agron. E. Molinary-Salés, B.S., Assoc. Horl. F. Aróstegui, B.S., Assí. Agron.

{Miss) p Tirado, B.S., Res. Asst. in Soü Conserv. p_ Abruña, B.S., Res. Assí. in Soü

L. A. Gómez, B.S., Asst. Agron.

Conserv.

J. Lería-Esmoris, B.S., AssG Agron.

Chemistry: V. Rodríguez-Benítez, M.S., Chem., Head

of Dept

mcj

a , Asst. Méndez, B.S., Assoc. Agron. in Charge

M. A. Manzano, B.S., Assoc. Chem.

„„ „ .

V. Quiñones, M.S., Asst. Chem.

J- Díaz-Rivera, B.S.C.E., Engineer

L. G. Amorós, B.S., Res. Asst. rn Chem.

^ Vizcarrondo, B.S., Agron., Adm. in

L. Igaravídez, B.S., As^.Chem^

Production Farms:

Economics: R. Colón-ToiTcs, M.S., Econ., Hcad of Dept.

Charge D. Rodríguez, B.S., Agron. M. Avilés, M.S., Assí. Agron.

J. O. Morales, Ph.D., Ecoii.

<F. de Jesús, M.S., Assoc. Econ.

School of Tropical Medicine:

J. J. Serrallos, Jr., M.S., Assoc. Econ.

O. B. Segundo, B.S., Res. Asst. in Chem.

^M. Hernández, M.S., Assoc. Econ.

{Miss)

®M. Roses, M.S., Assí. Econ. "G. Serra, B.S., Asst. Econ. 'P. Vázquez, B.S., Assí. Econ.

M. do Gracia, B.S., Res. Assí. in Chem. (ilfrs.)

M. Pinero, B.S., Assí. Econ. 1. Avilós, M.S., Actg. Asst. Econ. C. Rivera López, B.S., Res. Asst. in Econ.

Substations: Isabela: A. Riollano, M.S., Agron. in Charge ^C. J. Clavell, B.S., Assí. Agron.

Entomology:

jp. J. Juliá, B.S., Assí. Agron.

G. N. Wolcott, Ph.D.,Ení., Head of Dept. L. F. Martorell, Ph.D., Assoc. Ent.

J. Monserrate, B.S., Assí. Agron. a. Rodríguez, B.S., Res. Assí.in Agron.

F. Seín, Jr., B.S., Assoc. Ent. Phytopathology: L. Alvarez, M.S., Phytopath., Head of

Plant Propagation: Simona, B.S., Asst. Agron. in .. x ni *

Dept.

a I

J. Adsuar, B.S., Assoc. Phytopath.

Animal Production La Plata:

González-Chapel, B.S., Assí. An. Husb.

Plant Breeding: "7 'Ocncticist, Head of Dept.

A. Acosta Maticnzo, M.S., Asst. Plant

Breeder *F, Mariota-Tríaa, B.S., Asst. Plant J. Vclcz-Fortuño, B.S., Asst. Plant Breeder

Libraxy: J. Hivera-Ruíz, B.L.S., Z/t5ranan j. Romeu, Editor * Aa of dato of isaue.

J Müítary Icavc.

, 9!\ to puraue advanced studiea. •(Jther Icavo.

. . M& MAY 191948

Cri'N^

A CREDIT STÜDY ON 347 SUGás-^^lá^É Elí»!" PUERTO RICO,;1939-40 TABLE OF CONTENTE

Page

INTRODUCTION Method OF STUDY The Farms and Farmers Surveyed Location Tenure Size of Farms

1 4 4 4 6

The Farmer and his Family

Financial Condition of Farmers Assets Liabilities and Net Worth Lonq-Term Credit Short-Term Credit Sources of Sugar Gane Production Credit

10 11 13 17 18 25

Sugar Milis Large "Colonos"

25 27

Emergency Crop and Feed Loan Office

Production Credit Association Fertilizer Dealers Stores

• 27 27 28

Other Agencies

Other Short-Term Credit

Analysis of Lqans

Composition of Loans

Seasonal Distribution of Credit

Collateral Eequested

CosT OF Credit Interest Cost Nominal Interest Eate

••

Effective Interest Rate

35 35 35 35

Factors Affecting the Difference between Nominal and Effective Interest Bates

Legal Fees

Other Fees Total Cost of Credit

39 40

Belation of Geographic Area to Total Cost of Credit and Other Factors.. 42 Belation of Tons of Sugar Cañe Harveeted to Total Cost of Credit ánd Other Factors

Belation of Per Cent Amount Advanced is of Income from Sugar Cañe to Total Cost of Credit and Other Factors i

isT. i-'

TaBIjB of Contents

Belation of Nominal Interest Bate to Total Cost of Gredit and Other Factors

Belation of the Effective Interest Cost to Total Cost of Credit and Other Factors

Belation of Total Cost of Credit per $100 Annual Equivalent until Actual Payment of Debt to "Cuerdas" of Sugar Cañe Harvested and Other Factors

Bisk

Belation of Geographic Area to Amount Advanced per "Cuerda" of Sugar Cañe and Other Factors 48 Amount Borrowed per ''Cuerda'' of Sugar Cañe Harvested 48 Amount Borrowed per Ton of Sugar Cañe Harvested Per Cent Amount Advanced is of the Income from Sugar Cañe

52 54

Belation of "Cuerdas" of Sugar Cañe Harvested to the Amount Ad

vanced per "Cuerda" and Other Factors 54 Belation of Yield per "Cuerda" pf Sugar Cañe to Amount Advanced

per "Cuerda" and Other Factors

Belation of Amount Advanced per "Cuerda" to Per Cent Amount Ad

vanced is of Income from Sugar Cañe and Other Factors Attitude Towaed Lendees

57 57

Extent of Farmers' Knowledge of Their Credit Problems SUMMAET AND CONCLUSIONS Besumen t Conclusiones

53 59 63

ACKNOWLEDGEMENTS

Mr. Sol L. Descartes, formely Head of the Department of Agrioultural Economics, designad and organized the fieid work and part of the

analysis of the data used in the present study.

Mr. R. Colón-Torres,

present Head of the Department, revised the whole manuscript and offered his sincere cooperation throughout the field work, analysis and

presentation of the data included in this bulletin.

A CREDIT STUDY ON 347 SUGAR CAÑE PARMS,

PUERTO RICO, 1939-40 JULIO O. MORALES AND DANIEL HADDOCK

INTRODUCTION

Sugar Cañe production is the foundation on which the whole economic structure of Puerto Rico is based. It is not only the principal

erop, but also furnishes the basie materials used by a substantial part of our industries. A eareful study of the eeonomic life of the island shows that the welfare of our population depends to a large degree on the factors affeeting the sugar industry. The position of sugar cañe cultivation in our economy is evidenced

by the importance of sugar cañe products in the list of our exports,

the number of laborers gainfully employed in the different phases of sugar production, the pereentage of the land harvested represented by sugar cañe, etc. All these measures lead to the same conclusión—the sugar industry is the cornerstone of the Puerto Rican economy.

The cuerdas'' ^ of sugar cañe harvested in 1939 constituted 31 per

cent of all the land harvested that year. This proportion does not give a complete picture of the share of our total land resources used by the sugar industry. If productivity of the land is taken into considera-

tion, the pereentage of the land resources harvested of sugar cañe in 1939 were higher than indicated by the figure given above.

Exports of all sugar cañe products constituted 69 per cent of our total exports in the fiscal year 1939-40. The sugar industry accounted for 55 per cent of the total volume of business of the island in 1935 excepting the trading business.

The sugar industry is our best single source of employment. According to the 1940 census, 54 per cent of the gainful workers em

ployed in agriculture were reported working on sugar cañe farms. An additional amount of persons were employed in sugar milis, repre-

senting 20 per cent of all gainful workers employed in the manufacturing industries. The agricultural and industrial processes of the sugar industry employed 28 per cent of the total gainful workers of Puerto Rico. As the wages paid by the sugar industry were higher lOne

cuerda" equals .9712 of an acre. 1

Julio O. Morales and Daniel Haddock Tablb 1. THE IMPORTANCE OF THE SUGAR INDUSTRY OF

PUERTO RICO, 1939-40

TOTAL FOR ITBM

PUERTO RICO

BUGAR XNDUBTRT

BUGAR INDUBTRT

AB PER CENT OF TOTAL

Land use:

Cuerdas harvested*

739,751

;

229,750

Exporta:**

Exports of sugar

—

Molasses Rum

—

S92,347,242

$57,328,790 713,419 5,568,476

—

$63,610,685

$93,055,072

$51,452,871

228,811 100,693

123,886

Gainful workers in manufacture

19,731(a)

Total gainful workers

512,214

143,617(a)

Total exports

Volume of Business:*** Volume of business except trading, 1935

Employment:**** Gainful workers on farms

* Census of Agriculture, 1940. **Aimual Book on Statistics, Insular Dept. of Agriculture and Commerce, 1939-40.

♦** Courtesy of Mr. Esteban Bird, from a report of the N.R.A., office at San Juan, 1935.

Population Census, 1940.

(a) Does not include workers of the rum industiy.

than those paid by the majority of the other sources of employment, it is reasonahie to conclude that workers of this industry were paid

a higher percentage of the total income reeeived hy all gainful workers than indieated hy the figures of the nmnher of persons gainfully employed.

The area planted to sugar cañe increased four times from 1901 to 1939, Total produetion of sugar increased ahout ten times, due to the

higher yields ohtained per "cuerda." The development of the sugar industry has heen greatly influenced hy the Agricultural Adjustment Administration program after 1934. The economie condition of the whole industry in the last few years has heen dependent to a consider

able extent on the program followed hy this Administration. The

importance of A.A.A. henefit payments was clearly indieated hy a

A Credit Study on 347 Suqar Gane Farms

study of 130 sugar cañe farms^ covering the crop-year 1934-35. The labor ineome amounted to $3,512 per farm. Benefit payments averaged $3,556, eonstituting 31 per cent of the total reeeipts. The Administration paid to the growers at the rate of $4 per ton of sugar cañe left uncut under the A.A.A. contract that year. Sugar cañe farmers had probably recovered from the losses of the early thirties and had considerably strengthened their financial position by 1939. The Agricultural Adjustment Administration program had a definite influence on the system followed by lenders supplying the production credit to sugar cañe growers. A change in the system was necessary in 1934. The ''cuerdas'' of sugar cañe grown by the farmers and their

estimated production were no longer good guides as to the amount of credit to be advanced. Some of the sugar cañe would have to be left standing becáuse the allotment of sugar of the farmer had been coyered. Therefore, a new factor had to be taken in consideration to determine the total amount to be advanced to each grower—^his

sugar allotment under the A.A.A. program. Any change in this

program or in the policies of the Agricultural Adjustment Adminis tration influenced the credit policies of lenders, especially those of sugar milis, who have the conflicting interests of increasing the volume of sugar cañe handled and, at the same time, follow a conservatiye lending policy.

Another aspect of the sugar industry which deserves mention in relation with this study is the type of farm organization common in the sugar industry. There are two distinct types of organization of sugar cañe farms: (1) independent growers or "colonos" and (2) sugar milis or ''centráis."

Independent growers or "colonos" range in size from ve^ farmers planting one or two "cuerdas" of sugar cañe to wealthy an -

owners planting more than a thousand"cuerdas.'

ent growers sell the sugar cañe to the mili on the basis ®

^ epen

sugar

content. They are usually paid a certain percentage of the sugar manufacturad from their cañe, at the average wholesale pnce on t e New York Market minus deductions for freight, and other marke mg expenses.'

-nia-n

Sugar mUls or "centráis" own and opérate large sugar cañe p tations. As the management of tbese plantations is the same or c ose y sDeacartes, Sol L., "Organization and Earnings on 130

in Puerto Eico," 1934-35. BuUetin No. 47, May 1938, Agricultura! Experiment Station, Univereity of Puerto Eico, Eío Piedras, Puerto Eico, 1-60 p.

Julio O. Morales and Daniel Haddook

associated to that of the sugar mili, a line is usually drawn in studies of this type separating these two groups of sugar cañe growers. The present study covers the credit situation of independent growers only. METHOD OP STUDY

This study is the seeond of a series intended to cover the sourees of

credit of the principal types of farming in Puerto Rico. A survey of the whole agricultural credit structure of the island is contemplated as a general summary to this series. A discussion of the credit prohlems of tobáceo farms was presented in Bulletin No. 69 of this Station. The difficulties encountered in the first survey were corrected, as far as it was possible, in the present study. A careful selection of the sample was made and a larger number of farmers were interviewed.

A cióse check was made periodically, during the period when the information from the farmers was being gathered, to see that the sample had about the same size distribution as the total of all independent sugar cañe growers in Puerto Rico. The geographical distribution of thé farms surveyed was also checked closely so that it would con-

form with the actual distribution óf all independent sugar cañe farms. The information given by farmers on mortgage credit, production credit, costs of credit, etc. was checked in the books. of lenders. Additional information was obtained from lenders on seasonal distribu tion of crédit, composition of loans, etc. The survey method was used to obtain the information from farm

ers. The field work with sugar cañe growers was made from September to December, 1940. Information from lenders was gathered during December, 1940 and January, 1941. The credit data obtained were for the crop-year 1939-40. THE FARMS AND FARMERS SURVEYED

Loeation

The fanns surveyed were scattered over 54 muuicipalities of the

island. Thirty-two per cent of the farms were located in the Northem Area. The East and Bastern Central sections together with the Southern Area, whieh are very important sugar cañe producing re-

gions, had a very low percentage of the total number of farms studied, because sugar milis control a high proportion of the sugar cañe pro ductiva resources and also because the independent growers tend to

be larger in size in these two geographic arcas. The geographic divi-

A Credit Stüdy on 347 Sugar Cañe Pabms

•-i

f &D O

Julio O. Morales and Daniel Haddock Table 2. GEOGRAPHIC DISTMBUTION OF SÜGAR GANE FARMS SURVEYED

SJ^7 «ugar cañe farms, Puerto Rico, 1939-jíO NUMBER GEOORAPHIC ABEA

NUMBER

PER CENT

OF MUNICI-

OF FARMS

OF TOTAL

PALITIE8

SURVEYED

FARMS

111

Northem East-Gentral Eastem Southem Westem - Northwestem Gentral Mountainous Total

347

100

sions outlined in the bulletin of the Minimum Wage Board on the Sugar Industry of Puerto Rico was used.® Tenure

Seventy-one per cent of the farmers studied were full owners. Part owners constituted 21 per cent of the total number. Cash tenants, Table 3. SUGAR GANE FARMS SURVEYED BY TENURE

347 augar cañe farms, Puerto Rico, 1939-40 ITEM

PER CENT OF TOTAL

Full owners Part owners

Gash tenants

Share tenants

Total

248 73

347

100

who constituted 7 per cent of the total number of farmers surveyed,

were the third most common type of tenure. Very few farmers were

operating the farms as share tenants. Size of Farms

As special care was taken to have a size distribution of the farms surveyed similar to that of all independent sugar cañe growers of 8"The Sugar Cañe Industry in Puerto Rico,'* September 1942, Minimum

Wage Board, pages 61-99, San Juan, Puerto Rico.

A Crbdit Stüdt on 347 Sugab Cañe Fabms

the island, the sample taken was heavily weighted by small farms. Very small growers barvesting less than two "cuerdas" of sugar cañe constituted 15 per cent of the total number studied. These small sugar cañe growers usually depend on other sources of income, princiTablb 4. DISTRIBUnON OF FARMS STÜDIED BY CUERDAS OF SUGAR GANE HARVESTED

S47 sugar cañe farms, Puerto Rico, 19S9-40 NUMBEB OF FABMB

BIZB OBOUPB

■Less than 2.00 cuerdas. 2.00- 4.99 5.00-14.99 16.00-34.99 35.00 or over

Total

PBB CENT OF TOTAL

68 124

20 36

347

100

pally outside labor, to supplement the income from the farm. The growers harvesting from 2.00 to 4.99 "cuerdas" of sugar cañe accounted for 20 per cent of the total. The third group, harvesting from 5.00 to 14.99 "cuerdas" and falling more closely than any other

sise group in the classification of the family type of business, consti tuted 86 per cent of the farms surveyed. Farms harvesting from 15.00 to 34.99 "cuerdas" of sugar cañe are somewhat larger than the

family sise business. This sise group included 16 per cent • of the farms studied. Only 13 per cent of the total growers harvested 35 "cuerdas" or more of sugar cañe. The Farmer and His Family

The importance of the level of education of the farmers' group has been emphasised in previous publications on agricultural credit prob lema. Poorly educated farmers are handicapped in understanding the factors aflfecting the efifective cost of credit, and are at a disad-

vantage in their dealings with lenders. They are also suspicious of papera and signaturas, and tend to prefer more informal ways of conducting business.

The fact that 26 per cent of the farmers studied did not know how to read and write and that 60 per cent had less than five years of

schooling should be kept in mind in the interpretation of the data presentad under the heading "Extent of Farmers' Knowledge of Their Credit Problems.'' Small farmers had a lower level of education than

Julio O. Morales and Daniel Haddook Tablb 5. EDUCATION OF OPERATORS

SJpf Bugar cañe falrmSf Puerto Rico, 1939-40 PER CENT OF TOTAL

inTMBBB OF FABMER8

EDUCATIONAL STATUS

Not reporting Illiterate

117 106

347

100

Years of schooling: 1-4 5-8

High school College or University Total

larger farmers. Ninety-one per cent of the operators harvesting less than 2 cuerdas" of sugar cañe had less than 5 years of schooling, while the percentage in this lower level of education of farmers har vesting more than 35 cuerdas" was only 35 per cent. Tablb 6. OPERATOR'S EDUCATION BY SIZE OF SUGAR GANE PLANTINGS

347 eugar cañefarme, Puerto Rico, 1939-40 PER CENT OF TOTAL

NUMBEB OF OPERATORS

ITEM

Total

Lesa than O on

cdas.

2.00 to

4.99

5.00 to

15.00 35.00 to

14.99 34.99

Total

over

Lesa than O nn

cdaa.

2.00 to 4.99

5.00 to

15.00 35.00 to

14.99 34.99

over

•

Not reporting Illiterate

—

100 100 100 100 100

100

1-4

117

5-8.

106

—

Years of schooling:

High school College or Uni versity Total

—

347

123

—

The age distribution of the operators interviewed for the present study was very similar to the distribution observed in other studies

of our agriculture. Nearly two thirds of the operators were from 40

to 59 years of age. Three fifths of all operators had ten or more years of experience as sugar cañe growers.

A Credit Stüdt on 347 Sügab Cañe Fabms Tablb 7.

AGE OF OPERATORS

847 sugar cañe farme. Puerto Rico, 1939-40 AGB GBOUPS

• NUMBBB OF

FABMEB8

PER CENT

AVBBAGB

OF TOTAL

AGB

Less than 30

30-39

40-49

121

50-59

60 or over

347

100

Total

Table 8.

EXPERIENCE OF OPERATORS AS SUGAR GANE GROWERS

347 eugar cañe farme. Puerto Rico; 1939-40 TBABB AS BUGAB CANB GROWER

Less than 10 Less than 5

NUMBBB OF FABMEBB

PBB CENT OF TOTAL

AVEBAOB TBABB

144

5-9

10-19

20-29

30 or over

347

100

Total

The size of the operator's family has a bearing on his credit needs. The average family of the operators interviewed consisted of nearly Tablb 9. SIZE OF OPERATORS' FAMILIES

347 eugar cañe farme, Puerto Rico, 1939-40 BIZB OF FAMILT

NUMBBB OF FABMBBB

PBB CBNT OF TOTAL

AVBBAGB NUMBBB OF PBBBONB

1-3

2.6

4-6

102

5.2

7-9

108

7.9

10 or more

12.0

Total

325*

100

7.8

* Twenty-two operators did not report the number of persons in their families.

Julio O. Morales and Daniel Haddock

eight persons. Over ene fourth of the 325 operators' families included

in this phase of the study had ten persons or more. If we consider that over one third of the fanns studied harvested less than five

''cnerdas" of sugar cañe and that in the majority of these farms ineome from sugar cañe constituted a high percentage of the total inebme, the effect of a large size family heeomes apparent. PINANCIAL CONDITION OP FARMERS

The finaneial condition of farmers determines, in a large measure, the amount of oredit which can be safely advanced to them. Experienee shows that overlending usually results in detriment to both borrowers and lenders. The laek of adequate eredit facilities or a failure

to use the facilities available by potential borrowers, on the other hand, is a serious handicap in the development and eflBcient use of the productive resources of any area.

The composition of assets and its relation to the different types of debts outstanding is considered a good measure of the amount of eredit

of each type which can be safely advanced to the farmers' group and of the degree to which farmers have been relying on some types of eredit more than justifiable. Tablb 10. INVENTORY OF FARMER'S ASSETS

347 sugar cañe farms, Puerto Rico, 1939-40 iniMBER OF ASSETS

FABMS

BBPOBTINa

Real estáte on farm operated . Other farm real estáte Other real estáte Total real estáte

TOTAL

AVEBAGB

VALUE

' PEB FABM

$5,484

$1,902,888 252,322 251,217

341

337 43

Equipment

252

Livestock

333

Growing crops Stored crops A.A.A. payments receivable..

347

724

$2,406,427

$6,935

$ 290

532

638

Household goods

325

Other assets

143 347

$3,420,738

Accounts receivable

Total assets

727

$ 100,782 184,415 221,441 47,353 188,867 71,018 61,394 139,041

117 347

PEB CENT OFTOTiÜj

136

544

205

177

401

$9,858

100

A Credit Study on 347 Sugab Cañe Farms

Assets

The average capital o£ the sugar cañe farmers interviewed as of June 30, 1940, amounted to $9,858. Real estáte on the farm operated constituted 56 per cent of this total. Real estáte owned by farmers

outside of the farm operated amounted to 14 per cent of the total as sets. The remaining 30 per cent was divided as foUows: livestock,

5 per cent; Agricultural Adjustment Administration benefit payments receivable, 6 per cent; growing crops, 7 per cent; and other miscellaneous assets, 12 per cent. Considerable dififerences were observed in the total capital as well as in its composition when the records were divided according to

tenure. Part owners had the highest average capital. They had Table 11. INVENTORY OF FARMER'S ASSETS BY TENURE

347 sugar cañe farms, Puerto RicOf 1989-40 PER CENT OF TOTAL

AVBRAGB PBR FARMER AB8BTS

AU farmers

Number of farmers.. Real estáte on farm

operated

347

PuU

Part

owners

248

Ten ante

AU farmers

FuU

Part

Ten

owners

ante

$5,691

$181

$5,484 $5,979

Other farm real 727 724

738

885

184

1,243

341

7 7

611

Total realestate... $6,935

$7,328

$7,819

$706

estáte

Other real estáte

Equipment Livestock

$ 290 $ 252 532 497

$ 426 $ 279 692

411

Growing crops Stored crops AAA payments re

638

504

1,140

502

5 7

136

162

499

ceivable Accounts receivable..

544

442

876

586

205

134

7 4

17 1

179

215

$9,858 $9,725 $12,606 $3,408

100

Household goods

177

154

508 254

Other assets

401

323

729

Total assets

$12,600 of total assets, of which 62 per cent was invested in real estáte.

The total assets of full owners averaged $9,700 per farm, of which real estáte constituted 75 per cent. Tenants had a total average capital of only $3,400. The valué of real estáte owned by tenants representad

323

Other assets

* Less than 1 per cent.

$9,725

134 154

Household goods

$699

91 442

$ 16

$513

504

$ 252 497

$7,328

611

738

Accounts receivable

Total assets

2.00

than cdas.

$491 7

$5,979

248

Total

A.A.A. pa3rments receivable

Growing crops Stored crops

Equipment livestock

Total real estáte

Other farm real estáte Other real estáte

Real estáte on farm operated

Number of farmers

ASBBTB

547 614

107 79

305

120

159

277

23 $ 192 177 402 82 307

over

35.00

386

88 172

689

1,286

578

338

1,937

353

$1,251 1,863 698 2,386

$ 227 671

$8,343 $33,234

$7,694 $26,965 3,562 196 453 2,707

34.99

15.00

$2,711 $6,939 $11,371 $43,226

$2,093 $5,088

488

$1,553 $3,927

14.99

5.00

4.99

2.00

AVERAGB PER'FARMBR

100

Total

100

•4

♦

odas.

O nn

Lesa than

100

4.99

2.00

100

5.00 to 14.99

PER CENT OF TOTAL

Table 12. FÜLL OWNERS' ASSETS BY CUERDAS OF SUGAR GANE HARVESTED

100

34.99

15.00

100

o Q

& o

525

►

E or

over

35.00

Ch C3

A Credit Study on 347 Sugar Cañe Farms

only 21 per cent of the total assets. A higher proportion of all assets was invested in farm equipment, stored crops, growing crops and A.A.A. benefit payments receivable by tenants than by the other types of tenure. The item ''stored crops" was made up mainly of sugar which had not been sold by June 30, 1940. The valué given to the plantations of sugar cañe under cultivation on June 30, 1940 accounted for almost the total of growing crops.

Full owners were classified according to the "cuerdas" of sugar cañe harvested in order to determine the variations in total assets and

«composition of assets occuring between farms of different size. Although the total assets increased from $699 for the farmers harvesting less than two "cuerdas" of sugar cañe to $43,226 for those harvesting 35 "cuerdas" or more, the composition of assets showed only slight differences. The most significant differences were observed within the real estáte group. These differences, however, do not show any

consistent relation to the size of the sugar cañe enterprise. Liabüities and Net Worth

Total liabilities on June 30,1940 amounted to $1,941 per farm. The mortgage debt outstanding constituted one half of this total. The Tablb 13.

LIABILITIES AND NET WORTH

347 sugar cañe farms, Puerto Rico, 1939-40 AVEBAGE

NUMBEB OF ITEM

FARMEB8

TOTAL

BEPOBTINO

Mortgage debt outstanding

PEB CENT

FOB ALL

FABMEB8

TOTAL

110

$329,605

$950

. 10

ing Store credit debt outstanding

224

487

Miscellaneous liabilities

190

169,116 80,271 94,523

Production credit debt outstand 248

231

273

•

Total liabilities

328

$673,515

$1,941

Net worth

347

2,747,223

7,917

Total liabilities and net worth

347

$3,420,738

$9,858

100

production credit debt was next in importance, accounting for 25 per /cent of the total. Debts in stores and other miscellaneous liabilities, such as doctoras bilis, personal debts, debts of other businesses, etc. constituted the remaining 25 per cent.

Julio O. Morales and Daniel Haddock

Tablb 14. FARMERS REPORTING LIABILITIES BY TENURE

SJfl silgar cañe farms, Puerto Rico, 1939-jíO NUMBBR OF FABMFBS

PEB CBMT OF TOTAI.

ITBM

AU farmers

PuU

Part

Ten

Part

Ten

owners

ants

AU farmers

FuU

owners

ante

Number of farms..

347

248

100

Mortgage debt outstanding.

110

—

■—

224

153

, 18

248

Produetion eredit debt ont-

standing Store eredit debt outstand

ing

190

177 127

Miseellaneous liabüities

Total liabüities

328

233

. 96

Only 19 farmers were free of debt on June 30, 1940. One hundred and ten of the operators interviewed had mortgage debts oustanding on that date on the farms operated and over two hundred had produetion eredit debts and debts with stores.

About one third of the full

owners and part owners combined had mortgages on their farms. A higher percentage of the tenants had store debts and other liabüities outstanding on June 30, 1940 than was the case in the other forms of tenure. Tablb 15.

LIABILITIES BY TENURE

347 sugar cañe farms, Puerto Rico, 1939-40 AYEBAOB PBB FABM

PEB CENT OF TOTAL

ITEM

Number of farmers

Mortgage debt outstand ing

AU farmers

FuU

Part

owners

347

248

Ten ants

AU farmers

FuU

Part

Ten-

owners

anta

$979 $1,188 $ -

—

1,291

675

435 336

30 23

$1,941 $1,607 $3,251 $1,446

100

$950

Produetion eredit debt outstanding

487

231

231 273

194

286

203

486

Store eredit debt out

standing Other liabüities Total liabüities

Total liabilitíes

Production credit debt outstandmg. Store credit debt outstanding Other liabilities

Mortgage debt outstandmg

Nomber oí fanners

ITEM

35.00 or

15.00 to

34.99

5.00 to

14.99

2.00 to

100

19 100

100

39 100

13 100

648

194 155

149

251

$1,281 $1,578 $7,157

74 45

$74

203

$1,607

$430

24 13 13

19 42

909 802

378

167

67 54 56 59

4.99

194

Lesa than 2.00 cdas.

231

Total

PER CENT OF TOTAL

61 14

$4,798

248

34.99

35.00

15.00

$ 714 $ 851

5.00 , to 14.99

$255

4.99

2.00 •to

$—

2.00 cdas.

Lesa than

$ 979

Tolal

AVERAGE PER FARM

248 8ugar cañe farmSf Puerto Rico, 1939-40

Table 16. LIABILIHES OF FÜLL OWNERS BY CUERDA OF SUGAR GANE HARVESTED

o«

ZO d

•a

Julio O. Morales and 'Daniel Haddock

Part owners had the highest total liabilities. Pulí owners had about the same amount of debt as tenants. The composition of the debt varied eonsiderably between the different types of tenure. The produetion eredit debt was the most important liability of part owners

and tenants, while mortgage debt was the most important in the case of full owners. Store eredit debt aecounted for nearly one third of the total liabilities of tenants, but it representad only about one tenth of the debts of full owners and part owners.

Parmers harvesting less than two cuerdas" of sugar cañe had average total liabilities of $74. They had no mortgage debt oustanding but had a high proportion of their liabilities in the form of unsecured debts with stores and other informal sources of eredit. The composi tion of the total debt in the other size groups showed only slight variations. Over one half of the total debt of farmers in these groups was

aecounted by the mortgages outstanding. Total liabilities varied from

$74 for the group of farmers barvesting less than two '^cuerdas" of sugar cañe to $7157 for the growers harvesting 35 ''cuerdas" or more. The sugar cañe growers surveyed were in a very good financial condition. Their net worth constituted 80 per cent of the total assets. Table 17. NÍET WORTH BY TENURE S/fl sugar cañe farms, Puerto Rico, ITEM

Number of farms Tetáis: Total assets

Total liabilities Net worth

ALL FABMBR8

FULL

PABT

OWNBBB

OWNEBS

TBNANT8

347

248

$3,420,738 673,516 $2,747,223

$2,411,864 398,569 $2,013,295

$920,267 237,352 $682,915

$88,607 37,594 $51,013

$9,858 1,941 $7,917

$9,725 1,607 $8,118

$12,606 3,251

^ $9,355

$3,408 1,446 $1,962

Average per farm: Total assets Total liabilities Net worth Per cent net worth is of total assets

Pulí owners had the highest net worth ratio with 83 per cent; part

owners were next, with 74 per cent; and tenants were last, with 58

per cent. There were no significant differences in the net worth ratio of farmers harvesting different areas of sugar cañe. The net worth varied from $625 in the case of farmers harvesting less than two "cuerdas" to $36,000 for those harvesting 35 "cuerdas" or more.

A Credit Study on 347 Sugar Cañe Farms Table 18.

NET WORTH OF FULL OWNERS BY SIZE OF SUGAR GANE PLANTINGS

2Jfl sugar cañe farms, Puerto Rico, 1939-40 BIZB OF PLANTINGS ITEM

Lesa than 2.00 cdas.

XObSl

2.00 to 4.99

5.00 to 14.99

15.00 to 34.99

35.00 or more

52 Number of farms.. 248 41 93 34 28 Tetáis: $2,411,864 $28,657 $140,987 $645,281 $386,599 $1,210,340 Total assets 22,385 119,105 398,569 3,031 Total liabilities.. 53,654 200,394 Net worth

$2,013,295 $25,626 $118,602 $526,176 $332,945 $1,009,946

Áverage per farm: Total assets.... Total liabilities.. Net worth Per cent net worth

$9,725 1,607 $8,118

$699 74 $625

$2,711

is of total assets..

$2,281

$6,939 1,281 $5,658

$11,371 1,578 $ 9,793

$43,226 7,157 $36,069

430

The approximate ratio of current assets to current liabilities for all the farmers studied was 2.5 to 1. Tenants were relying on shortterm credit exclusively, and, for this reason, their approximate cur rent ratio was only 1.6 to 1. Small sugar cañe growers tended to have lower, current ratios than larger farmers. These results check with the information presentad in other parts of this stpdy indicating that tenants and small sugar cañe growers rely more strongly on shortterm forms of credit.

The analysis of the financial condition of the farmers interviewed

revealed a very solvent condition for the whole sample as well as for the different tenure and size groüps. Current and net worth ratios indicated a safe short-term and long-term position for all the groups, with the exception of the tenant group who had a lower current ratio than what is generally considerad desirable. LONG-TERM CREDIT

One hundred and ten farmers, constituting 34 per cent of the 321 full owners and part owners studied, had mortages outstanding on their farms on June 30, 1940. The mortgages of the Federal Land Bank and Land Bank Commissioner on any one farm were considered as one for the purpose of this study. This agency had 53 per cent of the 133 mortgages outstanding on the 110 farms. Individuáis were second in importance, with 32 per cent of the total.

Julio O. Morales and Daniel Haddock

Tablb 19.

MORTGAGE DEBT OUTSTANDING BY SOÜRCE

347 sugar cañe farms, Puerto Rico^ 1989-40 SOURCES

ITEM

Total

Federal Land Bank and Land Bank Commis sioner

Individ uáis

Commer cial banks

Other lenders

Number of mortgaged farms... Number of mortgages

110*

133

Per cent of total mortgages...

100

gaged farms $1,196,371 $989,274 $300,558 $71,545 Mortgage debt outstanding— $319,415 $190,175 $88,430 $15,000 Per cent of total mortgage debt outstanding 59 100 28 5 Averages: Valué of real estáte per mort gaged farm $10,876 $14,132 $7,156 $23,848 Mortgaged debt outstanding per mortgaged farm $ 2,904 $ 2,717 $2,105 $ 5,000 Per cent mortgage debt out standing is of valué of real

$259,424 $ 25,810

Valué of real estáte of mort

estáte

$14,412 $ 1,434

* Twenty-three farmers had mortgages outstanding on their farms with two difiíerent sources of credit.

As measured by the amount of the mortgage debt outstanding, the Federal Land Bank and Land Bank Commissioner was also the prin cipal source of long-term credit, with 59 per cent of the total. Indi viduáis were the second most important source, with 28 per cent. Most of the mortgages classified under other lenders were granted by the Hurricane Relief Commission. Commercial Banks were not an

important source of mortgage credit for the farmers surveyed. SHORT-TERM CREDIT

Sugar cañe growers were highly dependent on production credit to carry on their businesses. Ninety-one per cent of the farmers studied

used production credit for the cultivation of the crop. An additional 5 per cent used credit for the harvesting of the crop only. The distinction between the two uses of credit is made because sugar milis usually charge no interest on funds advanced for harvesting. Forty-

_______

A Crédit Study on 347 Suoab Cañe Fabms

Tablb 20. SOURCES OF SHORT-TERM CREDIT

SJfl sugar cañe fárms, Prierto Rico, 1939-40 BOÜBCBB OF BUOAB CANB PBODUCTION CBBDIT

Did not use sugai* cana production credit Borrowed from only one agency: Sugar milis Large colonos Production Credit Association Fertilizer dealers Stores Total

Borrowed from two agencies Borrowed from three agencies All farms

NT7MBBB

PBB CBlfT OF TOTAL

139*

216* .

lio** y*»*

32 2

347

100

158

Used short-term credit for living expenditures in addition' to production credit Used short-term credit for living expenditures only

* Includes 16 farmera who borrowed from sugar milis only for the harvesting of

the cr^. ** Includes 25 farmers who borrowed from sugar milis only for the harvesting of the crop. Includes 4 farmers who borrowed from sugar miUs only for the harvesting of the crop.

six per cent of all growers used short-te'rm credit for living expenditures in addition to sugar cañe production credit. One per cent used short-term credit for living expenditures only. Therefore, 97 per cent of all farmers surveyed used some form of short-term credit. Three fifths of the growers studied obtained their sugar cañe pro duction credit from only one source; one third from two sources; and

only seven growers, or two per cent of the total, used three sources. The method used by growers to finance their sugar cañe crop was influenced by the cuerdas'' of sugar cañe harvested and by the geographic location. More than three fourths of the farmers harvesting less than five ''cuerdas" obtained their production credit from only

one agency. Large "colonos" financed principally smaller growers while the Production Credit Association, fertilizer dealers and other

credit agencies showed a tendency to deal principally with larger . growers. No marked preference was observed in the case of sugar

only

Used short-term credit for living expenditures

in addition to production credit

Used short-term credit for living expenditiu^

Total

Two agencies Three agencies

Borrowed from:

Total

Fertilizer deaJers... Stores

Píoduction Credit Association....

Sugar milis Large colonos

Borrowed from:

Did not use sugar caue production credit....

SOURCES

2 o

158

347

110 7

216

64 2 7

2.00 cdas.

than

139

ers

farm-

1 X

29 20

to 4.09

2.00

124

ot\

1 1

14.99

5.00

»7

34.99

15.00

NI [TMBBR Q]P FARMEBS

over

35.00

5^7' sugar canefarmSy Puerto Rico, 1939-40

Table 21. SOURCES OF SHORT-TERM CREDIT BY CUERDAS OF

100

ers

AU fann-

100

—

cdas.

2.00

Lesa than

100

—

2.00 to 4.99

100

—

5.00 to 14.99

PER CENT OF TOTAL

100

—

34.99

15.00

SUGAR GANE HARVESTED

—

100

•

—

over

35.00

525

Total

Other lending agencies

Stores.

Fertilizer dealers

Froduction Credit Association

Emergency Crop and Feed Loan Office

Sugar milis Large colonos

NUMBEB OF FABMEBS

547 sugar cañefarms, Puerto Rico, 1939-40

OF SUGAR GANE HARVESTED

PEB CEIfT OF TOTAIi

Tablb 22 SUGAR GANE GROWERS FINANCED BY EACH TYPE OF LENDING AGENCY BY CUERDAS

fcO

Julio O. Morales and Daniel Haddock

milis and stores in this respect. Over fifty per cent of the growers harvesting 15 or more ''cuerdas'' of sugar cañe nsed more than one agency to obtain their production credit;

The tables presented do not show the actual importance of the Emergency Crop and Feed Loan Office and the Puerto Eico Eecon-

struction Administration as sources^of sugar cañe production credit. These two agencies loaned a substantial part of the funds advanced to the growers of the Lafayette area. Although the Emergency Crop and Feed Loan Office and the Puerto Eico Eeconstruction Administra

tion granted the loans to the farmers individually, the checks were

received by the sugar mili, which, in turn, credited the corresponding accounts with the amount received. By the time the funds from these

two public agencies had been received, the sugar mili had already made advances to the growers. Therefore, the funds advanced to each

farmer usually came from three sources:(1) the sugar mili,(2) Emer

gency Crop ^d Feed Loan Office and (3) Puerto Eico Eeconstruction Administration. A total of $29,583 was loaned following this system to 16 of the 347 farmers studied. It was decided to classify such credit together with that of other sugar milis because of the complications presented by the system and its cióse resemblance,from the standpoint of the grower, to the system followed by other sugar inills. The systems¿ollowed by lending agencies as well as the importance of each agency varied in different geographic arcas. A high proportion of the farmers in the Westem and Northwestem arcas obtained

their production credit from large colonos. Sugar milis were less im-

portant in these same arcas and also in the East Central región. Fertilizer dealers were less important in the Northwestem and Central

Mountainous arcas. Stores, on the other hand, were more important in these two aréas and in the Southem región. The Emergency Crop and Feed Loan Office and the Production Credit Association were of some importance only in the Northem, East Central and Central Mountainous arcas.

Most of these geographical differences seem to be due to the fact

that some sugar milis prefer to let other agencies grant the production credit to their "colonos."

The farmers studied were granted a total of 790 loans and accounts

for a total of $465,000. Sugar cañe production credit accounted for 58 per cent of the total number of loans and 84 per cent of the total amount borrowed. Credit obtained for the production of other crops

or for the financing of livestock enterprises represented only three per

West

North West

Cen

tral Mountain-

Total

North

33 5

East Cen tral

South

West

North West

Cen

ous

tral Mountain-

ing expenditures only

Used short-term credit for liv-

ing expenditures in addition to production credit

Used short-term credit for liv-

Total

Two agencies Three agencies

Borrowed from:

Total

158 1

111

347

110

216

♦100

2 55

Stores

17 1

Production Credit Association Fertilizer dealer

139

100

IsD

> 93

>•

£ ►

South

East Cen tral

ageney:

North

PBR CENT OF TOTAL

Sugar milis Large colonos

Borrowed from only one

tion credit

Did not use sugar cañe produc-

Total

NÜMBER OF FARMEB8

SJfl augar cañe farmaj Puerto RicOy 1939-40

Table 23. SOÜRCES OF SHORT-TERM CREDIT BY GEOGRAPHIC AREAS

11 82 36

Stores

Total

457

Loan OflSce Production Credit Association. Fertilizer dealers

Other lending agencies

137

—

North

Total

242

Sugar milis Large colonos Emergency Crop and Feed

80UBCB

32 79

—

West

—

^—

South

East Cen tral

NX7MBBB OF FABMEB8

—

West

North

100

8 1

Total

ons

Cen tral Mountain-

347 sugar cañe farma, Ptterto Rico, 1939-40

100

—

North

100

East Cen tral

100

—

—,

South

100

—

West

PBR CENT OF TOTAL

100

—

North West

100

ous

tral Mountain-

Cen

Table 24. IMPORTANCE OF SOÜRCES OF SUGAR CAÑE PRODUCTION CREDIT BY GEOGRAPHIC AREAS d

O D O O

►

!25

►

A Credit Study on 347 Suqar Cañe Farms'

Tablb 25. IMPORTANCE OF DIFFERENT FORMS OF SHORT-TERM CREDIT

SJfl augar cañe farms, Puerto Rico, 1939-40 LOANS

AMOUNT LOANBD

AVERAOB

BOÜBCB OF CBEDIT

PBB

Number

Sugar cañe production credit: Sugar miUs Large colonos Emergency Crop and Feed Loan Office Production Credit Assodation Fertilizer dealers Stores

Other lending agencies Total

Other production credit: Lending agencies Fertilizer dealers and stores Total Personal loans and accoimts: Food in stores Other commodities in stores Balance of installment loans

Personal loans Total Grand total

Per cent of total

242

Amount

Per cent of total

S217,286 44,394

1,135 44,954 29,134 3,965 47,687

457

LOAN

$ 898

47 10

584

♦

284

4,087

355

110

7,948

$388,555

$ 850

$ 4,226 2,331

$ 384

$ 6,557

$ 285

150

$ 145

7 7

$ 21,808 2,950 10,003 35,152

58 58

310

790

100

♦

194

172

799

$ 69,913

$ 226

$465,025

100

$ 589

* Less than 1 per cent.

cent of the short term loans and one per cent of the apiount borrowed.

Although personal loans and accounts constituted 39 per cent of the total number, they only amounted to 15 per cent of the total shortterm credit ádvanced to tbe growers surveyed. Sourees of Sugar Cañe Production Credit

Sugar Müls

Sugar Milis combine the flnancing, manufacturing, and in many cases, the marketing of the crop. The majority of the sugar milis are

Julio O. Morales and Daniel Haddook

also large producers of sugar cañe. The system of finaúcing used by sugar milis combines aU fhese services, which is generally considered an undesirable characteristic. Due, however, to the nature»of the marketing process and to legislation enacted in recent years to protect the growers, most of the deficiencies known to exist in a financial scheme of this type have been eliminated. On the other hand, sugar milis are usually a convenient place where the demands of small growers for fertilizer and cash funds can be pulled together. When demands of small growers are combined, a more effective and economical nyiethod of crop financing is rendered possible. In addition, the sugar mili is usually a convenient place for growers to go to discuss any problem of their crop financing. A very effective control of advances is also possible because of the cióse contact between sugar milis and growers. Sugar milis granted 53 per cent of the total sugar cañe production loans and 56 per cent of the total amount advanced. The importance

of sugar milis, both in number of loans and in the amount loaned, inTable 26. LOANS MADE DIRECTLY FOR PRODUCTION OF SUGAR GANE

SJ^lf sugar cañe farmSy Puerto RicOj 1939-40 LOANS

AMOUNT LOANED

AYBBAGE BOUBCE OF CBBDIT

PBB

Number

Sugar miUs Large colonos Emergency Crop and Feed Loan Office

Production Credit Association... Fertilizer dealers Stores

Other lending agencies Total

Per cent of total

242

Amount

$217,286 44,394

1,135 44,954 29,134 3,965 47,687

457

100

$388,555

Per cent of total

LOAN

$ 898

584

♦

284

4,087

355

110

7,948

100

$ 850

* Less than 1 per cent.

dicates the extent to which growers still rely on this agency as the best source of their production credit. Furthermore, other lending agen cies seem to have gained a foothold only in those areas where sugar milis are not performing the service of granting production credit.

A Credit Study on 347 Sugar Gane Farms

Large

Colonos^'

The source of sugar cañe production credit known as large colonos" is one of the agencies which tends to be more important in areas where the growers can not obtain credit from the sugar mili. The smaller growers of the area are financed by one of the larger growers or by a merchant, who eventually becomes a grower himself. These large "colonos" have no other motive in granting credit than that of de-

riving a profit. This type of lenders granted 17 per cent of the sugar cañe production loans, but the amount advanced was only 11 per cent of the total.

Emergency Crop and Feed Loan Office

As pointed out before, the importance of the Emergency Crop and Peed Loan OfiSce is more than indicated by the data presented through-

out this study. This agency foUows methods which seem to be well

adapted for* the financing of small sugar cañe growers. The costs of granting and supervising loans and the losses from bad debts of this agency are low. All these characteristics are essential to a system de signad to fumish the production credit needs of small growers. Nevertheless the legal requirements of this agency can not be met by a large number of small farmers. It is possible, however, that a solution can be found tó this problem without affecting the eflSciency of the system. Production Credit Á.ssociation

The loans made by the Production Credit Association averaged over

$4,000 indicating that nearly all the loans were made to large sugar cañe growers. Only 2 per cent of the total loans were granted by this agency, but the amount advanced constituted 12 per cent of the total. Fertilizer Dealers

Specialized concerns, with facilities for mixing fertilizer, were classified as fertilizer dealers. These dealers sell their product to stores or directly to farmers. Growers are usually requested to sign notes for the valué of the fertilizer advanced to them. Nearly one fifth of the 457 loans made for the production of sugar cañe was of

this type. The amount advanced, however, constituted only 8 per cent of the total. These loans were granted principally to larger growers.

Julio O. Morales and Daniel Haddock

Stores

The farmers interviewed had open accounts for fertilizer with stores for a total amount of $3,965. This eonstituted only 1 per cent of the

produetion credit used by them. The number of accounts, however, represented eight per cent of the ^tal number of loans and accounts. There was no indication that smaller farmers depended on store credit

to a larger extent than larger growers. Store credit seemed to be more important in geographic areas where fertilizer dealers were less important. Other Agencies

Other agencies, of which commercial banks were the most important, showed a tendency to finance only large growers. The majority of the farmers using these sources of credit were located in the East and Eastem Central areas.

Other Short'Term Credit

The amount borrowed for the financing of other agricultural enterprises amounted to only 9 per cent of all other short-term credit. Table 27. OTHER SHORT-TERM LOANS AND CREDIT ACCOUNTS

$47 sugar cañe farms, Puerto Rico, 1939-40 AMOtTNT LOANED

LOANS

AVBRAOB

BOUBCB OF CREDIT

PER

Number

Produetion credit for other crops Food bought on credit Other store credit Balance of installment credit.... Personal loans Total

Per cent of total

160

58 58

17 17

44 333

Amount

S 6,557 '21,808

2,950 10,003 35,152

100

876,470

Per cent of total

LOAN

8285

145

172

799

100

8230

Personal loans and accounts eonstituted the remaining 91 per cent. Personal loans, obtained principally from Commercial Banks, were the

most important type of personal credit from the standpoint of the amount advanced, but were the least important from the standpoint of the number of loans. Store credit for food was first in importance as to number of loans and accounts, with 150 accounts or 45 per cent of the total number, The valué of food bought on credit amounted to

A Credit Study on 347 Sügab Cañe Pabms

nearly $22,000, or 28 per cent of the total. Stoi'e credit for other Hving expenditures constituted only 4 per cent of the $76,470 borrowed in the form of personal loans and accounts and for the financing of agricultural enterprises other than sugar cañe. Installment credit was relatively nnimportant. It accounted for 17 per cent of the number of loans and accounts and for 18 per cent of the amount of other short-term credit. ANALYSIS CP LOANS

Composition of Loans

Parmers borrow their sugar cañe production credit in the form of cash, fertilizer, and other materials and services. Sugar milis and large "colonos" advanced their credit in all the three forms, but the other agencies granted their loans either in fertilizer or in cash. The Tablb 28.

COMPOSITION OP SUGAR CAÑE PRODUCTION CREDIT LOANS

347 sugar cañefarma, Puerto Rico, 1939-40 8OUBCEB OF CBBDIT

TOTAL

CASH

FERTILIZER

OTHER

$217,286 44,394

$198,709 38,333

$12,539 5,606

$6,038

1,135 44,954 29,134 3,965

1,135 44,954

47,687

$388,555

$330,818

$51,244

$6,493

Amounts:

Sugar milis Large colonos Emergeney Crop and Feed Loan Office

Productión Credit Association.... Fertilizer dealers Stores

Other lending agencies Total

—

29,134 3,965

—

455

—

Percentages:

Sugar milis. Large colonos Emergeney Crop and Feed Loan

Office

;

100

—

Production Credit Association.... Fertilizer dealers

100

—

100

—

Stores

100

—

Other lending agencies

100

Total

100 100 —

—

Julio O. Morales and Daniel Haodock

total sugar cañé production credit advanced was 85 per cent oasTi, 13 per cent fertilizer, and 2 per cent other materials and services. Seasonal Distribution of Credit The seasonal distribution of advances made by fertilizér dealers

is different from that of agencies lending cash in addition to fertilizer. Sepárate tables were prepared for these two types of credit besides the general table of both combined. Only 220 farmers were included in this analysis. The records used were those in which information

was available on the seasonal distribution of the total sugar cañe pro duction credit.

Nearly two thirds of the fertilizer sold on credit by fertüizer dealers

to the growers surveyed was advanced during the months of April, May and June. Some of the fertilizer sold on credit in the last few months of 1939 was probably used for cañe to be harvested in 1941. This seems to be the reason why 22 per cent of the amount advanced

was oustanding at the end of 1940. Nearly all the payments were made during 1940. Over one half of the debt was paid from March to July. The amount advanced per "cuerda" was $11.22, which corresponds closely to $12.57, the total spent for fertilizer per "cuerda"

by the growers included in the cost of production study' previously cited.

Lending agencies from which all the production credit needs could be obtained were grouped together for the analysis of seasonal distri

bution of credit. It included sugar milis, lárge "colonos," Produc tion Credit Association, and Emergency Crop and Feed Loan Office.

These agencies started advancing funds to farmers in 1938 on the crop to be harvested in 1940. A total of $27 per "cuerda," or 43 per cent of the total amount loaned, was advanced to growers up to the end of 1939. This amount was scattered all over 1939, with a slight peak from May through July. The amount advanced during 1940 amounted to $36 per "cuerda," constituting 57 per cent of the total advances. A total of $2.70 was advanced per ton of sugar cañe harvested as fol-

lows: $1.17 during the growing season and $1.53 during the harvesting season. The funds borrowed during 1940 were used for harvesting the crop. The period from January to June is the normal grinding season for sugar cañe in Puerto Rico. Practically all the 1940 advances were made in this period.

Three per cent of the total amount loaned was outstanding at the end of 1940. A small amount was paid in cash prior to the start of

A Cbedit Stüdt on 347 Sugar Cañe Pabms Tabib 29. SEASONAL DISTRIBUTION OF AMOUNT LOANED BY FERTILIZER DEALERS

Jfi 8ugar cañe prodtuAion loana, Puerto RicOf 1939-40 AMOUNT OUTSTAND-

AMOUNT BOBBOWBD

ING AT THE END

EACH MONTH

PATMENTS

OF EACH MONTH

MONTH

Total

Per cda.*

Per cent

of totiJ

Amount

Per cent

Amonnt

Per cent

1939

January February March

168

$ 0.12

111

0.08

168

279

480

0.35

759

2,369 3,567 3,804 1,154

1.71

2.58

2.75

0.83

344

0.25

1,158

0.84

October

665 615

0.48 0.44

November

December

1,095

0.79

3,128 6,695 10,499 11,653 11,997 13,155 13,820 14,134 15,229

April May June

July August

September

1940 January February

$15,229 14,967 14,022 11,873 9,756 8,103 6,615 6,113 6,055 4,991 3,998 3,370

March

April May June

July August

September October November December

Total

$15,530

$11.22

100

—

43 68

77 85

89 91

$ 301

$ 262

•2

945

2,149 2,117 1,653 1,488

502

1,064

993

7 6

628

98 98

63 52

—

14 11

10 ♦♦

—

* The loans of these 45 farmers covered 1,384.64 cuerdas oí sugar cañe. Less thMi 1 per cent.

the harvesting season, but the major part of the debt was paid from January to June. Sugar milis and large colonos'' usually deduet

the proceeds of the sugar cañe of each borrower from the balance of bis debt. Therefore, the grower will only receive a cash payment when

the proceeds from the sugar cañe delivered exceed the debt. This is why the seasonal distribution of the payments corresponda so closely

Julio O. Morales and Daniel Haddock

Tablb 30. SEASONAL DISTRIBÜTION OF AMOÜNT LOANED BY LENDING AGENCIES

220 silgar cañe production loana, Puerto Rico, 1939-40 AMOUNT OUTAMOUNT BORBOWED EACH MONTH

STANDING AT END

OF EACH MONTH

MONtH

Per

Total

Total—1938.

Per cuerda*

Per. ion

cent

of total

Amount

S 2,235 $0.63 $0.03

$ 2,235

$0.10 $—♦*♦ 0.01 0.13 0.02 0.39 1.55 0.07

$ 2,601 3,039 4,404 9,879 25,954 43,170 59,674 68,728 76,786 83,367 86,629 92,134

Per cent

Amount

Per cent

1939

January.. Febmary. March....

April May June......

July August.... September. October... November. December.. Total—1939

1940 January. . .

366 438

1,365 5,475 16,075 4.56 17,216 4.88 16,526 4.69 9,054 2.57 8,112 .2.30 7,079 2.01 4,692 1.33 7,057 2.00

0.19

0.21 0.20

0.11 0.10

0.08 0.06 0.09

$93,455 $26.51 $1.14

$ 15.893 $ 4.51

$0.19

0.30

24,773

7.03

March. . . .

29,650 31,508

8.41

0.36

8.94

0.39

June

July August. . .. September.

17,744 5,909

5.03

0.22

0.07

1.67 0.03

0.01

October. . . . November. . December.. . Total—1940 Grand Total.

2 4 12 20

*♦

31 35

♦*

498

1,430 1,552

1 1

Febmary. .

April May

1 1

$125,597 $35.63 $1.53

$221,287 $62.77 $2.70

100

$88,992 75,618 50,946 31,370 25,415 17,750 17,502 14,966 14,857 14,857 6,347 6,347

40 34 23 14 11

8 8

$19,035 38,147 54,322 51,084 23,699 13,574

9 17 25

23 11 6

343

2,536

134

7 3

8,510

* The loans of these 220 farmers covered 3,524.94 cuerdas of sugar cañe from which a total of 81,938 tons were harvested. ** Less than one per cent. *** Lesa than one cent.

A Credit Stúdt on 347 Sugar Cañe Parms

Tablb 31. SEASONAL DISTRIBUTION OF TOTAL AMOUNT LOANED

280 sugar cañe production loans, Puerto Rico, 19S9-J^ AMOUNT OUTBTANDING AT BND

AMOUNT BORROWED BACH MONTH

PATMBNTS

OF BACH MONTH

Per Per cuerda*

Total

Per

cent

ton

Amount

Per cent

Amount

Per cent

to^

Total—1938.

$ 2,235

$ 2,235 $0.63 $0.03

1939

January.... February...

549

0.16

0.01

0.52

0.02

April...

1,845 7,844

2.22

0.10

May...

19,ÍS42

5.57

0.24

June

21,020 17,680 9,398

5.96 5.02

0.26

2.67

0.11

October.... November. ,

9,270 7,744 5,307

December..

8,151

March

July August...., September....

0.22

2.20

0.09

1.51

0.06

2.31

0.10

Total—1939 $108,984 $30.92 $1.33

1940 January... February.. March....

April May June

July

$ 2,769 3,318 5,163 13,007 32,649 53,669 71,327 80,725 89,941 97,187 100,762 107,361

534 $0.15 $0.01

$ 15,983 $ 24,773 29,651 31,508 17,744 5,909 95

4.51 $0.19

7.03

0.30

8.41

0.36

8.94

0.37

5.03

0.22

1.67 0.03

0.07

7 3

♦♦♦

0.01

October...

November... December.. Total—1940 $125,598 $35.63 $1.51

Grand Total.

1 2

5 14 23 30

34 38

498

1,732 1,552

_*» ♦♦

August....

September...

$104,219 90,583 64,967 43,242

35,170 25,852 24,116 21,078 20,911 19,848 10,345 9,717

$19,035 38,409 55,267 53,233 25,816 15,227 1,831 2,038

192

8 4

1,063 9,503

628

27 18 11 10

8 16 23

23 11

7 1

$236,817 $67.18 $2.87 100

* The loans of these 220 farmers covered 3,524.94 "cuerdas'' of sugar cañe from which a total of 81,938 tons were harvested. ♦♦ Lesa than one per cent, Less than one cent.

Julio O. Morales and Daniel Haddock

to the grinding season. It should be noted that 42 per cent was the highest proportion of the total advances outstanding at the end of any month. This occurred in December, 1939.

When the amounts borrowed from fertilizer dealers and lending agencies were combined, the total advances per "cuerda" of sugar cañe harvested amounted to $67. Nearly $31 were loaned during the growing season and $36 during the harvesting season. The corresponding amounts per ton were $1.33 and $1.51, adding to a total of $2.87. The sugar cañe cost of production study covering the crop year 1942 re portad a total cost per "cuerda" of $125 and a cost per ton of $4.83. A total cost, however, includes a high proportion of non-cash items, such as unpaid labor, use of the land, administration, etc. The amount advanced for harvesting per ton is very cióse to the labor costs for

harvesting per ton obtained in this cost of production study which amounted to $1.57. There was a remarkably cióse relationship between the amounts advanced per ton and per "cuerda" in 1940 to the sum of

the labor and fertilizer costs per unit obtained in the 1942 study. Wages and prices of fertilizer did not change materially during these years.

CoUateral Bequested

Porty-six per cent of the 218 loans analyzed in this phase of the study were guaranteed by a crop lien. The Production Credit Associ-

ation and the Emergency Crop and Peed Loan OfiScé required a crop Tablb 32. COLLATERAL REQüIREMENTS OF LENDERS 218 sugar cañe production loans, Puerto Rico, 1939-40

SOUBCB

Sugar iníllg Large colonos

TOTAL

159

OUABANTBBD

PBBCENTAOB

BY CBOP

OUABANTEED

LIEN

BY CBOP LIEN

68 '

Emergency Crop and Feed Loan Office

100

Production Credit Association

100

218

100

Total

lien on all their loans. Sugar milis and larga ''colonos,'' on the other hand, had only about two fifths of their loans guaranteed by a written agreement. Small growers are usually granted credit on the basis of a verbal contract, Larger growers usually sign a written document.

A Crbdit Study on 347 Sugar Cañe Farms

A few sugar milis and large ''colonos/' however, follow the praetice of requiring a erop lien fróm all their borrowers. COST CP CREDIT

Interest Cost

Nominal Interest Bate

The rate of interest used by lenders to calcúlate the interest charge is known as the nominal rate. The Emergency Crop and Feed Loan Office used the lowest nominal rate (4 per cent) and the Production Credit Association used the next lower with 5 per cent. The nominal rates used by sugar milis and large "colonos" ranged from 6 to 9 per cent. About one fifth of the loans studied were charged a nominal Tablb 33. DISTRIBUTION OF NÜMBER OF LOANS BY NOMINAL INTEREST RATE

214 sugar cañe production loans, Puerto Rico, 1939-40 PEB CENT INTEREST

NUMBEB OF LOANS

PER CENT OF TOTAL

214

100

Total

rate of six per cent or less. Nearly one third paid interest at the rate of 9 per cent. Effective Interest Bate

The effective interest rate is obtained by dividing the interest

charged by the annual equivalent of the amount loaned. The annual equivalent is the amount which, if borrowed for a whole year, would cost exactly the same as a larger amount used for a shorter period than

a year, or as a smaller amount used for more than a year. For exampie, borrowing $100 for a periód of six months is equivalent to borrowing $50 for a whole year. Thus, $50 is the annual equivalent of a six months $100 loan.

Julio O. Morales and Daniel Haddock

The calculation of the annual equivalent is complicated by the fact that crop production loans are divided in many small advanees throughont the growing and harvesting seasons. To determine the exact annual equivalent a total of daily balances

had to be computed for each and every one of the 218 loans studied. This total had to be divided by the number of days in a year. From

the standpoint of the present study, this degree of aceuracy was not considered necessary. Therefore, an approximate annual equivalent was obtained by dividing the total of monthly balances by twelve. The proeedure explained above is illustrated in Table 34. Table 34. CALCULATION OF APPROXIMATE ANNUAL EQUIVALENT OF AMOUNT DRAWN BY A SUGAR CAÑE GROWER FOR PRODUCTION CREDIT

MONTH

AMOUNT DBAWN

PAYMBNTB

BALANCB AT THE BND OF

BACH MONTH

1939

•

April

$ 5

May

June

—

July August September

—

October November December

$ 5 20

—

100

—

100

—

100

19Ifl

January February March

April May

—

$100

$825

—

SIGO

Total

Annual Equivalent

—

^25

= S68.75 12

The distribution of loans aceording to the approximate effective interest rate showed some differenees from that based on the nominal

rate. Effective interest rates of 6 per cent or less were obtained for nearly 30 per cent of the loans, while the calculation showed that one

fifth paid approximate effective rates of 10 per cent or over.

A Credit Study on 347 Sugar Cañe Farms

Table 35. DISTRIBUTION OF NUMBER OF LOANS BY APPROXIMATE EFFECTIVE INTEREST BATE ♦

214 sugar cañe production loans, Puerto RicOf 1939-40 PEB CENT 1NTEBE8T

NUMBER OF LOANS

PEB CENT OF TOTAL

4% or less

7.;

8 9

10% or over

214

100

Total

* As of date interest was actually charged.

Factors Affecting the Difference Between Nominal and Effective In terest Bates

The system followed in calculating the annual.equivalent explains only a small part of the difference observed between these two rates. The methods of eharging interest employed by lending agencies, as well as the time elapsed in applying the proceeds of the sugar cañe to the

payment of the loan, account for the larger share. The methods fol lowed by lending agencies in granting credit differed in: (1) the date until which interest was charged, (2) whether interest was charged on the funds loaned for harvesting or not, (3) whether interest was

charged on the valué of fertilizer advanced or not. Bighty four per cent of the loans were charged interest until the actual payment of the debt; six per cent until the farmer started delivering cañe to the sugar mili; six per cent until the date of the first liquidation; and four per cent until December 31, 1939. Four fifths of the loans were charged interest on both cash and fertilizer advances

but the remainder paid interest on cash advances only. In these latter the cost of fertilizer included the interest charge. The time elapsed in applying the proceeds of the sugar cañe to the

pa^ent of the debt was an important factor in the case of the Pro duction Credit Association and the Bmergency Crop and Feed Loan

Office. This factor should not be overlooked if a change in the present system of crop financing is contemplated involving two sepárate agen cies, one in charge of marketing the crop and the other in charge of

JttiíIO o. Mobales and Daniel Haddock

Tablb 36. HOW FARMERS PAID INTEREST

SU tugar cañe produdion loan». Puerto Rico, 1939-40 EMBB-

BTSTEM OF CHABOING

TOTAL

Number offarmera Until actual payment of debt Until farmers started harvesting Until date of fírst Uquidation Until a specifíe date Total

PercerUage Until actual payment of debt Until farmers started harvesting Until date of fírst Uquidation Until a specifíe date

BUGAB

LABGB

TirTT.T.«

COLONOB

180

130

214

159

.6 6

100

• PBODUC-

GBNCr

TION

CBOP AND

FBBD LOAN

CBBDIT ABBOCIA-

OFFICE

TION

100

Total

Table 37.

100

METHOD USED BY LENDING AGENCIES TO CALCULATE INTEREST CHARGED BMBB-

8YSTBM OF CHABGINO INTEREBT

Number offarmers Until actual payment of debt Until farmer started harvesting Until date of fírst Uquidation Until a specifíe date Total

TOTAL

BUGAB MILLB

LABGB

COLONOB

GBNCT

PBODUC-

TION

CBOP AND

CBBDIT

FBBD LOAN

AB80CIA-

OFFICE

TION

100

Percentage

Until actual payment of debt Until farmer started harvesting Until date of fírst Uquidation. .* Until a specifíe date Total

100

A Cbedit Studt on 347 Sugar Cañe Parms

granting credit. Care should be taken so that the proceeds from tbe cañe move iu the shortest possible time to the lending agencies. The annual equivalent, the effectiye rates of interest and total cost of credit were calculated on the basis of two different dates: (1) Until

date interest was actually charged, (2) until actual payment of debt. The calculation "until date interest was actually charged" made

possible the comparison between the nominal and effective interest rates of all loans with the exception of those of the Productíon Credit Association. In the case of this agency, the figures given under this

heading represented an attempt to determine the costs of credit if no time had elapsed in applying the proceeds of the cañe to the payment of the debt. The calculations "until actual payment of debt" tend to

put all loans on a comparable basis, regardless of the differences in the systems of charging interest. It is clear that farmers borrowing from agencies which charge interest until December 31, or until the date they start harvesting, are paying a lower effective interest rate flum those borrowing from agencies charging interest until the actual

payment of debit, if the nominal rate is the same. As the majority of the lending agencies charged interest until the actual pajnnent of debt, all loans were put on this basis for the purpose of comparison of credit costs.

Legal Fees

The amount spent for legal fees to secure the 218 loans studied amounted to $627. As less than half of the loans were guaranteed by a written document, the legal expenses were low relative to the num-

ber of loans and the amount loaned. Legal fees spent to secure the 9

loans granted by the Production Credit Association constituted three fifths of the total legal expenditure. This relatively high legal ex

pense per loan was due to the large size of the loans and to the fact that all these loans were guaranteed by a written contract. Other Fees

Some large "colonos" followed the practice of charging borrowers a certain fee per ton of sugar cañe harvested to cover the expenses of

supervising the loans and of taking care of their problems with the sugar milis. The charge for this fee was many times out of proportion with the amount borrowed, resulting in extremely high costs of credit

per $100 annual equivalent. The Production Credit Association charged a fee to cover the expenses of süpervising loans. A specific

Julio O. Morales and Daniel Haddock

Table 38. ANNUAL EQÜIVALENTS, APPROXIMATE INTEREST COST, AND TOTAL COST OF CREDIT AT VABIOUS DATES

218 sugar cañe production loans. Puerto RicOf 1939-40 PRODUO-

GBNCY

Number of loans Total amoimt borrowed

BUGAB

LABOB

MILLB

COLONOB

159

TION

CROP AND

CBIBDIT

FEBD LOAN

ABSOCIA-

OFFICE

TION

218

$118,267 $25,581

$2,121

$38,900

$184,869

$48,447 $16,760 $49,338 $16,857

$1,308 $1,303

$16,510 $18,832

$83,025 $86,330

AnnuaX equivalente: Untíl date interest was ac-

tually charged Until actual pajrment of debt. Per cent of year debt was outstanding

$3,917

$1,187

$56

$1,034

$6,194

204

382

627

414

1,980

Coste:

Interest....

Legal fees

1,566

Other fees Total costs

$4,121

$2,784

$66

$1,830

$8,801

$8.09

$7.08

$4.28

$6.26

$7.46

$7.94

$7.04

$4.30

$5.49

$7.17

$8.51 $8.35

$16.61 $16.52

$5.05 $5.07

$11.08 $ 9.72

$10.60 $10.19

Ratee per $100 annual equivalent: Interest:

Until date interest was ac-

tually charged UntU actual payment of debt Total Coste:

Until date interest was ac-

tually charged Until actual payment of debt.

percentage of the total amount advanced was charged to cover these expenses.

Total Cost of Credit

Although interest eharges were only 7.2 per cent of the annual equivalent calculated until actual payment of debt, the amounts charged for legal fees and other fees increased the total cost of credit to 10.2 per cent. This rate varied from 5.1 for the loans of the Emergency Crop and Feed Loan Office to 16.5 for those of large'* colonos.'* The exceedingly high cost of credit in the case of large colonos'' was due to the charge of other fees at a rate per ton of sugar cañe har-

from sugar cañe

.Per cent that amount advanced is of meóme

Amount advanced per ton of sugar cañe

Until date interest was actuaUy charged.. Until actual pa3anent of debt Amount advanced per cuerda of sugar cañe...

Total cost of credit per $100 annual equivalent:

Until date interest was actually charged.. Until actual payment of debt

was actually charged Interest costa ver $100 annual equivalent:

1940 sugar cañe crop Otherfees ; Total amount advanced on which interest

Interest charged Total co8t of credit ••• Balance of debt outstanding at the end of

debt

Annual equivalent until actual payment of

1940 sugar cañe crop.

tually charged •• ••••• Amount borrowed for the production Of the

Annual equivalent until date interest was ac-

Total income from sugar cañe Tons of sugar cañe..

Cuerdas of sugar cañe harvested

Number of farms

East

North

$2,161 408

$1,680 302

$1,017 200

$1,998 358

$4,533 835

$3,417

$2,200

$12.81 $ 8.07 $ .93 $ 3.02

$ $ $ $

7.67 7.67 138 5.13

$12.43 $11.90 $ 66 $ 3.11

$11.62 $11.27 $ 69 $ 3.04

$12.73 $12.59 $ 66 $ 3.04

$ 6.61 $ 6.54 $ 7.56 $ 7.33

$ 7.^2 $ 7.31 $ 7.31

$ 8.50 $ 5.35

$ 7.51 $ 7.61

$ 9.51 $ 9.64 $ 75 $ 3.07

$ 848

$ 837 $ 427 $ 737

$1,381

$1,213

$ 932

$10.59 $10.19 $ 84 $ 3.47

$ 7.45 $ 7.17

$ 68 $ 9.06 $ 72 $28.13 $ 30 $ 6.58 $ 40 $10.85

$ 166 $ —

$ 276 $ 7.09

$ 45 $ 4.70

$ 7.58

$ 396 $28.39 $40.36 $ 473 $30.93 $59.57 $ 198 $14.52 $22.32

$ 304 $23.05 $36.18

$ 546 $39.90 $41.86

$ 683 $36.55 $55.09

$1,414^ $ 917

$ 608

$1,115

$4,282

$2,111

$1,300 $ 435 $33.12 $41.93

$ 381

$ 468

$ 192

$ 291

$ 546

$ 430

$ 441

424

218 16.80 30 13.90

40 8.75

Central mountainoiis

40 17.02

Western

21 31.00

W^tern

Southern

11 22.82

Centnd

76 17.28

Northern

218 sugar cañefarmSf Puerta Rico, 1989-40

Tablb 39. RELATION OF GEOGRAPHIC AREA TO TOTAL COST OF CREDIT AND OTHER FACTORS

tí

►

-a

!2|

•a

Julio O. Morales and Daniel Haddock

vested instead of at the rate of the amount advanced or the annual

equivalent of the debt. The interest eost per $100 annual equivalent ranged from 4.3 for the loans of the Emergeney Crop and Peed Loar OflBice to 7.9 for the loans granted by sugar milis. Bélation of Oeographic Area to Total Cost of Credit and Othei Factors

There were only small differenees in the interest cost per $100 an nual equivalent among the different geographie areas. The total eost of credit, however, showed considerable differenees, ranging from $7.67 per $100 annual equivalent until actual payment of debt in the Southem región to $12.59 in the Central Mountainous area. These

geographical differenees were principally due to the charge of other fees. Parmers of the Southem región were not charged other fees, while those of the Central Mountainous Región had to pay average

other fees amounting to $28.13 per farm. This fee was charged to the growers by the large ''colonos'' of the area. There seen¡is to be no economic reason for these geographical differenees. Although the lenders advanced credit to smaller growers in the areas of higher costs, they did not assume larger risk in so doing, as is shown by the per cent that the amount advanced was of the income from sugar cañe.

Belation of Tons of Sugar Cañe Harvested to Total Cost of Credit and Other Factors

Higher costs are involved in granting credit to smaller growers.

Bookkeeping, supervising, and many other expenses of granting credit are more closely related to the number of loans than to the amount

loaned. It is to be expected, therefore, that smaller growers pay higher costs of credit than larger growers. Interest costs per $100 annual equivalent showed no significant change with increases in size of the

enterprise. Total costs of credit per $100 annual equivalent, on the other hand, were much higher in the farms harvesting 145 tons of sugar cañe or less. ^ Since in these farms the per cent that the amount advanced is of the income from sugar cañe was not higher, thus eliminating the possibility of higher costs through loss on bad debts, the only adequate explanation for the higher costs seems to be the size of

the loans. The item other fees'accounts for" the major part of the difference between interest cost and total cost of credit. The type of lending agency has a definite effect on the relationship observed, because large colonos tend to finance principally small growers.

Until date ínteres! was actually charged Until actual payment of debt Amount advanced per cuerda of sugar cañe Amount advanced per ton of sugar cañe Per cent amount advanced is of income from sugar cañe...

Until actual payment of debt Total cost of credit per $100 annual equivalenl:

Until date- Ínteres! was actually charged

Inierest coste per $100 annual equivalenl:

$1,414

$ 9.53 $ 9.46 $ 56 $ 2.67 50

$13.92 $13.62 $ 58 $ 2.80 52

$17.00 $16.51 $ 45 $ 2.69 48

$ 10.18 $ 9.78 98 $ $ 3.78 72

$11.72 $10.98 $ 56 $ 2.57

$ 7.47 $ 7.42 $ 7.74 $ 7.57

$ 7.44 $ 7.23

$10.59 $10.19 $ 84 $ 3.47

$ 7.45 $ 7.17

$ 522

$ 364

$ 175

$ 7.43 $ 7.14

$.848

$ 2,755

$1,735 $1,018

$ 583

$ 7.44 $ 6.97

$2,161

$ 241 $ 24.02 $ 6,530

$ 68 $ 9.06

$ 396 $28.39 $40.36 $ 53 $ 8.61

$125.27

$ 4,673 $ 1,281 $ 91.52

$ 3 $ 2.35

$ 849 $ 240 $16.73 $26.36

$ 5 $ 4.62

$ 302 $ 93 $ 7.04 $12.67

$ 5 $ 2.90 $ 202

$ 97 $ 35 $ 2.53 $ 5.78

Total income from sugar cañe Total amount advanced on which Ínteres! was actually '$ charged

Other fees

crop

Balance of debt outstanding at the end of 1940 sugar cañe

Total eos! of credit

Interes! charged

Annual equivalen! until actual payment of debt

crop

Amount borrowed for the production of 1940 sugar cañe $ 508 $ 157 $11.65 $14.86

$ 381

$ 1,231

$ 225

9.00

$ 156

5.24

2.16

Annual equivalen!until date Interes! was actuaUy charged 34

408 16.80

1,235 47.73

330

Í5.21

190

108

Tons of sugar cañe

Cuerdas oí sugar cañe harvested

218

ALL FARMB.

over

446 or

246-445

146-245

66-145

65 or lesa

líumber of farms

•

ITEM

TONB OF BUGAB GANE

218 sugar cañe farmSy Puerto Rico, 1989-40

Tablb 40. RELATION OF TONS OF SÜGAR CAÑE TO TOTAL COST OF CREDIT AND OTHER FACTORS

«2

ÍZJ

Total income from sugar cañe Total amount advanced on which interest was actually charged IrUeresi costa per $100 annual equivalent: Until date interest was actually charged Until actual payment of debt Total cost of credit per $100 annual equivalent: Until date interest was actually charged Until actual payment of debt Amount advanced per cuerda of sugar cañe Amount advanced per ton of sugar cañe

Other fees

crop

Balance of debt outstanding at the end of 1940 sugar cañe

Total cost of credit

Annual equivalent until actual payment of debt Interest charged

crop

.^ount borrpwed for the production of 1940 sugar cañe

$ 7.98 $ 7.83 $ 8.57 $ 8.42 $ 49

$ 8.72 $ 8.72 $18.18 $18.18 $ 34 $ 1.54

$ 2.17

$ 286

$ 188

$ —

$1,241

$ 8.35 $ 969

$ 515 $ 112 $ 8.78 $ 9.43

$1,819

$1,046 $ 8.19 $ 7.59

$ 704 $ 7.22 $ 7.02

$ 9.95

$ 81 $ 3.45

$13.25 $12.89 $ 63 $ 2.71

$10.74

$2,820

$ 115 $ 8.74

$ 570 $43.26 $56.69

$1,711

$ 10 $16.76

$ 864 $ 332 $23.31 $42.79

$ 528

$ 323

$ 110

$ 279 $ 94 $ 8.20 $17.09

$1,414

$ 848

$2,582

$ $ $ $

7.42 7.39 150 5.63

$10.59 $10.19 $ 84 $ 3.47

$ 7.45 $ 7.17

$2,161 $4,834

$ 6.35 $ 6.33

$ 68 $ 9.06

$ 396 $28.39 $40.36 $ 287 $ 4.78

$63.35 $73.96

$4,935 $1,001^

408

$ 381

16.80

877 $ 997 548

319

237

181

33.00

65 22.37

13.69

10.41

218 23 102

XLli fAavaio

56-75

Over 75

46-55

Per cent amount advanced is of income from sugar cañe .. Cuerdas of sugar cañe harvested Tons of sugar cañe Annual equivalent until date interest was actually charged

36-45

8.32

Number of farms

orless

35 per cent

PER CENT AMOUNT ADVANCED 18 CP INCOME FROM SUGAR CAÑE

TOTAL COST OF CREDIT AND OTHER FACTORS

Tabie 41. KELATION OF PER CENT AMOUNT ADVANCED IS OF INCOME FROM SUGAR GANE TO

o w

A Crédit Studt on 347 Sugar Gane Fabms

Belation of Per Cent Amount Advanced Is of Income from Sugar Cañe to Total Cost of Credit and Other Factors

Another important cost of granting credit is the loss on bad debts,

nsually referrad to as "risk." The per cent that the amount advanced was of the income from sugar cañe is probably the best measure of risk. There was no significant relation between risk and interest cost or total cost of credit. The highest costs were paid by farmers bor-

rowing 35 per cent or less of the valué of the crop and the lowest were paid by growers borrowing more than 75 per cent of its valué. The relationship was influenced by the source of credit, as shown by the effect of other fees.

Belation of Nominal Interest Bate to Total Cost of Credit and Other Factors

Although nominal interest rate was a good guide as to the interest cost and total costs of credit, other factors may alter the situation.

Therefore, farmers have to take into consideration these other factors in addition to the nominal interest rate. The importance of other fees and of the method of charging interest has been already pointed out. While interest cost moved in cióse relationship with the nominal in

terest rate, total cost of credit did not show a consistent relationship. The highest cost of credit occurred in the group of farms where no interest was charged and the lowest where a nominal rate of 4 per cent

was charged. The size of the loans and the per cent that the amount advanced was of the valué of the crop showed no relationship with nominal interest rate.

Belation of the Effective Interest Cost to Total Cost of Credit and Other Factors

As was to be expected, effective cost of credit was closely related to total cost of credit per $100 annual equivalent. It should be em-

phasized, however, that the relationship was not consistent due to the influence of the charge for other fees. No relation was observad be tween the effective interest cost and. the size of the loans or the risk as-

sumed by lenders. The lending policies followed by the different sources of credit seem to account for the major part of the variations observed in the effective interest cost.

Per cent amount advanced is of income from sugar cañe

Amount advanced per cuerda of sugar cañe Amount advanced per ton of sugar cañe

Until actual pajrment of debt

Until date interest was actually charged.

lent,

Total cost of credit per $100 annual equiva"

Until actual payment of debt

Interest cosis per SlOO annual equivalent: Until date mter^t was actually charged.

Total amount advanced on which interest was actually charged

Total income from sugar cañe

1940 sugar cañe crop Other fees

Balance of debt outstonding at the end of

Total cost of credit

Interest charged

of debt

1940 sugar cañe crop Annual equivalent until actual payment

Amount borrowed for the production of

Tons of sugar cañe Annual equivalent until date inter^t was actually charged

Cuerdas of sugar cañe hiarvestéd

Number of farms

1 1

$ 5.13 $ 5.13 $ 49 $ 2.30

$19.89 $19.89 $ 45 $ 2.60

$ 4.29 $ 4.29

$ 424

$ 11.09 $ 9.72 $ 91 $ 3.46

$ 6.27 $ 5.49

$ 4,322

$ 7,748

$1,320

$ 269 $ 45.89

$115.00 $203.44

$ 2,093

$ 5,156

$ 1,835

1,491

9 56.44

$ — $ —

$ 261 $11.20 $13.40

$ 612

$ 261

5 12.40 266

$ 2 $ 8.00 $ 190

$ 44 $ — S 8.75

1.75 30

No charge

$ 7.09 $ 7.09 $ 97 $ 3.74

$ 6.63 $ 6.63

$ 439

$1,679

$ 98 $ —

$ 294 $19.50 $20.85

$1,183

$ 294

34 12.15 316

46 24.39 582

$ 8.39 $ 8.18 $ 98 $ 4.09

$ 7.87 $ 7.68

$1,189

$3,182

$ 39 $ —

$ 437 $33.54 $35.74

$2,382

$ 426

NOMINAL INTEREST RATE

$10.53 $10.53 $ 76 $ 3.14

$ 7.74 $ 7.74

$ 576

$1,427

$ 71 $ 5.00

$ 203 $15.71 $21.38

$ 886

$ 203

56 11.63 282

$13.74 $13.49 $ 66 $ 2.86

$ 8.33 $ 8.18

$ 653

$1,727

$ 52 $19.55

$ 384 $31.42 $51.81

$ 925

$ 377

323^

64 14.06

$10.59 $10.19 $ 84 $ 3.47

$ 7.45 $ 7.17

$ 848

$2,161

$ 68 $ 9.06

$ 396 $28.39 $40.36

$1,414

$ 381

218 16.80 408

FARMS

ALL

Table 42. RELATION OF NOMINAL INTEREST RATE TO TOTAL COST OF CREDIT AND OTHER FACTORS

o o Q

income from sugar cañe

Per cent that amount advanced is of

cañe

Amount advanced per ton of sugar

sugar cañe

Until actual payment of debt Amount advanced per cuerda of

charged

Until date intérest was actually

equivalent:

Total cost of credit per $100 annual

Until date interest was actually charged

lent:

Interest cost 'per $100 annual equiva

Total income from sugar cañe..... Total amoimt advanced on which , interest was charged

Other fees

end of 19^ sugar cañe crop

Balmice of debt outstanding at the

Total cost of credit

Interest charged

mént of debt

Aimual equivalent until actual pay

of the 1940 sugar cañe crop

Annual equivalent until date interest was actually charged Amount borrowed for the production

Tons of sugar cañe.

Interest cost per $100 annual equivalent until actual paymént of debt Cuerdas of sugar cañe harvested

Number of farms

$ 2.60

$ 3.38

$ 3.47

$ 5.12

$ 3.06

$ 3.07

$ $ 133 99

$13.02 $12.91

$11.44 $11.42 $ 9.35 $ 9.67

$ 8.96 $ 7.66

$ 8.47

$ 7.37 $ 6.99

$ 7.38

$19.89 $19.89

$ —

$ 6.04

$ 6.51

$ 466

$1,244

$1,282

$ 967

$ 951

$ 4.53

$1,986

$2,039

$3,505

$2,675

$2,015

$ 34 $ 9.21

$ 89 $21.87

$ 239 $20.07 $30.86

$ 8.75

$ 559 $41.18 $63.85

$ 2.54

$ 2.78

$ 3.47

$ 69

$ 7.45

$10.59 $10.19

$11.05

$ 848 $ 903

1 $2,161 $2,537

izj

$ 68 $ 9.06

$11.73 $11.73

t> Q

$ 42 $ 1.30

$ 396 $28.39 $40.36

$1,414 $1,363 $ 487 $53.83 $57.13

$ 381 $ 487

$13.59 $13.59

$ 9.38

$ 331

$ 13 $ 5.00 $ 913

$ 134 $12.57 $18.21

$ 445

$1,169

$ 227 $ 6.29 $ —

$ 405 $25.29 $39.17

$ 134

16.80

19.74 491

$ 7.17

$11.05

218

FABM8

8.82 175

10.00 or

$ 9.38

9.009.99

$ 237

$ 39 $ 4.58

$ 623 $34.68 $47.74

$1,130

$3,297

$1,787

$1,299 $ 352 $15.12 $24.62

$ 558

16.50 381

$ 419

$ 8.40

16.56 369

8.008.99

$ 7.36

$ 533

24.75 644

18.00 515

7.007.99

$ 334

$ 6.24

$ 5.57

17.08 384

6.006.99

$ 4.30

6.005.99

$ 2 $ 8.00 $ 190

$ 44 $ — $ 8.75

1.75 30

$ —

5.00

Lesa than

oharge

INTBBEBT COBT PEB $100 ANinTAL EQUIVALENT UETIL ACTUAL PATMEMT OF DEBT (l>OLLAB8)

218 aitgar canefarms, Puerto Rico, 1939-40

Table 43. RELATION OF THE EFFECTIVE INTEREST COST TO TOTAL COST OF CREDIT AND OTHER FACTORS

Julio O. Morales and Daniel Haddock

Belation of Total Cost of Credit per $100 Annual Equivalent untü Actual Payment of Deht to Cuerdas^' of Sugar Cañe Harvested and Other Factors

The charge for other fees was the principal factor in accounting for the increases in total cost of credit per $100 annual equivalent.

The charge for other fees. ranged from nothing in the group of farms where the total cost was $5 or less to $34 for the group of farms where the cost was over $12 per $100 annual equivalent. As the eflfective interest cost showed only slight variations among the different groups, the differences in total cost of credit per $100 annual equivalent had to be due to the ''other costs.'' The size of the loans and the risks

involved in granting credit showed no significant relationship with the total cost of credit per $100 annual equivalent. Bisk

Belation of Qeographic Area to Amount Advanced per

Cuerda'' of

Sugar Cañe and Other Factors

The highest amount per "cuerda" was advanced to growers of the Southem Area, and the smallest to the growers of the Westem Area. The income per "cuerda" ranged from $118 in the North Western. Area to $163 in the East Central Región. The average size of the enterprises of the Southem area was over two and a half times that of the North Westem Región. Significant differences were observed

among the areas studied in the yield pér "cuerda," income per ton and amount advanced per ton. The proportion of the valué and of the income from sugar cañe advanced to growers was highest in the Southem Area and lowest in the East Central Región.

Amount Borrowed Per ^'Cuerda" of Sugar Cañe Harvested The farmers surveyed borrowed a total of $389,000 to finance the

production of the 5,670 "cuerdas" of sugar cañe harvested. In addition, they borrowed $69,900 in the form of personal loans and accounts, which in most cases had to be paid from the proceeds of the

sugar cañe crop. Direct production loans averaged $69 per "cuerda." The total debt incurred, including personal loans and accounts, amounted to $81 per "cuerda." The amount advanced per "cuerda" varied considerably with the source of credit used by the grower.

Farmers using only one agency to finance their sugar cañe crop bor. rowed $73 per "cuerda," ranging from $9 in the case of stores to $79

sugar cana

Amount advanced per ton of su^ar cañe Per cent amount advanced is of income from

Until date interest was actually charged. . Amount advanccMi per cuerda of sugar cañe...

Total cost of credit per $100 annual equivalent:

UntU date interest was actually charged. . Until actual payment of debt

Interest costs per $100 annual equivalent:

actually charged

Total income from sugar cañe. Total amoimt advancwi on which interest was

Other fees

1940 sugar cañe crop

Balance of debt outstanding at the end of

Total cost of credit

Interest charged

debt

Annual equivalent until actual payment of

1940 sugar cañe crop

Total cost of credit per SlOO annual equivalent until actual payment of debt Cuerdas of sugar cañe harvested Tons of sugftf cañe Annual equivalent until date interest was actually charged Amount borrowed for the production of the

Number of farms

$10.59 $ 84 $ 3.47 65

$20.56 $ 62 $ 2.54 47

$10.28 $ 75 $ 3.20 61 59

60 88 56

$ 7.45 $ 7.17 $10.88 $ 72 $ 3.07

$ 7.96 $ 8.01

$ 7.84 $ 74 $ 3.22

$ 7.84 $ 7.90

$ 562

$1,216

$ 7.07 $ 130 $ 4.68

$ 8.86 $ 7.39

$2,161

$1,476 $2,542

$ 848

$ 68 $ 9.06

$ 396 $28.39 $40.36

$ 18 $34.14

$ 289 $23.16 $59.82 $ 25 $ 8.61

$ 607 $47.98 $62.93

$ 4.74 $ 61 $ 2.94

$ 7.33 $ 7.27

$ 583

$1,041

$1,007

$ 497 $ 6.64 $ 6.18

$2,343

$1,648

$3,049

$1,492

$ 4.45 $ 3.95

$ 95 $ 1.36

$ 67 $ 0.50

$ 288 $21.27 $26.12

$ 162 $ 0.43

$ 365 $26.53 $28.37

S 23 $ —

S 188 S 7.43 S 7.91

$ 498 $30.79 $32.79

$ 699

$1,544

$1,378

$ 990

$2,673

$1,414

$ 381

$ 291

$ 612

$ 240

$ 362

$ 464

S 167 S 833

10.19 16.80 408

218

20.70 11.27 275

Over 12

10.37 20.63 483

10-12

9.07 19.27 449

7.77 13.33 307

6.58 20.62 571

S-7

4.21 13.73 283

5 or less

ACTUAL PATMBNT OF DEBT (DOLLARS)

TOTAL COST OF CREDIT PER $100 ANNUAL EQUIVALENT UNTIL

218 sugar canefarmSj Puerto Rico, 1939-40

PAYMENT OF DEBT TO CUERDAS OF SUGAR CAÑE HARVESTED AND OTHER FACTORS

Tablb 44. RELATION OF TOTAL COST OF CREDIT PER SlOO ANNUAL EQUIVALENT UNTIL ACTUAL

►

I2J

Number of farms

from sugar cañe

Per cent that amount advanced is of income

sugar cañe crop

Per cent that amount advanced is of valué of

Income per cuerda of sugar cañe harvested... Income per ton of sugar cañe Yield per cuerda of sugar cañe Amount advanced per cuerda of sugar cañe.. Amount advanced per ton of sugar cañe

Cuerdas of sugar cañe harvested Tons of sugar cañe Amount borrowed for, the production of the 1940 sugar cañe crop Income from sugar cañe Valué of sugar cañe

ITEM

$ 3.66

$ 68 $ 2.84

$ 59 $ 2.71

'$ 84

$ 76 $ 2.27

$ 63 $ 2.59

$ 69 $ 2.81

$ 66 $ 2.56

$ 128 $ 5.28

$1,120 $2,100 $1,555 $ 141 $ 5.44

$1,774 $1,283 $ 835 $ 118 . $ 4.91

$ 835

398 326

$1,138

, 16.34

347

ALL FARM8

12.60

ous

Central Mountain-

$ 659

9.68 232

North Western

$ 123 $ 5.62

$ 126 $ 5.47

$ 163 $ 4.90

$ 125 $ 5.15

$1,143 $2,372 $1,782

$2,246 $3,361 $2,497

$1,425 $3,075 $2,311

$1,009 $2,009 $1,483

422

614

628

390

Western

19.35

Southern

26.68

21 18.81

East Central

16.05

111

Northern

GEOOBAPHIC AREA

847 silgar cañe farms^ Puerto RicOf 1939-40

CAÑE HARVESTED AND OTHER FACTORS

Tabu! 45. RELATION OF GEOGRAPHIC AREA TO AMOÜNT ADVANCED PER CUERDA OF SUGAR

Grand total

Personal loans and accounts

Total for aU farms

Total sugar cañe production credit Did not borrow for sugar cañe production

Production Credit Association only Fertilizer dealers only Stores only Two agencies Three agencies

Sugar milis only Lárge colonos only

5,359 311

5,670

7 333 14

347 158

347

441

110

5,670

—

169.

2,296

200

612

1,634

5.51 4.03

72 164

$73

58,940 164,257 72,179 13,919 132,069 $388,555 6,045 138,114 $388,555 69,913 138,114 $458,468

—

$81

$3.32

$2.81

$3.91

$5.28

5.24

$5.26

4.06

$3.90

5.19

$2.94

$3.91

5.25 3.88 2.79

$69

5.11 5.52 3.73 4.04

0.46

0.67

—

5.24 3.86 3.56

—

5.42 3.99

2.84

$5.26

$3.87 $2.60

$59

36,791 $ 95,700 38,503 13,548 15,847 4,449 2,004 4,325

payments payments

ton

IncludA.A.A.

including

Not

A.A.A.

ADVAKCBD

AMOUNT BOBBOWED

Per

GANE

CANB HABVE8TED

TOTAL AMOUNT

Per cuerda

TONS OF BUOAB

CUERDAS OF BÜGAB

139 64

FABMEB8

NÜMBEB

INCOME PEB TON

Table 46. AMOÜNT ADVANCED PER CUERDA AND PER TON OF SUGAR GANE HARVESTED 347 silgar cañe farmSt Puerto Rico, 1939-40

Julio O. Morales and Daniel Haddock

in the case of the Produetion Credit Association. Growers borrowing from two sources used direct produetion credit amounting to $72.

An average of $164 per ''cuerda'' was loaned to farmers using three sources.

Amount Borrowed per Ton of Sugar Cañe Harvested The growers interviewed harvested a total of 138,000 tons of sugar cañe with a valué of $540,000. The income from sugar cañe was actually $729,000 if the Agricultural Adjustment Administration payTabiíE 47.

VALUE OF THE SUGAR CAÑE CROP AND ITS RELATION TO AMOUNT ADVANCED

S47 sugar cañefarms, Puerio Rico, 1939-40 INCOMB FBOM BUGAR CANB

PER CENT OF INCOME

TOTAL

Not

Includ-

cluding

ing

A.A.A.

pasrments

payments

AMOUNT AOVANCED

Sugar milis only $142,263 $193,376 $ 96,700 Larga colonos only 54,076 73,463 38,603 Productíon Credit Association only. 17,193 23,317 16,847 Fertilizar dealers only 16,143 22,117 2,004 Stores only 392 636 66 Two agencies 228,746 309,607 164,267 Three agencies 66,617 72,971 72,179 Total sugar cana produetion credit.. $616,329 $696,286 $388,666 Did not borrow for sugar cana pro duetion 24,384 33,296 Total for all farmers $639,713 $728,680 $388,666 Personal loans and accounts 69,913 Grand total

$639,713 $728,680 $468,468

Notin-

Includ-

oluding

ing

A.A.A.

payments payments

67 71 92

49 62 68

17 72

128

63 99

ment is considerad. The valué per ton amounted to $3.91. The A.A.A. payment increased the income to $5.28 per ton. The valué

and income per ton varied slightly with the source of credit used. The

amount loaned to farmers using stores and fertilizar dealers as their only source of sugar cana produetion credit was less than 75 cents per ton of cana. These farmers borrowed only the valué of their fertilizar. Farmers borrowing both cash and fertilizar were granted produetion credit ranging from $2.60 per ton in the case of sugar milis to $5.19 in the case of growers financed by three agencies.

cañe

Per cent that amount advanced is of income from sugar

crop

Yield per cuerda of sugar cañe Amount advanced per cuerda of sugar cañe Amount advanced per ton of sugar cañe Per cent that amount advanced is of valué of sugar cañe

Income per cuerda of sugar cañe harvested

Income from sugar cañe Valué of sugar cañe

cañe crop

Amount borrowed for the production of the 1940 sugar

Tons of sugar cañe

Cuerdas of sugar cañe harvested

Number of farms

72 75 72 65

$ 69 $ 2.81

$ 74 $ 2.98

126

$ 67 $ 2.69

132

$ $

$ 765 $ 124 23 $ 59 $ 2.56

$ 128

$4,906 $8,766 $6,538 $1,455 $2,726 $2,008

$1,048

$ 52 $2.23

$156 $370 $272 $123

$ 48 $117 $ 86 $ 87 16 $ 36 $2.29

$1,120 $2,100 $1,555

$ 499

398

1,645 540

195

>►

s 347

16.34

66.36

AU farms

57 21.72

35.00 or

124

15.0034.99

8.45

5.0014.99

3.00

2.004.99

1.35

2.00

Less than

CÜBRDAB OF SUQAR GANE HARVBBTBD

SJfí tugar cañe farma, Puerto Rico, 1939-^0

PER CUERDA AND OTHER FACTORS

Tablb 48. BELATION OF CXJERDAS OF SUGAR GANE HARVESTED TO THE AMOUNT ADVANCED

Julio O. Morales and Daniel Haddock

Per Cent Amount Advanced Is of the Income from Sugar Cme The amount advanced to the growers surveyed for the production of their 1940 sugar cañe crop constituted 75 per cent of its valué and 56

per cent of the income from sugar cañe, including A.A.A. payments. If personal loans and accounts are added to the sugar cañe production credit, the total debt accounts for 85 per cent of the valué of sugar

cañe and 63 per cent of total income including benefit payments. Parmers using fertilizar dealers or stores as their only source of credit

horrowed less than 20 per cent of the valué of their crop. On the other hand, farmers using three agencies horrowed 128 per cent of the valué of the sugar cañe crop and harely covered the production credit debt, even if the A.A.A. paymeut is included. The amount advanced

by the Production Credit Association constituted 92 per cent of the valué of the sugar cañe and 68 per cent of the cash income from

enterprise. Farmers financed by either sugar milis, large "colonos"

or two Agencies were granted credit constituting around 70 per cent of the sugar cañe valué and around 50 per cent of the total cash in come from the enterprise.

Belation of "Cuerdas" of Sugar Cañe Harvested to the Amount Advamced per "Cuerda" and Other Faotors

The amount advanced per "cuerda" increased with increases in the size of the enterprise. Farmers harvesting less than two "cuerdas" horrowed $36 per "cuerda." Growers harvesting 35 "cuerdas" or

more, on the other hand, used sugar cañe production credit «mmiTitiTig to $74 per "cuerda." Although the yield was higher in the larger enterprises, the change was not enough to compénsate the increases

in the amount advanced per "cuerda." Consequently, the proportion that the amount advanced was of the valué of the crop increased from 56 per cent for the group of smallest plantings to 75 per cent in the group of the largest plantings. Belation of Yield Per "Cuerda" of Sugar Cañe to Amount Advanced Per "Cuerda" and Other Factors

The average size of the sugar cañe enterprise increased in the groups of farms having higher yields. The income per ton, on the other hand, tended to decrease as the yield increased, especially in the last two groups. Although the amount advanced per "cuerda" increased from $36 in the group of farms with the lowest yields to $121 in the

cañe

Per cent that amount advanced is of income from sugar

crop

Per cent that amount advanced is of valué of sugar cañe

Income per ton of sugar cañe Amount advanced per cuerda of sugar cañe Amount advanced per ton of sugar cañe

Income per cuerda of sugar cañe harvested

Income from sugar cañe Valué of sugar cañe

crop

Amount borrowed for the production of 1940 su^ cañe

Tons of sugar cañe

Yield of BUgar per cuerda (tona) Cuerdas of sugar cañe harvested

Number of farms

347 24

16.34 398

53 36 20.43

741

27 14.47 397

97 23 21.69 492

74 19

14.43 268

61 13 8.62 108

$ 313 $589 $431 $ 68 $5.45 $ 36 $2.90

$ 184 $ 5.08 $ 121 $ 3.32

$ 144 $ 5.26 $ 71 $ 2.59

$ 122 $ 5.40 $ 60 $ 2.64

$ 100 $ 5.36 $ 46 $ 2.49

$ 128 $ 5.27 $ 69 $ 2.81

$3,762 $2,805

$1,120 $2,100 $1,555

$2,^2 $1,029 $2,087 $1,539

$1,297 $2,655 $1,973

$1,436 $1,050

$ 666

All farms

Over 30

26 to30

21 to25

15 or

16to20

TIELD PBB CUEBDA OF SUGAB GANE (TONB)

347 stigar cañefama,Pverta Rico, 19S9-^

CUERDA OF SUGAR GANE AND OTHER FAGTORS

Tablb 49. RELATION OF YIELD PER CXJERDA OF SUGAR GANE TO AMOUNT ADVANCED PER t>

ül c;i

»=d

►

cañe

Per cent that mnount advanced is of income from sugar

crop

Per cent that amount advanced is of valué of sugar cañe

Income from sugar cañe Valué of sugar cañe Income per cuerda of sugar cañe harvested Yield per cuerda of sugar cañe Amount advanced per ton of sugar cañe

cañe crop

Amount borrowed for the production of the 1940 sugar

112 21

1.68

$ 0.50

819

$ 108

$1,120

36 9.99 213

$ 358

$ 180

360

17.75

$26tO$45

$1,917 $1,402

$25 or less

57 15.68 362

122

$ 2.48

$1,912 $1,416

$ 899

• $

$46to$65

397

76 16.07

127

$ 3.09

$1,227 $2,041 $1,500

$66 to $85

AMOUNT ADVANCBD PER CUERDA

347 augar cañefarma^ Puerto Rico, 1939-40

Tb OTHER FACTpRS

109

$ 4.37

$ 157

$3,362 $4,109 $3,086

770

26.18

$ 128

Over $85

128

$ 2.81

$1,120 $2,100 $1,555

16.34

347

AU farms

RELATION OF AMOUNT ADVANCED PER CUERDA OF SUGAR GANE HARVESTED

Number of farms Amount advanced per cuerda of sugar cañe Cuerdas of sugar cañe harvested Tons of sugar cañe

Tablb 50.

►

c;i o

A CBEon" Studt on 347 Suqar C^e Fabms

group of highest yields, the per cent that the amount advanced is of the valué of the crop showed no consistent relationship with yield because the income per "cuerda" increased accordingly. The highest

percentage of the valué of the crop was advanced to the farmers with lowest and highest yields.

Relation of Amount Advanced Per"Cuerda" to Per Cent Amount Ad vanced is of Income from Sugar Cañe and Other Factors There was a cióse relationship between the amount advanced per "cuerda" and the yield of sugar cañe. The amount borrowed, how-

ever, was higher than the increase in yields and income per "cuerda" warranted. The 57 farms borrowing over $85 per "cuerda" were

granted credit in excess of the valué of the crop. The amount bor rowed by these growers amounted to $128 per "cuerda" and $4.37 per ton, and constituted 82 per cent of the total cash income from the

entérprise. The sugar enterprise on these farms was larger, on the average, than for any of the other groups. ATTITUDE TOWARD LENDERS

Information was obtained on the changes made by growers in their source of credit during the last four years. Additional questions were included in the questionnaire relating to the complaints of growers about different aspects of the marketing system followed by sugar

ipjie information on the changes from one lender to another

showed that only about one seventh of the growers reporting had

changed once during these four years. The remainder used the same source of credit during the whole period. It is not as easy for sugar

cañe growers to change from one lending agency to another as for other types of farmers. Two or at the most three sugar miUs grind all the sugar cañe in a district. Sometimes one sugar mili has the control of all the sugar cañe of an area. If the sugar mili is the prin

cipal source of credit in the district, the farmers' choice, therefore, is very limited. The struggle of individual lenders is, therefore, highly localized. The fact that such a small proportion of growers changed their source of credit may be due to difficulties involved in changing or to the fact that growers were satisfíed with the present organization, or to both.

One fifth of the growers complained about the time of harvesting set to them by the sugar mili. About the same proportion complained about the chemical analysis made to determine the sugar content of the

Julio O. Morales and Daniel Haddock Tabie 51.

ATTITUDE OF FARMERS TOWARD SÜGAR MILLS

547 sugar canefarms, Piterto Rico, 1939-40 NUMBEB OF FABMBBS

PEB CENT OF TOTAL

ComplaifUs abotd time of harveating Yes No

278

347

100

Complaints about deliveríng facüüies Yes

296

347

100

47 300

14 86

347

100

77 270

347

100

ComplaifUa abotU weighing Yes

Complaints about analysis Yes No

Complairds aboiU seUing method Yes No

269

347

100

cañe and of the selling method employed. A lower percentage eomplained about the delivering facílities and the weighing of the cañe.

Éxtent of Farmers' Knowledge of Their Credit Proilems A comparison of the information given by the farmers and that obtaíned from the books of sugar milis and other lenders revealed that

the yast majority of sugar cañe growers tend to rely on the integrity of lenders to keep a written record of the facts relating to the credit and marketing of their crop. As shown in the discussion of operators' education, farmers are handicapped in dealings by their low level of education. Very few growers kept written accounts of the amounts borrowed and of other important aspects of their business.

It is not surprising, therefore, to discover that only two thirds of the farmers were able to report the charge for legal fees correctly;

A OsEDiT Study on 347 Suqae Cañe Pabms

only about half reportad the correet nominal interest rate cbarged; and only about one third were able to inform the amount borrowed "within a margin of error of 10 per cent. The more complex problema of credit granting sueh as methods of charging interest, difference between nominal and effective interest rates, etc., are considerad by only a very small number of farmers in selecting their source of credit. Educating farmers in these practical farm fínancing problems should be one of the first steps to be taken in improving the present agricultural credit organization in Puerto Rico. SUMMABT AND CONCLUSIONS

Sugar cana is Puerto Rico's most important agricultural enterprise. It is the cornerstone of the island's whole economic structure. The

problem of financing the sugar cana crop had not been carefully studied in the past, aven though, at times, it received considerable public attention. The present study is the second of a series intended to cover the sources ,of credit of the principal types of farming in Puerto Rico. A survey of the whole agricultural credit structure of the island is contemplated as a general summary to this series. A careful selection of the sample was made so that it would be represen tativa of all independent sugar cana growers of Puerto Rico from the standpoint of both size and geographical location. The 347 farms surveyed were scattered ovar 54 municipalities. The information covers the crop year 1939-40. Additional information was obtained from

lAniíing agencies relativo to the credit usad by the 347 farmers interviewed.

The growers surveyed were in a very good financial condition. Their net worth constituted 80 per cent of the total assets. The approximate ratio of current assets to current liabilities was 2.5 to 1. Current and net worth ratios indicated a safe short-term and long-term position for all tenure and size groups, with the exception of tenants, who had a lower current ratio than what is generally considerad desirable. One third of the 321 full owners and part owners studied had mort-

gages outstanding on their farms on June 30,1940. The Federal Land Bank and Land Bank Commissioner was the most important source of

long-term credit both in number of mortgages and in the proportion of the debt outstanding. This agency granted 53 per cent of the mort

gages, constituting 59 per cent of the total mortgage debt outstanding on the 321 farms.

Julio O. Morales and Daniel Haddock

Sugar cañe growers were highly dependen! on produetion eredit to carry on their enterprises. Ninety-six per cent of the farmers studied used eredit for the produetion of the crop. Three fifths of the farm

ers finance the sugar cañe enterprise by horrowing from ene agency only; one third borrowed from two agencies; and only two per cent used three sources.

The method used to finance the sugar cañe crop was affected by the size of the enterprise and by the geographic location. Smaller growers tended to use only one source of eredit while larger growers tended to borrow from two or three sources. Large ''colonos" financed principally smaller growers. The Produetion Credit Association, fertilizer

dealers and commercial banks showed a tendency to deal principally with larger growers. A high proportion of the farmers in the Westem

and Northwestem areas obtained their produetion credit from large "colonos." Sugar milis were less importan! in these same areas and

also in the East Central región. Pertilizer dealers were less importan! in the Northwestem and Central Mountainous areas. Stores, on the other hand, were more importan! in these two areaií and in the Southern región. The Emergency Crop and Feed Loan Oflíce and the Pro

duetion Credit Association were of some importance only in the North-

ern, East Central and Central Mountainous areas. These geographical differences seem to be due to the fact that some sugar milis prefer to let other agencies gran! the produetion credit to the growers of their area.

The farmers studied were granted a total of 790 loans and accounts, for a total of $465,000. Sugar cañe produetion credit constituted 58 per cent of the total number of loans and 84 per cent of the total

amount borrowed. Sugar milis were by far the most importan! source of sugar cañe produetion credit. Sugar milis have the advantage of being more conveniently located to serve the growers. A very effective control of advances is also possible because of their cióse contact with the growers. Large "colonos," Produetion Credit Association and Fertilizer dealers were other importan! sources. Farmers borrow their sugar cañe produetion credit in the form of

cash fertilizer and other materials and services. Sugar milis and large "colonos" advanced credit in all these three forms, but the other agen cies granted their loans either in cash or in fertilizer. The total sugar cañe produetion credit advanced was 85 per cent cash, 13 per cent fer tilizer and 2 per cent other materials and services.

An average of $69 per "cuerda" was borrowed by the 347 farmers

A Cbeídep Studt on 347 Suqab Cañe Farms

interviewed. The total debt incurred, including personal loans and

accounts, amounted to $81 per "cuerda." The amount advanced per "cuerda" was affected by the source. of credit used, ranging from $9

for farmers borrowing from stores only to $164 for growers fínancing their sugar cañe crop from three sources. The amount advanced to the farmers surveyed for the production of

the 1940 sugar cañe crop constituted 75 per cent of its valué, and 56

per cent of the income from sugar cañe,- including the Agricultural Adjustment Administration payments. If personal loans and ac counts are added to the sugar cañe production credit, the total debt accounts for 63 per cent of the total income including benefít payments. The source of credit had considerable influence on the per cent of the income from sugar cañe advanced to the grower. This proportion was also aflfected by the size of the enterprise. Farmers harvesting less than two "cuerdas" of sugar cañe were granted credit amounting

to 41 per cent of the income from the crop while those harvesting 35 ''cuerdas''or more were advanced 56 per cent. No consistent relation-

ship was observed between yield and the per cent of the income from the enterprise advanced to the farmers. The highest proportions were advanced to the growers with lowest and highest yields. The amount advanced per "cuerda" of sugar cañe harvested was distributed in nearly equal proportions between the growing and

harvesting seasons. An average of $31 was advanced per "cuerda" during the growing season and $1.53 was advanced per ton during the harvesting season.

Less tba^ baif of the 218 loans analyzed for cost of credit were

guaranteed by a written contract. Small growers were usually granted credit on the basis of verbal contracts. Larger growers usually sign written documenta to guarantee their loans. Collateral requirements

vary according to the type of lending agency. The nominal interest rates used by lenders to calcúlate the interest

charged ranged from 4 to 9 per cent. The difference between the nominal and effective interest rates was principally due to the method

of charging interest and to the time elapsed in applying the. proceeds of the sugar cañe to the payment of the loan. The total cost of credit included charges for legal fees and other fees

to cover the costs of supervising loans in addition to the interest charges. Large''colonos'' charged other fees at a certain rate per ton. The Production Credit Association charged a similar fee, but at a specific rate of the total amount loaned to the grower. The other lending

Julio O. Morales and Daniel Haddock

agencies did not charge other fees. Although interest charges were only 7,2 per cent of the approximate annual equivalent, the amounts charged for legal fees and otlier fees increased the total cost of credit to 10.2 per cent. The Emergency Crop and Feed Loan OfiSce had the lowest cost per $100 annual equivalent and large "colonos" had the highest.

The policies followed by lenders seem to be the most important fac tor in dete'rmining the cost of credit to growers. This factor, in turn, determines the nominal interest rate, legal fees and "other fees"

charged to the grower, as well as the system followed ih calculating the interest charge. The expenses of lenders in granting credit are affected by: (1) the interest rate paid to secure the funds loaned, (2) expenses of granting and supervising loans, (3) risk involved.

Lenders ftnancing primarily small growers have higher expenses, and, conseqiiently, should charge a higher cost of credit, if the risks are not lower. The analysis of cost of credit shows that there was no relation between íisk, as measured by the per cent of the income from sugar cañe advanced to the grower, and the cost of credit. Smaller

growers paid higher costs to obtain their credit. However, there was no consistent relationship between size of enterprise and cost of credit.

The relationship observed was affected by the source of credit, especially by the fact that large "colonos" finance principally small grow ers. The charge for other fees made by large "colonos" was probably

much higher than what the increase in expenses of granting credit warranted.

Farmers should keep in mind that charges for "other fees," if any, should be made in proportion to the annual equivalent of their loan and not in proportion to the tons of sugar cañe harvested. Bven the

method of charging a percentage of the amount loaned is not very satisfactory because of differencés in the term that the loan may be outstanding.

Farmers are handicapped in dealings with lenders by their low level of education. The methods of granting credit, charging interest, etc. have to be simple so that growers can understand them. These

methods should be uniform in order that they are not confused by unnecessary variations in the systems followed. Considerable lack of

knowledge of their credit problems was common among the growers interviewed. Informing farmers of the important phases of agricultural credit seems to be an essential step to improve the relatións be tween lenders and borrowers.

A Credit Stüdy on 347 Sugar Gane Farms

RESUMEN y CONCLUSIONES

La caña de azúcar constituye la empresa agricola de mayor impor tancia en Puerto Rico. Es la piedra angular de toda la estructura

económica de la isla. El problema del suministro de crédito a la cose cha de caña no ha sido estudiado debidamente en el pasado, aunque en ocasiones ha recibido considerable atención pública. El presente

estudio es el segundo de una serie encaminada a cubrir las fuentes de crédito de los principales tipos de cultivo en Puerto Rico. Un estudio de toda la estructura del crédito agrícola de la isla habrá de ser reali

zado como resumen general de esta serie. Con el fin de que la muestra

para el presente estudio fuese representativa de las condiciones que afec tan el suministro de crédito a todos los colonos de caña en Puerto Rico

desde el punto de vista tanto de su tamaño como de su situación geo

gráfica, se tuvo especial cuidado en la selección de las fincas a estu diarse. Las 349 fincas estudiadas se encuentran diseminadas por 54

municipalidades. La información cubre la cosecha 1939-40. Se ob tuvo información adicional directamente de las agencias de crédito

sobre ciertos aspectos de la refacción dada por esas agencias a los 347 agricultores entrevistados. Los cañeros investigados se encontraban en magnífica situación

económica. Su capital neto constituía el 80 por ciento del activo total. La relación aproximada entre el activo líquido y pasivo líquido era de 2.5 a 1. Ambas relaciones indicaban una situación de solvencia eco nómica satisfactoria para todos los tipos de tenencia y de tamaño, ex

cepción hecha de los arrendatarios cuyos negocios no mostraban un margen de solvencia a corto plazo lo suficientemente seguro. Una tercera parte de los 321 agricultores que poseían toda o parte

de la finca que explotaban tenían hipotecas activas sobre sus fincas el 30

de junio de 1940. El Banco Federal Agrícola constituyó la fuente más importante de crédito a largo plazo, tanto en el número de hipotecas como en la proporción de la deuda activa. Esta agencia concedió el

53 por ciento de las hipotecas en vigor, cuyo valor constituyó el 59 por ciento del total de la deuda hipotecaria en las 821 fincas.

Los agricultores de caña entrevistados dependieron en alto grado del crédito refaccionario para efectuar sus actividades productoras. El noventa y seis por ciento de dichos agricultores utilizó crédito para la

producción de su cosecha. Tres quintas partes obtuvieron préstamos

refaccionarios de una sola agencia; una tercera parte de dos agencias;

y sólo el dos por ciento de tres fuentes distintas.

Julio O. Morales and Daniel Haddock

El método usado para refaccionar la cosecha de caña fué afectado por el tamaño de las empresa y por la localización geográfica de la finca. Los pequeños cañeros mostraron la tendencia de usar solamente una fuente de crédito, mientras que los más grandes usaban preferente

mente dos o tres fuentes. Los colonos grandes refaccionaron prin cipalmente colonos pequeños. La Production Credit Association, los negociantes en abonos y los bancos comerciales tendían a mantener relaciones comerciales principalmente con los cañeros de mayor tamaño.

Una gran proporción de los agricultores en las áreas del oeste y el noroeste de la isla obtuvo crédito refaccionario de grandes colonos. Las centrales azucareras eran de menos importancia en esas mismas áreas y también en la región este central. Los negociantes en abonos

tuvieron menos importancia en las áreas del noroeste y la región mon tañosa central. Las tiendas, por otro lado, eran más importantes en

estas últimas dos áreas y en la región sur. La Emergency Crop and Feed Loan Office y la Production Credit Association fueron de alguna importancia sólo en las áreas del norte, el este central y en la región montañosa central. Estas diferencias geográficas probablemente se

debieron al hecho de que algunas centrales azucareras prefirieron que otras agencias suministraran crédito refaccionario a los cañeros del área que ellas cubrían.

A los agricultores estudiados se les concedió un total de 790 présta mos y cuentas activas, todo lo cual montó a $465,000. Los préstamos para la producción de caña constituyeron un 58 por ciento del número total de préstamos y su valor constituyó el 84 por ciento de la cantidad

total prestada. Las centrales azucareras fueron, con gran preponde rancia, la fuente más importante de crédito para la producción de caña. Las centrales azucareras tienen la ventaja de estar localizadas más con venientemente para prestar servicio a los cañeros. Estando en más estrecho contacto con éstos, se les hace posible un control más efectivo de los anticipos. Otras fuentes importantes de crédito las constitu yeron los colonos grandes, la Production Credit Association y los negociantes en abonos. Los adelantos sobre producción de caña fueron concedidos a los agricultores en efectivo, en fertilizantes y en otros materiales y ser vicios. Las centrales azucareras y los colonos grandes adelantaron crédito en estas tres formas, pero las otras agencias los concedieron ya en efectivo o en fertilizantes. El crédito total adelantado para la

producción de caña fué un 85 por ciento en efectivo, 13 por ciento en fertilizantes y un 2 por ciento en otros materiales y servicios.

A Cbedit Studt on 347 Sugab Cañe Farms

Los 347 agricultores entrevistados tomaron a préstamo un promedio de $69 por cuerda de caña. La deuda total en que éstos incurrieron, incluyendo préstamos personales y cuentas abiertas, ascendió a $81 por cuerda. La suma adelantada por cuerda fué afectada por la fuente de crédito utilizada, fluctuando desde $9 para los agricultores que tomaron préstamos de tiendas solamente hasta $164 para los cañeros

que obtuvieron crédito sobre su cosecha de tres fuentes distintas. La suma adelantada a los agricultores investigados para las cosecha

de 1940 constituyó el 75 por ciento del valor de ésta y el 56 por ciento de los ingresos procedentes de la caña, incluyendo los pagos hechos por la Administración de Ajuste Agrícola. Si al crédito para la produc ción de caña se unen los préstamos y cuentas personales, el total de deudas a un 63 por ciento de los ingresos totales incluyendo

los pagos de beneficio. La fuente de-crédito tuvo considerable influencia sobre el porcentaje

de los ingresos procedentes de la caña adelantados a los cañeros. Esta

proporción fué también afectada por el tamaño de la empresa. Agri cultores que cosecharon menos de dos cuerdas de caña de azúcar obtu vieron crédito que ascendió al 41 por ciento de los ingresos producidos por la cosecha, mientras que aquellos que cultivaron 35 o más cuerdas recibieron un anticipo que ascendió al 56 por ciento. No se observó una relación consistente entre el rendimiento por cuerda y el porcentaje de los ingresos adelantado a los agricultores. Las más altas propor ciones fueron adelantadas a los dos grupos cañeros que obtuvieron la méff baja y la más alta producción por cuerda.

La suma adelantada por cuerda de caña cosechada fué distribuida

en proporciones casi iguales entre las etapas del cultivo y la cosecha. Un promedio de $31 fué adelantado por cuerda durante la época de cultivo y $1.53 por tonelada durante la cosecha. Menos de la mitad de los 218 préstamos analizados en relación con el coste del crédito fueron garantizados, mediante contrato escrito.

Los pequeños cañeros recibieron crédito, por lo general, mediante con tratos verbales. Por el contrario, agricultores de mayor tamaño, firmaron dociunentos para garantizar sus préstamos. Las garantías colaterales varían de acuerdo con el tipo de la agencia de préstamo. Los tipos de interés nominal utilizados por los prestamistas para

calcular el cargo de interés fluctuó del 4 al 9 por ciento. La diferencia entre los tipos de interés nominal y efectivo se debió principalmente al método de cargar el interés y al tiempo transcurrido en aplicar los réditos de la caña al pago del préstamo.

Julio O. Mobales and Daniel Haddook

El coste total del crédito incluyó, además de los intereses cobrados, honorarios de abogado y otros cargos para cubrir los costes de inspec ción de los préstamos. Los colonos grandes cobraron otros cargos a

razón de cierta cantidad por tonelada de caña producida. La Production Credit Association cobró un cargo similar, pero a un tipo especíñco sobre la cantidad total prestada. Las otras agencias de préstamo no cobraron otras sumas adicionales. Aunque los intereses cobrados eran de sólo 7.2 por ciento del equivalente anual aproximado, las sumas cobradas como honorarios de abogado y otros cargos adicionales au mentaron el coste total del crédito a 10.2 por ciento. La Emergency

Crop and Peed Loa/n Office cargó el coste más bajo por $100 de equi valente anual y los colonos grandes el coste más alto.

Las normas seguidas por los prestamistas parecen haber constituido

el factor más importante para determinar el coste del crédito para los cañeros. Este factor, en cambio, determina el tipo de interés normal, los honorarios de abogado y otros cargos cobrados al cañero, así como el sistema seguido al calcular el interés cobrado. Los gastos de los prestamistas al otorgar el crédito son afectados por: (1) el interés pagado para obtener los fondos prestados (2) los gastos de otorgar e* inspeccionar los préstamos y (3) el riesgo envuelto. Los prestamistas que refaccionan a los pequeños cañeros tienen gas tos más crecidos y, por lo tanto, deben cargar un mayor coste de crédito, si los riesgos no son menores. El análisis del coste del crédito indica

que no hubo relación entre el riesgo, medido por el porcentaje de los ingresos de azúcar adelantado al cañero, y el coste del crédito. Los pequeños cañeros pagaron más altos costes para obtener su crédito. Sin embargo, la relación entre el tamaño de la empresa y el coste del crédito no fué consistente. Dicha relación fué afectada por la fuente del crédito, debido especialmente al hecho de que los grandes colonos refaccionaban principalmente a los pequeños agricultores de caña. La partida. otros cargos" cobrada por los colonos grandes fué probable mente mas alta de lo que el aumento de los gastos en la concesión del préstamo más pequeño justificaba.

Los agricultores deben tener en cuenta que, de cobrarse "otros cargos," debe hacerse en proporción al equivalente anual de su prés tamo y no en proporción a las toneladas de caña cosechadas. Aun el

método de cobrar un por ciento de la suma prestada no es muy satis factorio, debido a las diferencias en cuanto al término que los prés tamos permanecen en vigor.

Los agricultores tienen dificultades en sus relaciones con los pres-

A Credit Study on 347 Sügar Cañe Farms

tamistas debido a que no tienen una instrucción adecuada. Los métodos de conceder crédito, cobrar interés, etc., deben ser sencillos a

fin de que los cañeros puedan tener una comprensión cla^a de los mismos. Estos métodos - deben ser uniformes, de suerte que no se

confunda a los agricultores con variaciones innecesarias en los sistemas

seguidos. Fué cosa común entre los cañeros entrevistados una con siderable ignorancia de los problemas relacionados con el crédito. In formar a los agricultores sobre los más importantes aspectos del crédito

agrícola parece constituir un paso esencial a darse para el mejora miento de las relaciones entre prestamistas y prestatarios.

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