• TABLE OF CONTENTS
HIDE
 Title Page
 Table of Contents
 Map
 Introduction
 Short-term cash credit for...
 Merchant credit for growers
 Installment credit
 Miscellaneous credit problems of...
 Loans remaining unpaid
 Lending operations of cash credit...
 Credit practices and policies of...
 Summary
 Conclusions and recommendation...
 Appendix














Group Title: Bulletin - University of Florida. Agricultural Experiment Station ; no. 367
Title: Production credit in Florida citrus and vegetable areas
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00027083/00001
 Material Information
Title: Production credit in Florida citrus and vegetable areas
Series Title: Bulletin University of Florida. Agricultural Experiment Station
Physical Description: 102 p. : charts, map ; 23 cm.
Language: English
Creator: Reitz, J. Wayne ( Julius Wayne )
Publisher: University of Florida Agricultural Experiment Station
Place of Publication: Gainesville Fla
Publication Date: 1942
 Subjects
Subject: Produce trade -- Economic aspects -- Florida   ( lcsh )
Agricultural credit -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographical references.
Statement of Responsibility: by J. Wayne Reitz.
General Note: Cover title.
General Note: Originally presented as: Thesis (Ph.D.)--University of Wisconsin, 1941.
Funding: Bulletin (University of Florida. Agricultural Experiment Station) ;
 Record Information
Bibliographic ID: UF00027083
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 000924602
oclc - 18230141
notis - AEN5229

Table of Contents
    Title Page
        Page 1
        Page 2
    Table of Contents
        Page 3
    Map
        Page 4
    Introduction
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
    Short-term cash credit for growers
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 12
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
    Merchant credit for growers
        Page 42
        Page 43
        Page 44
        Page 45
        Page 46
        Page 47
        Page 41
    Installment credit
        Page 48
        Page 47
    Miscellaneous credit problems of growers
        Page 49
        Page 50
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
        Page 57
        Page 58
        Page 59
        Page 60
        Page 61
    Loans remaining unpaid
        Page 62
        Page 63
        Page 64
        Page 65
        Page 61
    Lending operations of cash credit agencies and merchants
        Page 66
        Page 67
        Page 68
        Page 69
        Page 70
        Page 71
        Page 72
        Page 73
        Page 74
        Page 75
        Page 76
        Page 77
        Page 78
        Page 79
        Page 80
        Page 81
        Page 82
        Page 83
    Credit practices and policies of merchants
        Page 84
        Page 85
        Page 86
        Page 87
        Page 88
        Page 89
        Page 90
    Summary
        Page 91
        Page 92
        Page 93
        Page 94
        Page 90
    Conclusions and recommendations
        Page 95
        Page 94
    Appendix
        Page 96
        Page 97
        Page 98
        Page 99
        Page 100
        Page 101
        Page 102
Full Text


January, 1942


UNIVERSITY OF FLORIDA
AGRICULTURAL EXPERIMENT STATION
WILMON NEWELL, Director
GAINESVILLE, FLORIDA







Production Credit

in

Florida Citrus and Vegetable

Areas

By J. WAYNE REITZ












Single copies free to Florida residents upon request to
AGRICULTURAL EXPERIMENT STATION
GAINESVILLE, FLORIDA


Bulletin 367









EXECUTIVE STAFF
John J. Tigert, M. A., LL. D., President
of the Universitys
Wilmon Newell, D.Sc., Directors
Harold Mowry, M. S. A., Asst. Dir.,
Research
W. M. Fifield, M. S., Asst. Dir., Admin.
J. Francis Cooper, M. S. A., Editor3
Clyde Beale, A.B.J., Assistant Editors
Jefferson Thomas, Assistant Editor3
Ida Keeling Cresap, Librarian
Ruby Newhall, Administrative Managers
K. H. Graham, Business Managers
Rachel McQuarrie, Accountant3
MAIN STATION, GAINESVILLE
AGRONOMY
W. E. Stokes, M.S., Agronomist'
W. A. Leukel, Ph.D., Agronomist'
Fred H. Hull, Ph.D., Agronomist
G. E. Ritchey, M.S., Associates
W. A. Carver, Ph. D., Associate
Roy E. Blaser, M.S., Associate
G. B. Killinger, Ph.D., Associate
John P. Camp, M.S., Assistant
Fred A. Clark, B.S.A., Assistant
ANIMAL INDUSTRY
A. L. Shealy, D.V.M., An. Industrialist'3,
R. B. Becker, Ph.D., Dairy Husbandman'
E. L. Fouts, Ph.D., Dairy Technologist'
D. A. Sanders, D.V.M., Veterinarian
M. W. Emmel, D.V.M., Veterinarians
L. E. Swanson, D.V.M., Parasitologist
N. R. Mehrhof, M.Agr., Poultry Husb.3
W. M. Neal, Ph.D., Asso. in An. Nutrition
T. R. Freeman, Ph.D., Asso. in Dairy Mfg.
R. S. Glascock, Ph.D., Asso. An. Husb.
D. J. Smith, B.S.A., Asst An. Hush."
P. T. Dix Arnold, M.S.A., Asst. Dairy
Husbandman3
L. L. Rusoff, Ph.D., Asst. in An. Nutr.'
L. E. Mull, M.S,, Asst. in Dairy Tech.
0. K. Moore, M.S., Asst. Poultry Husbh.
ECONOMICS, AGRICULTURE
C. V. Noble, Ph.D., Agr. Economist''3
Zach Savage, M.S.A., Associate
A. H. Spurlock, M.S.A., Associate
Max E. Brunk, M.S., Assistant
ECONOMICS, HOME
Ouida D. Abbott, Ph.D., Home Econ,'
Ruth Overstreet, R.N., Assistant
R. B. French, Ph.D., Asso. Chemist
ENTOMOLOGY
J. R. Watson, A.M., Entomologist'
A. N. Tissot, Ph.D., Associate
H. E. Bratley, M.S.A., Assistant
HORTICULTURE
G. H. Blackmon, M.S.A., Horticulturist'
A. L. Stahl, Ph.D., Associate
F. S. Jamison, Ph.D., Truck Hort.3
R. J. Wilmot, M.S.A., Asst. Hort.
R. D. Dickey, M.S.A., Asst. Horticulturist
J. Carlton Cain, B.S.A., Asst. Hort.4
Victor F. Nettles, M.S.A., Asst. Hort.4
F. S. Lagasse, Ph.D., Asso. Horticulturist'
H. M. Sell, Ph.D., Asso. Horticulturist2
PLANT PATHOLOGY
W. B. Tisdale, Ph.D., Plant Pathologist1.3
George F. Weber, Ph.D., Plant Path.3
L. 0. Gratz, Ph.D., Plant Pathologist
Erdman West, M.S., Mycologist
Lillian E. Arnold, M.S., Asst. Botanist
SOILS
R. V. Allison, Ph.D., Chemistn.3
Gaylord M. Volk, M.S., Chemist
F. B. Smith, Ph.D., Microbiologist3
C. E. Bell, Ph.D., Associate Chemist
H. W. Winsor, B.S.A., Assistant Chemist
J. Russell Henderson, M.S.A., Associate3
L. H. Rogers, Ph.D., Asso. Biochemist
Richard A. Carrigan, B.S., Asst. Chemist
Geo. D. Thornton, M.S., Asst. Chemist
R. E. Caldwell, M.S.A., Soil Surveyor
Olaf C. Olson, B.S., Soil Surveyor


BOARD OF CONTROL
H. P. Adair, Chairman, Jacksonville
W. M. Palmer. Ocala
R. H. Gore, Fort Lauderdale
N. B. Jordan, Quincy
T. T. Scott, Live Oak
J. T. Diamond, Secretary, Tallahassee
BRANCH STATIONS
NORTH FLORIDA STATION, QUINCY
J. D. Warner, M.S. Agron. in Charge
R. R. Kinkaid, Ph.D., Asso. Plant Path.
R. W. Wallace, B.S., Asso. Agron.
Elliott Whitehurst, B.S.A., Assistant An.
Husbandman4
Jesse Reeves, Asst. Agron., Tobacco
W. H. Chapman M.S., Asst. Agron.
CITRUS STATION, LAKE ALFRED
A. F. Camp, Ph.D.. Horticulturist in Chg.
Chas. K. Clark, Ph.D., Chemist
V. C. Jamison, Ph.D., Soils Chemist
B. R. Fudge, Ph.D., Associate Chemist
W. L. Thompson, B.S., Associate Ento.
F. F. Cowart, Ph.D., Asso. Horticulturist
W. W. Lawless, B.S., Asst. Horticulturist
R. K. Voorhees, Ph.D., Asso. Plant Path.
T. W. Young, Ph.D., Asso. Hort., Coastal
EVERGLADES STA., BELLE GLADE
J. R. Neller, Ph.D., Biochemist in Chg.
J. W. Wilson, Sc.D., Entomologist
F. D. Stevens, B.S., Sugarcane Agron.
Thomas Bregger, Ph.D., Sugarcane
Physiologist
G. R. Townsend, Ph.D., Plant Pathologist
R. W. Kidder, M.S., Asst. An. Husb.
W. T. Forsee, Ph.D., Asso. Chemist
B. S. Clayton, B.S.C.E., Drainage Eng.2
F. S. Andrews, Ph. D., Asso Truck Hort.4
Roy A. Bair, Ph.D., Asst. Agron.
SUB-TROPICAL STA., HOMESTEAD
Geo. D. Ruehle, Ph.D., Plant Pathologist
in Charge
S. J. Lynch., B.S.A., Asst. Horticulturist
E. M. Andersen, Ph.D., Asst. Hort.
W. CENT. FLA. STA., BROOKSVILLE
W. F. Ward, M.S., Asst. An. Husband-
man in Charge2
RANGE CATTLE STA., ONA
W. G. Kirk, Ph. D., An. Husb. in Charge
E. M. Hodges, Ph.D., Asso. Agron.
Gilbert A. Tucker, B.S.A. Asst. An. Husb.

FIELD STATIONS
Leesburg
M. N. Walker, Ph.D., Plant Pathologist
in Charge
K. W. Loucks, MS, Asst. Plant Path.
Plant City
A. N. Brooks, Ph.D., Plant Pathologist
Hastings
A. H. Eddins, Ph.D., Plant Pathologist
E. N. McCubbin, Ph.D., Asso. Truck
Horticulturist
Monticello
A. M. Phillips, B.S., Asst. Entomologist'
Bradenton
Jos. R. Beckenbach, Ph.D., Truck Horti-
culturist in Charge
David G. Kelbert, Asst. Plant Pathologist
Sanford
R. W. Ruprecht, Ph.D., Chemist in
Charge, Celery Investigations
W. B. Shippy, Ph.D., Asso. Plant Path.
Lakeland
E. S. Ellison, Meteorologist'
'Head of Department
'In cooperation with U. S.
'Cooperative, other divisions, U. of F.
*On leave for military service.


Oit ot fsuing offie










CONTENTS


INTRODUCTION .
Method of procedure----

SHORT-TERM CASH CREDIT FOR GROWERS -------
Source of cash loans---------
Cost of cash loans by source -------
Cost for secured and unsecured loans --
Cost according to term of loan
Cost according to size of loan ... --------
Variation in term of loan by source -------
Security requirements ---
Relation of equity in business to security requirements __
Life insurance as security for loans .- --------------
Budgeting and repayment plans

MERCHANT CREDIT FOR GROWERS..-----
Size of merchant loans
Purpose of merchant loans-
Cost of merchant credit ----.-----------
Secured merchant loans and their relation to term and cost-

INSTALLMENT CREDIT ---------

MISCELLANEOUS CREDIT PROBLEMS OF GROWERS-
Adequacy of credit and credit facilities ------
Shifts in source of credit ----------
Control over marketing of crop
Time required to close loans -
Cash expenses and credit requirements ------

LOANS REMAINING UNPAID --------
Relation of amount of unpaid loans to net worth ----
Reasons for unpaid loans

LENDING OPERATIONS OF CASH CREDIT AGENCIES
AND MERCHANTS ....-------------
Trend in loans of cash lending agencies ...-------
Percent of business of cash lending agencies with farmers
Variation in cost of loans from cash lending agencies---
Policies and practices of lending agencies ----
Variation in security requirements
The use of operating and financial statements ...-----
Basis for limiting amount of loan ----------
Budgeting, supervision of production and control of
marketing policies ----------
Losses and loan carryover of cash lending agencies _--
Reasons for loan carryover in 1937-38 season -----
Attitude of cash lending agencies toward production credit
associations ------------


CREDIT PRACTICES AND POLICIES OF MERCHANTS-
Variation in costs by type of merchant credit
Security requirements and trends ------
Preference of merchants for cash over credit business
Average term of accounts -------
Normal loss by merchant on credit business .--------

SUMMARY .--------------------------

CONCLUSIONS AND RECOMMENDATIONS -----..


APPENDIX


Page

5
9

..- 12
13
19
22
S24
26
31
.- 33
S36
S37
37

S41
S43
45
45
_- 47

-- 47

- 49
- 49
S52
56
57
58

61
S62
65


..--- 66
67
70
72
75
75
77
78

78
80
81

..--- 81

84
84
---- 86
87
.- 88
... 89

------ 90

S..--... 94

--- 96


----------
----------
----------
----------
----------
----------

----------


----------








Florida Agricultural Experiment Station


C\\ -iC
.....-- C




C Counties in which citrus records
predominate.
T Counties in which truck records r' i
predominate. -


I---- -

'- T





,:p,1
L--6


Fig. 1.-Location of 389 Florida citrus and vegetable growers who
furnished production credit records for this study.









PRODUCTION CREDIT IN FLORIDA

CITRUS AND VEGETABLE AREAS'

By J. WAYNE REITZ

INTRODUCTION
An important characteristic of Florida's agriculture is the
high proportion of farm income which is derived from citrus
and vegetable crops. The production of these crops requires a
large amount of operating capital, much of which, particularly
for vegetables, is borrowed. This study is primarily concerned
with borrowing operations of growers who obtained operating
capital in the 1937-38' season together with a consideration of
the problems and policies of various agencies providing funds.
It thus seeks to provide information heretofore lacking con-
cerning the source, cost, security requirements, adequacy, and
related information of short-term credit to Florida growers.
With such information growers have a basis for improving their
practices in obtaining funds, and lending agencies can more
accurately evaluate their position in the credit system.
During the three years ending with the 1937-38 season it is
estimated that 63 percent of the State's gross farm income came
from citrus fruits and the leading commercial truck crops.
Over four-fifths of the gross income from crops is attributed to
these sources (Table 1). Whereas these crops constitute ap-
proximately four-fifths of the gross income from crops, they

ACKNOWLEDGEMENTS.-The writer expresses his thanks to the
many Florida citrus and vegetable growers, officers of lending agencies,
and merchants who provided data for this study in order that informa-
tion on production credit problems in citrus and vegetable areas could
be made available. Thanks are also extended to Dr. C. V. Noble, who
directed the study, and Drs. Kenneth H. Parsons and B. H. Hibbard of
the University of Wisconsin, who advised in the analysis and presenta-
tion of data. Acknowledgement is made to the Division of Research,
Farm Credit Administration of Columbia and the Economic and Credit
Research Division, Farm Credit Administration, Washington, D. C., for
assistance in collecting the data and to the General Education Board
for a fellowship granted during the preparation of the manuscript.
The writer greatly appreciates the help of Dr. M. S. Parsons, Max E.
Brunk and Paul R. Seiler in collecting the data, and of Mrs. Clara H.
Thomas and Donald L. Brooke in its summarization.
'Also presented to the Faculty of the Graduate School of the
University of Wisconsin. June, 1941, as a thesis in partial fulfillment
of the requirements for the degree of doctor of philosophy.
'Professor of Agricultural Economics, College of Agriculture, Uni-
versity of Florida.
"From August 1, 1937, to July 31, 1938.







6 Florida Agricultural Experiment Station

represent but 28.4' percent of the cropland harvested. When al-
lowance is made for the acreage of truck crops double-cropped
it is estimated that the proportion is somewhat less, probably
not over 25 percent of the total cropland harvested. These fi-
gures not only serve to indicate the importance of citrus and
vegetable crops in Florida's agriculture, but also are indicative
of the relative intensity of these crops. It is estimated that the
average per acre value of 12 leading vegetable crops over a three-
year period ending with the 1937-38 season was $1596, while for
citrus of bearing age the average per acre income was $117' for
the period. Although the best available for the whole indus-
try, it should be pointed out that the figures for vegetables re-
flect a certain amount of packing, hauling, and container charges.
Thus the amount received by the farmer to cover actual produc-
tion and harvesting expenses is less than the above estimate.

TABLE 1.-GROSS FARM INCOME FROM CROPS, LIVESTOCK, AND LIVESTOCK PRODUCTS,
FLORIDA, 1936-38.

Three-year Percent Percent
Source Average of by
(1936-38) Total Crops
Crops:
Citrus fruits $ 43,863,000 37.1 48.6
Truck crops 30,576,000 25.9 33.9
Other field and fruit crops 12,846,000 10.9 14.2
Forest products, nursery
and greenhouse 3,039,000 2.6 3.3
Total crops 90,324,000 76.5 100.0
Livestock 11,264,000 9.5
Livestock products 16,547,000 14.0
Total livestock 27,811,000 23.5
Total 118,135,000 100.0

Source: United States Department of Agriculture, Bureau of Agricul-
tural Economics. Correspondence dated October 22, 1940.

"Based on 180,150 acres of 12 leading truck crops 1934-'5 season
and 265,094 acres of oranges and grapefruit of bearing age on July 1,
1934. Source: Crops and Markets, Bureau of Agricultural Economics,
U. S. D. A., for vegetable acreage; Florida Citrus Tree Survey, by S. R.
Newell, Bureau of Agricultural Economics, Mimeographed, 1935, for
citrus. These acreages expressed as a percentage of 1,579,049 acres of
cropland harvested as reported in the 1935 U. S. Census.
'Computed by dividing estimated cash income from 12 leading
vegetables by estimated acreage. Data from Bureau of Agricultural
Economics, U. S. D. A.
'Computed by multiplying estimated on-tree price by volume of
production and dividing by 265,094 acres of bearing age for 1934. A
study covering 1,331 groves of 10 years and over for a seven-year period
ending in 1937-38 shows an average per acre income of $99.23. See
Howard, R. H., "Florida Citrus Costs and Returns", Florida Agricul-
tural Extension Service, Misc. Pub. No. 28, p. 16.






Production Credit in Florida Citrus and Vegetable Areas 7

For such intensive crops large cash outlays are required in
annual production. Along with labor, heavy expenditures for
fertilizer, spray and dust, seed, and containers are usually in-
curred. Obviously the expenditures vary greatly among crops
and among areas for the same crop. For example, crops grown
in the Everglades organic soils require less fertilizer than when
grown in the sandy areas of the State. In the case of celery,
fertilizer costs approximately $35' per acre in the Everglades,
whereas in the Sanford celery area on sandy soil the cost was
approximately $110'. The cost varied among farms from $25
to $42 per acre in the Everglades area and from $78 to $148 in
the Sanford area within a single season.
Adequate data showing cash requirements for production
expenses are lacking, but on the basis of information from var-
ious farm management and cost studies and from data obtained
in this study an approximate estimate can be made. The an-
nual cost of producing the Florida citrus crop is estimated at
$25,000,000 and of producing the 12 leading vegetable crops at
$20,000,000 for the 1937-38 season. The costs for citrus include
those up to the point of picking, while those of vegetables are
at the point of delivery to the packinghouse.0 Thus confronted
with an annual cash outlay of from 40 to 50 million dollars,
Florida citrus and truck growers find the need for a large amount
of credit to provide for these requirements.
On the basis of data obtained in this study the credit obtain-
ed for the 1937-38 season is estimated at $13,500,000 (Table 2).
This estimate is subject to considerable refinement. It is prob-
ably an under rather than an over estimate. As it now stands it
is based upon the best available information.
Although subject to modification, the estimates shown in
Table 2 are believed to be reasonably accurate for the purpose
intended, namely, to furnish an indication of the relative im-
portance of various agencies and the total amount of short-term
credit obtained by Florida citrus and vegetable producers. On
the basis of these estimates there are four major sources of cash
credit for citrus and vegetable growers, namely, banks, produc-

'Howard, R. H., "Cost of Producing Celery on Everglades Organic
Soils", Florida Agricultural Extension Service, Mimeographed, May,
1940, p. 5. Costs are for 1937-38 and 1938-39.
'Based upon unpublished data in files of Department of Agricul-
tural Economics, University of Florida. Data for 1934-35 season.
'Cash cost as here used include any capital expenditures which
are paid out of one season's operations .







Florida Agricultural Experiment Station


tion credit associations, cooperative marketing associations, and
independent marketing agencies. Fertilizer companies and
their distributors are by far the most important source of mer-
chant credit. In fact, no other agency, cash or merchant, ex-
tends as much short-term credit as do these companies.

TABLE 2.-ESTIMATED AMOUNT OF SHORT-TERM CASH AND MERCHANT CREDIT USED
BY FLORIDA CITRUS AND VEGETABLE GROWERS, 1937-38.

Percent Percent
Source of Credit Amount Cash and by
Merchant Source
Cash:
Banks $ 1,900,000 21.8 14.1
Local production credit asso-
ciation 1,735,000 20.0 12.9
Florida Citrus Production
Credit Associations 865,000 9.9 6.4
Cooperative Marketing Asso-
ciations 1,700,0001 19.5 12.5
Growers Loan and Guaranty
Company 850,000 9.8 6.3
Independent marketing
agencies 1,050,000 12.1 7.8
Direct government agencies-
and miscellaneous 600,000 6.9 4.4
Total cash $ 8,700,000 100.0 64.5
Merchant:
Fertilizer companies $ 3,400,000 70.8 25.2
Spray and dust dealers 470.000 9.8 3.5
All other 930,0003 19.4 6.8
Total merchant $ 4,800,000 100.0 35.5
Total cash and merchant $13,500,000 100.0
'Includes some merchant type of credit, such as fertilizer and
other supplies.
'Direct Government agencies include Farm Security Administra-
tion and emergency crop and feed loans.
"Includes citrus caretakers, some cooperative supply credit, hard-
ware and implement, general farm supply stores and other.

On the basis of the above estimates of short-term borrow-
ing by Florida citrus and vegetable growers it is further esti-
mated that the annual cost of such credit was approximately
$675,000. In computing this figure the average effect terest
rate" paid by borrowers included in this study was used. For
example, the effective interest rate on all cash loarrswas 5.9
percent (Table 5). The total estimated cash borrowings were
$8,700,000. Thus, for a year the interest bill on this amount
would be $513,300. However, cash loans were made for an


"The effective interest rate includes not only interest but other
charges such as service, legal and recording fees, as well as loss of cash
discount of merchant credit, all reduced to a per annum rate.





Production Credit in Florida Citrus and Vegetable Areas 9

average term of 6.9 months (Table 12) or for 0.575 of a year.
Hence, the estimated cost on cash loans is $513,000 x 0.575, or
$295,148. In like manner credit cost estimates were made for
fertilizer and other merchant credit.
Growers in obtaining and agencies in extending this volume
of credit assume large risks for any one year. In fact, the
fundamental credit problem for Florida citrus and vegetable
growers is the variation in annual returns due to natural and
market hazards.
For example, during the five-year period ending in the
1933-34 season annual cash farm income from 12 leading vege-
table crops varied from $19,608,000 to $37,713,000 and in the fol-
lowing five years from $27,419,000 to $39,419,000. Citrus annual
cash farm income for the first five-year period varied from
$15,442,000 to $33,290,000 and for the latter period from $20,294,-
000 to $38,148,000." With these large yearly variations for the
industry it is obvious that year-to-year variations for individual
growers are even more drastic. Thus the individual grower as-
sumes relatively a greater risk than the lending agency. Fur-
thermore, in case of low returns he may be able to repay the
lending agency but only by reducing his equity in real property
owned. Yet where this equity has already been reduced to the
breaking point, the lending agency, which has been courageous
enough to advance production funds, may be faced with a great-
er financial loss than the grower. Although the variations in
income are great from year to year, over a three-year and par-
ticularly a five-year period they tend to be equalized. None-
theless, where the annual hazards are so great, lending agencies
operating on a basis which calls for annual repayment of loans
are confronted with a serious problem as are growers in meeting
payments or in procuring credit following a poor year.

METHOD OF PROCEDURE
Data on individual borrowings for production purposes,
togethe'lwith a record of receipts, cash expenditures, and a fin-
ancial statement, were procured by the survey method from 389
growers covering the crop year 1937-38. In obtaining this num-
ber of records, 1,000 contacts with individual growers were made.
The 611 from whom records were not obtained reported no bor-
rowing for production purposes with the exception of a few

"Cash income computed by using "on the tree" prices for citrus.






Florida Agricultural Experiment Station


who refused to provide information. The 389 growers from
whom records are available include 165 citrus, 176 truck, and 48
citrus-truck growers. The latter classification prevails in those
instances where the individual grower had a sufficient proportion
of his income from each crop, citrus and truck, to exclude him
from either the citrus or the truck group. The percentages of total
operators borrowing for short-term or production purposes are
25.3, 71.8, and 47.1 for citrus, truck and citrus-truck growers,
respectively. On an acreage basis the respective percentages
were 35.2, 70.7 and 66.1, respectively (Table 3).
The method of selecting the growers was designed to be
one of chance; that is, there was no attempt to select any par-
ticular class of grower. In practice, the actual method followed
was to include the majority of growers who could be located
within each area surveyed. The fact that a relatively large
number could not be conveniently located resulted in procuring
records fairly well scattered geographically and representing a
desirable range in size of operations. It should be mentioned,
however, that the groves included in the sample are larger than

TABLE 3.--SUMMARY o FLORIDA CITRU: AND TRUCK GROWERS INTERVIEWED SHOW-
ING NUMBER OF BORROWING AND NON-BORROWING GROWERS, 1937-38 SEASON.


Average citrus acreage of non-borrowers: -
U U E E E,

Total contacts not borrowing 488 54 69 611
Total contacts borrowing 165 48 176 389
Total all contacts 653 102 245 1000
Percentage of total contacts
borrowing (acreage) 35.2 66.1 70.1 83.9
Percentage of total contacts borrowing
(number) 25.3 47.1 71.8 38.9
Average citrus acreage of non-borrowers:
Mean 42.5 15.8 -
Median 18.0 10.0 -
Average truck acreage of non-borrowers:
Mean 8.2 59.8
Median 5.5 20.0
Average citrus acreage of borrowers:
Mean 46.9 26.2 -
Median 20.0 13.5 -
Average truck acreage of borrowers:
Mean 26.4 58.1
Median 15.0 29.0

In addition to data upon which these figures are based, 2,709
acres representing four groves were included which borrowed, but from
which no data were obtained. This figure was used in computing the
percentage figure of 35.2.






Production Credit in Florida Citrus and Vegetable Areas 11

the average acreage shown by the census. Two reasons can
largely explain this apparent lack of representativeness of the
sample. First, many out-of-state owners could not be reached
and their groves in general are smaller than the groves of resi-
dent owners which are included in this study." Second, but
more important, the census includes many holdings representing
little more than a backyard enterprise, which would be with-
out significance in a study of this nature. In general, the sam-
ple is representative of resident growers whose properties are
in a class of commercial enterprises.
In order that a more comprehensive study could be made
of the entire short-term credit system, records from lending agen-
cies were also obtained. Two broad divisions are to be noted
with respect to lending agencies; those providing cash credit and
those furnishing merchant or commodity credit. In either case
production capital is provided, but the policies and practices of the
agencies furnishing these two types of credit are often quite dif-
ferent. For the areas surveyed an attempt was made to interview
all cash lending agencies. These agencies include banks, pro-
duction credit associations, cooperative marketing associations, in-
dependent shippers of fruits and vegetables, brokers and com-
mission firms, and government agencies represented by the Farm
Security Administration and the Emergency Crop and Feed
Loan offices. For the most part the data obtained from lending
agencies were based on estimates made by the executive offi-
cers of the firms, although accounting records were used in
many instances. It is believed that the estimates given repre-
sent the situation closely enough to provide an adequate basis for
analyzing and interpreting lending agency problems and poli-
cies.
Coverage of merchants extending credit to growers in the
form of goods or commodities for a period greater than 30 days
was not so complete as for the cash lending agencies. However,
for those which extended a large amount of credit, an adequate
coverage was obtained. Merchant credit has been classified by
type of business, including fertilizer companies, cooperative mar-
keting associations, insecticide companies, hardware and ma-
"See Hawthorne, H. W., and J. E. Turlington. "Absentee Owner-
ship of Citrus Properties in Florida," Fla. Agr. Exp. Sta. Bul. 287,
1935, p. 11, where acreage is given as 13.1 per prove for absentee owners.
In this study the mean acreage is 42.5 and the median 18 per grove.
See Table 3.





Florida Agricultural Experiment Station


chinery, caretaking organizations, general farm supplies, and
groceries.
The areas surveyed and the location of farms on which rec-
ords were obtained are shown in Fig. 1. In some counties, both
citrus and truck records were obtained, but in general the speci-
fic areas were selected where a preponderance of one or the
other type of farming prevailed. The more important citrus
areas investigated are found in Brevard, Highlands, Hillsborough,
Indian River, Lake, Orange, Pinellas, Polk, St. Lucie, and Volu-
sia counties. Truck growers who provided information were
located mainly in Broward, Dade, Palm Beach, Hillsborough,
Manatee, Seminole, St. Johns, and Putnam counties.
Of the 12 leading truck crops grown in the State over 70 per-
cent of their acreage in the 1935-36 season was in the counties
surveyed. By crops this percentage varied from 95.1 and 87.1
percent for green peas and string beans, respectively, to 15.8 and
8.1 percent for cucumbers and watermelons, respectively. Much
of the acreage of these latter two crops is in the general farm-
ing areas of the State. Of the Florida citrus acreage over 80
percent is included in the counties surveyed. Considered sep-
arately, 77.8 percent of the orange and 88.0 percent of the grape-
fruit acreages are within the counties from which records were
obtained.
In presenting the data and their analysis from borrower
and lending agency records, attention will first be given to that
obtained from growers. It is believed that a picture of the
production credit situation and the problems presented first
from the grower's viewpoint will provide a good basis for a
consideration of lending agency practices and policies.

SHORT-TERM CASH CREDIT FOR GROWERS
Citrus and truck growers as represented by the 389 growers
from whom records were secured for this study and who bor-
rowed for production purposes obtained 72.1 percent, or approxi-
mately three-fourths, of their production credit from cash sour-
ces in the 1937-38 season. The remaining 27.9 percent was furn-
ished by merchants, by far the largest part of which was from
fertilizer companies and distributors. Of the total number of
loans, only 49.4 percent were obtained from cash sources (Table
4).

SOURCE OF CASH LOANS
Considering only cash borrowings, 301, or 77.4 percent, of






Production Credit in Florida Citrus and Vegetable Areas


the 389 borrowers obtained loans from cash lending agencies.
These 301 growers obtained 364 different cash loans for a total
of $660,627 averaging $1,815 per loan (Table 5). Of the total
amount borrowed, production credit associations", cooperative
marketing associations, banks, and independent marketing agen-
cies furnished 35.2, 23.0, 16.1, and 14.3 percent, respectively.
Combined, these four agencies provided 88.6 percent of the cash
borrowings reported. The remainder of the loans were made
by Growers Loan and Guaranty Company, individuals, govern-
ment and miscellaneous sources. The 4.2 percent obtained from
the Growers Loan and Guaranty Company could be included
with cooperatives, inasmuch as the majority of their loans are
made through, or are endorsed by, local cooperative marketing
associations. This lending agency is a subsidiary of the Florida
Citrus Exchange. The government sources include emergency
crop and feed loans and advances made by the Farm Security
Administration.
TABLE 4.-NUMBER OF LOANS BY SOURRCE AND TYPE OF CREDIT, .380 CITRUS AND
TRUCK GROWERS, FLORIDA*.


Source


Cash:
Banks 84 $106,120! 11.4 11.6
Florida Citrus Production Credit
Association 21 45,350 2.9 4.9
Local production credit asso-
ciations 44 187,075 6.0 20.4
Cooperative marketing asso-
ciations 86 156,173 11.7 16.6
Growers Loan and Guaranty
Company 6 28,000 .8 3.1
Individuals 20 18,166 2.7 2.0
Independent shippers 34 72,292 4.6 7.9
Brokers and commission firms 6 22,282 .8 2.4
Direct government agencies 52 15,907 7.0 1.7
Other cash sources 11 13,262 1.5 1.5
Total cash 364 $660,627 49.4 72.1
Merchant:
Fertilizer 200 $186,364 27.1 20.3
Installment 63 31,340 8.5 3.4
Other merchant 111 38,862 15.0 4.2
Total merchant 374 $256,566 50.6 27.9
Total cash and merchant 738 $917,193 100.0 100.0
':For information according to type of grower, see Appendix, Tables
1, 2, 3.
"Includes five local associations and the state-wide citrus associa-








TABLE 5.-COST AND AMOUNT OF CASH USED ACCORDING TO SOURCES BY 3011 CITRUS AND TRUCK GROWERS, FLORIDA, 1937-38.


Source



Banks
Florida Citrus Pro-
duction Credit Asso-
ciation
Local production
credit associations
Cooperatives
Growers Loan & Guar-
anty Company
Individuals
Independent shippers
Brokers and commission
firms
Direct government
agencies
Other
Total or average


5,
E C F OU C
U'~ .U~ U 0


84


21

44
86

6
20
34

6

52
11
364


42.4


24.6

95.3
41.1

.0
35.6
44.6

179.7

19.6
90.4
50.8


65.9


76.4

95.8
40.7

69.2
28.3
15.1

.0

14.4
16.3
51.7


'Although records were obtained from 389 citrus and truck growers who borrowed for production purposes, only
301 borrowed cash.
'The total number of loans is greater than cash borrowers since some borrowers borrowed from more than one
source.
'Acres per loan computed for only those loans in which only citrus or truck crops were grown. For example, 46
bank loans involved truck acreage and 58 citrus acreage. Obviously a number of loans were made on farms where
both citrus and truck crops were grown.
'Includes interest plus other charges with no adjustment for term of loan.
'Includes interest plus other charges.


U

0 10
oU p
U am


tU
sga

3j i- ca
-'4)5K


'0
E -







187,075
152,173

28,000
18,166
72,292

22,282

15,907
13,262
660,627


g0

) 0

16.1


6.9

28.3
23.0

4.2
2.8
10.9

3.4

2.4
2.0
S100.0


a)

UU o


$1,263


2,160

4,252
1,769

4,667
908
2,126

3,714

306
1,206
1,815


+U



6.9


5.0

5.0
5.3

6.5
5.2
5.7

.1

5.0
3.9
5.3


'C-o
)0 0

$ 0.77


25.09

20.17
1.28

23.88
2.22
2.47

.0

1.30
4.23
5.41


$3.49


4.93

3.18
2.51

5.26
4.26
2.39

.03

2.95
2.54
3.11





Production Credit in Florida Citrus and Vegetable Areas 15

In number of loans the cooperative associations and banks
were well in advance of other agencies, but the average size
of loan was much smaller, being $1,769 and $1,263, respectively,
as compared to $4,252 for local production credit associations,
$4,667 for Growers Loan and Guaranty Company, and $3,714 for
brokers and commission firms. Government sources made 14.3
percent of the total number of loans, but the average size was
only $306 and on a dollar volume basis represented but 2.4 per-
cent of the total amount loaned by all agencies (Table 5). Not
only are the emergency crop and feed loans limited in size, but
this number of loans of small amounts indicates the policy of the
Farm Security Administration of affording financial assistance
to small growers who cannot obtain credit elsewhere.
When the borrowers are grouped according to type of farm-
ing, namely, citrus, truck, and a combination of citrus and truck,
considerable variation prevailed in the amount of credit obtain-
ed according to source. Banks assume a much more important
role in financing citrus growers than in either the citrus-truck
or truck classifications, the percentages of the total amount loan-
ed being 23.9, 13.4 and 12.0, respectively (Tables 6 and 7). Ac-
cording to bankers these differences are in large measure ex-
plained by the higher risk which bankers consider are involved
in making truck loans. Also, banking institutions are usually
more accessible and better established in citrus areas than in
certain of the newer truck areas.
In relation to other agencies, cooperative marketing asso-
ciations also provide a larger amount of credit to citrus growers
than to truck growers, although citrus-truck borrowers received
a higher proportion from this source than either of the other
two classifications. Citrus borrowers obtained 29.7 percent, truck
growers 14.9 percent and citrus-truck growers 44.7 percent of
their borrowings from cooperatives. It appears that in the case
of loans obtained by citrus-truck growers the cooperatives ex-
tended the credit principally on the basis of the citrus crop.
Since cooperatives which extend credit do so as a means of serv-
ing their grower members, the risk factor in explaining the dif-
ferences in cooperative credit by grower classification is not so
important as for banks. The differences are more likely due
to cooperatives being more available to citrus growers than to
truck growers. In 1936-37 there were 60 active citrus coopera-
tive marketing associations in Florida, of which 35 furnished
growers credit: whereas there were but 25 truck cooperatives,





TABLE 6.-CASH CREDIT USED BY FLORIDA CITRUS AND CITRUS-TRUCK GROWERS, COST AND AiMOUNT, 1937-38 SEASON.


Source


Banks
Florida Citrus P. C. A.*
Local p. c. a*
Cooperatives
Growers Loan and Guar-
anty Company
Individuals
Independent shippers
Direct government
agencies
Other sources
Total or averages


Banks
Florida Citrus P. C. A.*
Local p. c. a.*
Cooperatives
Individuals
Independent shippers
Direct government sources
Other sources
Total or averages


co
H', c~ B
.0 U'C 'g ~C~9 0
a) .1 V 0
C)4 WH .0a 0 HO>,4.
HiiI^

38
15
10
56

6
9
10

4
2
150


24.4
24.6
41.3
96.1
27.0
2.3
9.1
5.0
S 29.5


1271 citrus growers
86.8 $ 51,750 23.9
56.1 32,650 15.1
119.8 16,950 7.8
37.6 64,322 29.7

69.2 28,000 12.9
36.1 13,541 6.3
18.4 7,368 3.4

28.8 1,100 .5
23.5 785 .4
56.0 $216,466 100.0
37' citrus-truck growers
26.2 $ 9,705 13.4
127.0 12,700 17.6
15.7 13,500 18.7
70.1 32,300 44.7
4.8 450 .6
7.0 370 .5
7.2 3,205 4.4
2.0 50 .1
36.4 $ 72,280 100.0


H.C o



$1,362
2,177
1,695
1,149

4,667
1,505
737

275
392
1,443

485
2,117
4,500
5,383
150
92
401
50
1,417


6.6 $ .60
5.0 25.29
5.0 11.92
4.6 .07

6.5 23.88
5.8 4.78
5.7 2.80

5.0 1.06
5.4 13.00
5.5 $5.10

7.3 .70
5.0 24.58
5.0 14.40
6.0 1.20
8.0
6.6
5.0 1.88
42.0 .10
5.8 4.45


a H
o ,
C:, 1


IHi

C),
H c H
'4-C4


$ 3.56 6.7
4.99 6.6
5.51 5.9
2.28 4.6

5.26 7.2
5.10 6.1
4.62 6.6

4.08 5.6
8.69 8.5
3.94 6.0

2.65 7.8
4.77 6.6
3.33 5.5
2.64 6.0
2.67 8.0
5.06 6.6
3.06 6.0
14.20 42.5
3.19 6.3


'Although records were obtained from 165 citrus and 48 citrus truck growers who borrowed for production pur-
poses, only 127 and 37, respectively, borrowed cash.
'The total number of loans is greater than cash borrowers in that some borrowers borrowed from more than one
source.
"Includes interest plus other charges with no adjustment for term of loan.
'Includes interest plus other charges.
*Production Credit Association.









TABLE 7.-CAsI CREDI UiED HI 137' FL.om .\ TRi'CK GiOW\%%es, COST AN) AMOUNT, 137-38S SEASON.


Source

7230 0 OC 00
:5I1 >,, >4N 0 Y P 00 U M W 4


Banks 26 55.9 $ 44,665 12.0 $1,718 7.1 $ 1.06 $3.59 7.5
Local production credit
associations 31 100.5 156,625 42.1 5,052 5.0 23.39 2.92 6.1
Cooperatives 24 27.4 55,551 14.9 2,315 5.6 4.14 2.71 6.0
Individuals 8 38.8 4,175 1.1 522 3.1 .19 1.73 3.4
Independent shippers 20 53.1 64,554 17.4 3,228 5.7 2.80 2.12 5.9
Brokers and commission
firms 6 179.7 22,282 6.1 3,714 .1 .03 .1
Direct government agencies 40 21.7 11,602 3.1 290 5.0 1.21 2.81 6.0
Other sources 8 101.1 12,427 3.4 1,553 3.7 2.56 2.11 3.9

Total or averages 163 57.4 371,881 100.0 2,281 5.1 6.00 2.61 5.7

'Although records were obtained from 176 truck growers who borrowed for production purposes, only 137 borrowed
cash.
'The total number of loans is greater than cash borrowers in that some borrowers borrowed from more than one
source.
"Includes interest plus other charges with no adjustment for term loan.
'Includes interest plus other charges.





Florida Agricultural Experiment Station


of which only 11 extended credit. Of the 35 citrus and 11 truck
cooperatives only 25 and 6, respectively, furnished cash credit
to growers."
In contrast to the proportion of loans furnished by coopera-
tive associations and banks to the three classifications of grow-
ers are borrowings from production credit associations. Of the
total borrowings by truck growers, 42.1 percent were furnished
by local production credit associations; whereas local and state-
wide citrus production credit associations furnished only 22.9
percent to citrus growers. The borrowings of citrus-truck grow-
ers from the combined associations were 36.3 percent of the total
amount of loans reported. These figures indicate that either
the production credit associations do not differentiate between
truck and citrus risks as do bankers, or else their services, due
to their territories covering the entire State, are more widely
available. No doubt, in attempting to fulfil the credit needs of
farmers, production credit associations have not only attempted,
but are in a better position, to meet production credit needs
of truck farmers than are banks and possibly cooperative mar-
keting associations.
Another notable difference between the proportion of loans
by source for truck and citrus growers is that of independent
shippers, and brokers and commission firms. These agencies pro-
vided 23.4 percent of the cash credit to truck growers, whereas
only 3.4 and 0.5 percent was furnished by them to the citrus and
citrus-truck classification, respectively. Government sources
were also more prominently identified with the truck farmers.
Almost one-fourth of the number and 3.1 percent of the amount
of loans obtained by this group of growers were furnished by the
emergency crop and feed loan offices together with the Farm
Security Administration (Table 7).
Production credit requirements per individual grower were
heavier for truck than for citrus growers. The average size of
truck, citrus-truck and citrus loans from all sources was $2,281,
$1,417 and $1,443, respectively (Tables 6 and 7). Truck growers
obtained larger loans than did citrus growers from every source
except individuals. Not only are the per acre cash requirements
higher for several of the important vegetable crops than for cit-
rus, but it is apparent that the vegetable growers, as a group, have

"Seiler, Paul R., "Production Loans Made by Florida Farmers' Co-
operative Associations", unpublished Master's thesis, University of Flor-
ida, 1938.





Florida Agricultural Experiment Station


chinery, caretaking organizations, general farm supplies, and
groceries.
The areas surveyed and the location of farms on which rec-
ords were obtained are shown in Fig. 1. In some counties, both
citrus and truck records were obtained, but in general the speci-
fic areas were selected where a preponderance of one or the
other type of farming prevailed. The more important citrus
areas investigated are found in Brevard, Highlands, Hillsborough,
Indian River, Lake, Orange, Pinellas, Polk, St. Lucie, and Volu-
sia counties. Truck growers who provided information were
located mainly in Broward, Dade, Palm Beach, Hillsborough,
Manatee, Seminole, St. Johns, and Putnam counties.
Of the 12 leading truck crops grown in the State over 70 per-
cent of their acreage in the 1935-36 season was in the counties
surveyed. By crops this percentage varied from 95.1 and 87.1
percent for green peas and string beans, respectively, to 15.8 and
8.1 percent for cucumbers and watermelons, respectively. Much
of the acreage of these latter two crops is in the general farm-
ing areas of the State. Of the Florida citrus acreage over 80
percent is included in the counties surveyed. Considered sep-
arately, 77.8 percent of the orange and 88.0 percent of the grape-
fruit acreages are within the counties from which records were
obtained.
In presenting the data and their analysis from borrower
and lending agency records, attention will first be given to that
obtained from growers. It is believed that a picture of the
production credit situation and the problems presented first
from the grower's viewpoint will provide a good basis for a
consideration of lending agency practices and policies.

SHORT-TERM CASH CREDIT FOR GROWERS
Citrus and truck growers as represented by the 389 growers
from whom records were secured for this study and who bor-
rowed for production purposes obtained 72.1 percent, or approxi-
mately three-fourths, of their production credit from cash sour-
ces in the 1937-38 season. The remaining 27.9 percent was furn-
ished by merchants, by far the largest part of which was from
fertilizer companies and distributors. Of the total number of
loans, only 49.4 percent were obtained from cash sources (Table
4).

SOURCE OF CASH LOANS
Considering only cash borrowings, 301, or 77.4 percent, of






Production Credit in Florida Citrus and Vegetable Areas 19

less reserve funds than have citrus growers. As previously noted,
71.8 percent of truck farmers and 25.3 percent of citrus growers
included in this study borrowed for production purposes. One
reason for this is the relatively large number of citrus operators,
in comparison with truck growers, who have incomes from busi-
ness connections, employment and miscellaneous sources outside
of caring for their grove (Table 8). Another is the longer market-
ing period for citrus as compared to truck growers.

TABLE 8.--REAsoNs GIVEN BY 611 FLORIDA CITRUS AND TRUCK GROWERS FOR NOT
BORROWING FOR PRODUCTION PURPOSES DURING THE 1937-38 SEASON.

Citrus Citrus- Truck Total
Truck

Number not borrowing 488 54 69 611

Reasons for not borrowing: Percent Percent Percent Percent
Had cash from previous crop 14.7 13.0 1.4 13.1
Cash reserve and savings 27.4 29.6 52.2 30.4
Other income
Employment off farm 2.9 3.7 2.6
Pension or retired 4.1 3.7 2.9 3.9
Operate other business 3.5 1.8 4.4 3.4
Miscellaneous 24.8 18.5 4.4 21.9
Could not obtain credit 1.0 5.6 8.7 2.3
Opposed to borrowing 2.5 3.7 2.3
All other 6.4 7.4 13.0 7.3
No reason given 12.7 13.0 13.0 12.8


COST OF CASH LOANS BY SOURCE
The average interest rate paid by the 301 growers to all cash
sources was 5.3 percent during the 1937-38 season (Table 5). In
computing the cost of borrowing three different measures are
used. One is the interest rate asked by the agency without re-
gard to other costs. Another is the cost per $100 borrowed in-
cluding interest charges and all other costs but irrespective of
the term of loan. The third is called the effective annual interest
rate which is computed by adjusting costs other than interest to
a per annum interest rate and combining this figure with the
interest rate asked."

"For example, a $1,000 loan for six months at 5 percent interest and
legal and recording costs of $10 bears an effective annual interest rate of
7 percent. The $10 charge is 1 percent of $1,000 but since it is on a six-
month loan only the rate becomes 2 percent on a per annum basis. Hence.
5 percent plus the 2 percent rate for other charges gives an effective rate
of 7 percent.






20 Florida Agricultural Experiment Station

Costs of loans by sources varied materially. Considering only
the interest rate asked, banks led the list with a charge of 6.9
percent, whereas brokers and commission firms show an average
rate of one-tenth of 1 percent. In the latter instance the average
rate is so low because interest was paid on only one broker loan,
the rate being 5 percent. Brokers and commission men being
primarily interested in controlling the marketing of the crop
give little consideration to the cost of lending operations. Next
to banks was the Growers Loan and Guaranty Company which
charged 6.5 percent interest. Independent shippers who might
be expected to follow the course of brokers and commission firms
did not do so but charged an average rate of 5.7 percent. The
Florida Citrus Production Credit Association, local production
credit associations, and other government agencies uniformly
charged 5 percent interest, while cooperative marketing associa-
tions were slightly higher at 5.3 percent (Table 5).
When charges other than interest are included and reduced
to an effective annual interest rate the position of the various
agencies changes. It is this measure of costs which is the best
measure of economy in borrowing. Bank loans at 7.1 percent
effective rate fall into second place giving way to Growers Loan
and Guaranty Company at 7.2 percent. The increase of the ef-
fective rate over the interest rate asked is 0.2 for banks, 0.7 for
Growers Loan and Guaranty Company, 1.0 for local production
credit associations and 1.6 for the state-wide citrus production
credit association. For cooperatives it is 0.1 and individuals 0.3
increase. It will be noted that the range is the greatest for those
agencies which are more or less remote from the grower and
require adequate security properly examined and recorded. In
the case of banks many of the loans were on a personal note.
Cooperatives were frequently satisfied with a personal note or
account plus the member's marketing agreement. When co-
operatives did take a crop lien or real estate mortgage as security
it was not uncommon for them to accept the grower's word con-
cerning the title and after accepting the mortgage it may not have
been recorded. This may appear to be loose financing, but the
record of repayment of loans to cooperatives does not so indi-
cate."' More particularly it demonstrates that the agency inti-
mately familiar with the borrower can rely more on character
than can the agency more remotely located and which has to

'"See page 80.






Production Credit in Florida Citrus and Vegetable Areas 21

operate on a policy requiring all loans to be handled in an identi-
cal manner.
The average cost per $100 borrowed, a measure which is not
adjusted to the term of loan, shows the Growers Loan and Guar-
anty Company with $5.26 and the Florida Citrus Production
Credit Association with $4.93 leading the agencies. On the aver-
age these two institutions made longer loans than most of the
other agencies, which accounts at least in part for the relatively
high absolute charge. Again it will be noted that for loans ob-
tained from brokers and commission firms the cost per $100 bor-
rowed was negligible.
Variations in loan costs for citrus, truck and citrus-truck
growers by lending agency are somewhat indicative of the risk
involved in loans to these three classes of growers. The bank in-
terest rate on citrus loans was 6.6 percent as compared to 7.3
and 7.1 percent for citrus-truck and truck loans, respectively
(Tables 6 and 7). Since some banks tend to adjust interest rates
in accordance with the risk involved these figures indicate the at-
titude of bankers toward truck and citrus loans. It is also to be
noted that the interest rate charged by cooperatives is lower for
citrus than for truck growers, the rates being 4.6 and 5.6 percent,
respectively. Since the interest rate is legally established for
production credit associations and direct government agencies,
no variation in rates occurred in loans from these agencies. As a
rule it appears that independent shippers made little distinction
in interest rates charged either truck or citrus growers. For all
loans regardless of source the interest rate on truck loans was
lower than for citrus loans, but this is due to the fact that all
brokerage and commission firm loans where practically no charge
was made were those advanced to truck growers. The significant
fact is the variation in rates of banks and cooperatives by type of
farming.
The difference between the regular interest rate asked and
the effective rate is slightly greater for all truck loans than for
citrus loans. This is in spite of the large size of the truck loans
which affords a broader basis for distributing costs other than
interest. That costs other than interest are greater for vegetable
loans is shown by other charges of $6 per truck loan and $5.10 per
citrus loan (Tables 6 and 7). This would indicate that, in general,
agencies require more real estate security for truck loans than
for citrus loans. Particularly is this true for banks which made
an average charge of 60 cents per loan, other than interest, to






Florida Agricultural Experiment Station


citrus growers and $1.06 to truck farmers. Of citrus loans ob-
tained from banks 2.7 percent were secured by real estate, where-
as 15.4 percent of truck loans were so secured. For cooperatives
the cost was 7 cents and $4.14, respectively. Here the contrast is
even greater than for banks. Only 19.7 percent of citrus loans
obtained from cooperatives were backed by real estate while 87.5
percent of truck loans bore such security."
When the data from borrowers are broken down by sec-
tions within the State it appears that interest rates to citrus
growers in the ridge section and Hillsborough County are lower
than for other areas. This is mainly due to a relatively large
volume of cooperative loans obtained at a low rate of interest.
The interest rate on all loans procured by truck growers in the
Belle Glade area was lower than in any other section of the State.
This is not due to a prevailing low rate of interest in the area,
since the local bank rate in 1937-38 was 10 percent. Instead it
is due to a large percentage of the loans having come from brok-
erage and commission firms which make little or no obvious
charges for their advances to growers. Outside of the Belle
Glade area, which presents an unusual example, interest rates
varied for all sources from 5.1 to 7.7 percent by areas. Bank
rates to truck growers were highest in the Belle Glade area and
lowest in the Sanford celery area.

COST FOR SECURED AND UNSECURED LOANS
In comparing the cost of loans as to security only two classi-
fications are used, open account and personal note, and secured.
Secured loans include loans for which any type or combination of
types of security was given. A crop lien may have been given in
one instance and in another a real estate mortgage, chattel mort-
gage and crop lien, or any combination thereof, yet both are
considered secured even though a wide range in the character of
the security is evident. In general, loans obtained by citrus and
citrus-truck growers were obtained at lower costs when secured
than when unsecured. Yet for vegetable growers the reverse was
the case. In the latter instance the lower rate for unsecured
loans is accompanied by a considerable amount of broker and
commission firm loans which were most frequently made with-
out security and without bearing interest or other costs. The
same was true of independent shippers. It appears that independ-

"See Appendix, Tables 4 and 6.







TABLE 9.--REiATION oF INTEREST RATES TO SECURED AND UNSECURED LOANS ACc ORDINe 10 SOURIE or IO)AN F'O 3s80
AND TRUi'e. GROWERS, FLORrII, 10.37-3S SEASON.


CITRUs, CSITRU -TRUxCK


Average interest rate'
Secured loans
Unsecured loans
Average effective interest rate'
Secured loans
Unsecured loans
Average interest rate'
Secured loans
Unsecured loans
Average effective interest rate'
Secured loans
Unsecured loans
Average interest rate'
Secured loans
Unsecured loans
Average effective interest rate
Secured loans
Unsecured loans
Average interest rate'
Secured loans
Unsecured loans
Average effective interest rate'
Secured loans
Unsecured loans
'On cash loans only.


5.4 6.3
6.3 7.0

6.2 6.5
8.3 7.1

5.7 8.1
6.9 6.9

6.6 9.3
15.8 6.9

5.5 7.4
2.7 6.9

8.4 7.8
14.0 6.9

5.5 6.9
4.2 6.8

7.5 7.2
13.2 7.0


St
ai
na
>


4.5
6.7

4.5
6.7

5.9
6.2

6.0
6.2


St OC


en
to t


1~


165 citrus growers
6.5 6.7 5.8
0.9 5.5

7.2 7.2 5.9
0.9 8.3
48 citrus truck growers
6.3
8.0 8.0

6.3
8.0 8.0


176 truck growers


8.5 13.1
13.0

42.0


42.5 28.7
23.0


5.5 6.0 I 5. 0.0 6.2
8.0 2.8 0.9 i 0.1 0.0

6.0 8.6 6.1 0.0 6.6
8.0 2.8 0.9 0.1 0.0
389 citrus, citrus-truck and truck growers
5.2 6.5 6.7 5.9 0.0 6.4
6.8 2.5 3.0 0.1 0.0

5.4 7.2 7.2 6.1 0.0 7.0
6.8 2.5 4.3 0.1 0.0
"On cash and merchant loans.


32.4
22.4




27.7
21.5


5.8
3.5





18.6




19.1
3.4




15.0
4.4






Florida Agricultural Experiment Station


ent shippers are more likely to make a charge for interest when
security is asked than when the loan is made by personal note.
In the case of loans obtained from banks by citrus growers, se-
cured loans bore interest at 6.3 percent and unsecured 7.0 per-
cent. Likewise, the respective figures for cooperatives were 4.5
and 6.7 percent (Table 9). Since production credit association and
direct government source loans were all secured, the comparison
does not apply to these agencies.
The effective annual interest rate was considerably higher for
unsecured loans when loans from all sources are considered. This
is due mainly to merchant fertilizer credit. In general, fertilizer
credit carried a higher effective rate for secured loans, but since
most of such credit was unsecured it had an undue influence in
determining the effective rate for all loans from all sources.
According to growers' reports, only 21.0 percent of fertilizer loans
were secured, yet such loans represented slightly over one-fifth
of all cash and merchant credit obtained by the 389 borrowers
(Table 10).
For the prospective borrower it appears that if he is willing
and able to furnish adequate security, lending agencies whose
primary business is lending will provide funds at a lower rate
of interest than if security is not offered. But if costs for giving
security are involved, the effective interest rate may be high-
er unless the loan is large enough for distributing such costs at
a low percentage figure. Character and financial standing are
still at a premium in obtaining funds at the lowest possible cost
from banks and similar agencies whose policies permit each loan
to be treated on its own merits instead of being subjected to
uniform security requirements.

COST ACCORDING TO TERM OF LOAN
Only a slight relationship was found between the rate of
interest asked and the term of loan according to source of credit.
Although some agencies may vary the rate according to the se-
curity of the loan, as pointed out above, there is no definite ten-
dency to make adjustments on the basis of term of loan. In
fact there is little reason to do so on loans which do not exceed
one year.
When, however, the term of loan is related to the actual
costs of the loan, including both interest and other charges as
expressed by the effective annual interest rate, there is a de-
finite tendency for the rate to decrease with an increase in term






TABLE 10.-RELATIVE AMOUNT OF SECURED LOANS TOGETHER WITI RELATED INFORMATION ACCORDING TO SOURCE OF LOAN ON 389 CITRUS
AND TRUCK FARMS, FLORIDA, 1937-38 SEASON


Total no. of loans 675 84 21 44 86 6 20 34 6 52 11 200 111




Percent secured 52.4 35.7 100.0 10.0 90.7 100.0 30.0 82.4 16.7 92.3 90.9 24.0 30.6

Total amt. loaned $885,853 $106,120545,350 180 $1 3 20 ,1 $2 28 o7 $3,22 $ $38,862
Percent secured 70.6 58.8 100.0 1000 976 100.0 645 93.0 6 94.8 61.9 21.0 32.1
C 0 0 ) C 8 M '0' d q, C Z -

Number
Total no. of loans 675 84 21 44 86 6 20 34 6 52 11 200 111
Percent secured 52.4 35.7 100.0 100.0 90.7 100.0 30.0 82.4 16.7 92.3 90.9 24.0 1 30.6
Amount I
Total amt. loaned $885,853 $106,120 $45,350 $187,0751$152,173 $28,000;$18,166 $72,2921$22, 282$15,907 $13,2621$186,364 $38,862
Percent secured 70.6 58.8 100.0 100.0 I 97.6 100.0 64.5 93.0 1.6 94.8 61.9 1 21.0 32.1
Avg. size of loans
All loans $ 1,312$ 1,263 $ 2,160|$ 4,252 $ 1,769 $ 4,667 $ 908 $ 2,126 $ 3,714 $ 306 $ 1,206 $ 932 $ 350
Secured loans $ 1,767$ 2,079 $ 2,160 $ 4,2521$ 1,905$ 4,667 $ 1,952 $ 2,401 $ 350 $ 314$ 821 $ 815 $ 362
Unsecured loans |$ .811$ 810| $ 447 $ 461 $ 8441$ 4,386 $ 206 $ 5,052 $ 969 $ 345
Avg. interest rate'
All loans 5.3 6.9 5.0 5.0 5.2 6.5 5.2 5.7 0.1 5.0 3.9
Secured loans 5.5 6.9 5.0 5.0 5.2 6.5 6.7 5.9 0.0 5.0 6.4
Unsecured loans 4.2 6.8 6.8 2.5 3.0 0.1 5.0 0.0 .
Avg. eff't'e int. rate
All loans 9.3 7.1 6.6 6.0 5.4 7.2 5.5 6.0 0.1 6.0 4.3 22.8 7.7 ^
Secured loans 7.5 7.2 6.6 6.0 5.4 7.2 7.2 6.1 0.0 6.0 7.0 27.7 15.0
Unsecured loans 13.8 7.0 | 6.8 2.5 4.3 0.1 6.6 0.0 21.5 4.4 S
Avg. term (mos.)2
All loans (659)6.0 4.6 9.8 7.4 6.5 8.3 8.2 6.5 4.3 8.4 11.5 5.3 4.3
Secured loans (349)7.2 5.7 9.8 7.4 6.5 8.3 15.2 6.6 8.5 8.6 11.5 6.1 5.2
Unsecured loans (310)4.7 4.0 6.8 5.0 5.9 3.2 5.5 0.0 5.1 3.9
*Does not include installment merchant loans.
'On cash loans only.
-Anticipated term at time of making loan. Figures in parentheses represent number of loans used in computing
term. The term was indefinite on eleven unsecured and five secured loans.






Florida Agricultural Experiment Station


(Table 11). This is especially the case for production credit as-
sociations. Their interest rates are the same for all loans regard-
less of size, term or degree of security, yet their charges other
than interest are somewhat related to the size of the loan. It
is thus perfectly obvious that the longer the term the greater
the opportunity to reduce the effective rate. From this, one
should not conclude that it is desirable to obtain a loan for the
longest period possible. Regardless of cost it is still good busi-
ness to repay loans at as early a date as the business warrants.
Yet where funds can be used to advantage effective interest is
materially reduced when loans are obtained for the longer per-
iods.
Another method of viewing the costs of loan in relation to
term is to suggest that on loans desired for only a short period
it is well to obtain funds from cash lending agencies which are
more likely to make loans on a personal note even though the
interest rate asked is higher than from sources where charges
other than interest increase so materially the effective rate.
The most drastic reduction in effective interest rates with an
increase in term occurs with fertilizer loans. The average ef-
fective rate for fertilizer loans running from one and a half up
to two and a half months was 35.7, while the rate for those of eight
and one-half months and over varied from 20 percent to as low
as 10.5 percent for those of 11V2 months and over (Table 11).
These large variations in effective interest rates by length of
term is due almost entirely to the loss of cash discount on ferti-
lizer purchases made on credit. For example, a fertilizer credit
of two months involving a loss of 5 percent cash discount repre-
sents an effective interest rate of 31.6 percent, assuming that no
regular interest rate is asked and that there are no other charges
in making the advance. Yet on a 10 months' basis the 5 percent
cash discount represents an effective rate of but 6.3 percent.
The effective interest rate does not drop consistently with the
term of loan in that the amount of cash discount, interest rate
asked, and other expenses varied considerably from loan to loan
and among fertilizer companies.

COST ACCORDING TO SIZE OF LOAN
There is little relation between the interest rate asked and
the size of loan, except for the largest loans, when all loans re-
gardless of source are considered together. There is, however,
a decided tendency for the effective interest rate to decrease






TABLE 11.-RELATION OF TERM OF LOAN TO COST, 389 FLORIDA GROWERS, BY TYPE OF LENDING AGENCY, 1937-38 SEASON.
Average effective interest rate (simple average)



Term of loan "
(Months) _.t 2
S, o o oo G u Co. 0, o


Under 1.5 6.0 10.0

1.5 2.4 7.5 3.0 0.0 5.0 3

2.5 3.4 8.2 8.8 5.4 9.0 5.0 6.8 2

3.5 4.4. 8.8 8.8 5.2 8.6 7.0 6.8 27.2 2

4.5 5.4 7.8 7.4 6.2 5.0 7.5 6.7 2

5.5 6.4 8.4 10.4 6.9 6.2 7.2 3.2 10.1 0.0 6.2 42.5 2

6.5 7.4 6.0 6.4 8.1 5.9 6.0 7.2 7.2 5.0 2

7.5 8.4 7.4 7.5 6.1 5.6 8.6 5.8 5.8 1

8.5 9.4 7.1 7.3 7.6 6.1 6.8 4.9 0.0 6.0 1

9.5 10.4 6.0 6.4 6.2 6.1 5.8 6.2 1

10.5 11.4 8.2 6.3 5.3 7.7 6.1 5.3 2

11.5 & over 7.9 9.1 7.9 6.0 7.0 4.6 5.5 8.2 1

No time given I 0.0 I 0.0 4.0


G0


3.6

7.8

9.5

39.8

5.1

9.9

9.0

0.0

6.0

4.0


5.0

1.4







28 Florida Agricultural Experiment Station

with an increase in the size of loan (Table 12). Obviously such
decreases are to be expected since costs other than interest can
be spread over a wider base for the larger loans. This is true
especially with title examination and recording costs which usu-
ally do not vary much with size of loan.

TABLE 12.-INTEREST RATES AND OTHER FACTORS ACCORDING TO SIZE OF CASH LOAN,
389' FLORIDA CITRUS AND TRUCK GROWERS, 1937-38.


Size of Loan



Under $100

$ 100 $ 199

200 299

300 399

400 499

500 599

600 699

700 799

800 899

900 999

1,000 1,499

1,500 1,999

2,000 2,999

3,000 3,999

4,000 4,999

5,000 7,499

7,500 9,999

10,000 14,999

15,000 & over

Totals or
average


Number
of
Loans


21

43

41

35

32

21

9

8

14

3

22

15

28

23

9
19

7

9

5

364


Size of
Loan


$ 58

128

224

310

415

513

611

711

808

945

1,084

1,629

2,294

3,293

4,206

5,518

8,071

11,444

18,800


1,815


Intere
Rate


7.4

6.7

5.8

6.1

6.0

5.9

6.2

6.0

5.6

6.0

5.7

5.6

5.4

5.3

5.4

5.3

5.6

5.7

3.9

5.3


Average
Effective
st Annual
Interest
Rate2

8.7

8.5

7.3

7.3

6.9

7.0

6.8

6.7

6.4

6.9

6.3

6.6

6.1

6.1

5.9

5.8

6.3

5.9

4.3

5.9


'Records were obtained from 389 borrowers of whom 301 borrowed
cash. The 301 obtained 364 cash loans.
-Effective interest rate includes all interest and other charges re-
duced to an annual rate.
"Term of loan refers to the intended length of term, although the
loan may run for a longer period.


Term
(months)3


5.3

6.7

5.8

5.7

7.0

9.1

8.2

6.8

5.4

4.7

7.2

9.0

6.4

6.8

7.5

9.5

12.1

7.2

6.1

6.9






Production Credit in Florida Citrus and Vegetable Arcas 29

Although there is little tendency for the interest rate to
vary with the size of loan where all sources are considered to-
gether, it is not the case for loans from specific sources. The
fact that certain institutions having uniform interest rates re-
gardless of size of loan, type of farming or character of security,
made over one-third of the number and amount loaned tends
to obscure variations which may prevail for specific types of
lending agencies. For banks the rate of interest on loans under
$1,000 varied from 7.3 to 8.2 percent for group averages of $100
intervals, whereas the variation was from 6.0 to 7.5 percent for
loans of over $1,000.
With the exception of one cooperative loan of $9,000 which
bore interest at 8 percent, there was also a tendency for loans
from this source to be obtained at lower rates after the amount
exceeded $1,000. However, with individuals, independent ship-
pers and brokers and commission firms there is some indication
that small loans, on the average, were obtained at lower interest
rates than larger loans. This is apparently due to the practice
of certain of these sources not making a charge for some small
loans but instead advancing cash in small amounts solely for the
accommodation of the borrower and to gain control over mar-
keting his crop.
For all sources the effective interest rate declined as the
loans became larger. This is notably true with loans obtained
from production credit associations. Since the effective interest
rate is the real measure of credit costs, it appears that in actual
practice the Florida grower pays a higher price for short-term
credit from production credit associations than from banks as
long as the amount borrowed is under approximately $750. As
to whether this were to prevail for an individual case the bor-
rower should make his own calculations, but on the average
$750 appears to be the breaking point if one may be in a position
to choose between a bank or a production credit association. It
should be pointed out, however, that many of those borrowing
amounts under $750 from production credit associations could
not obtain credit from the bank without providing an equal
amount of security. In this event his costs might not vary ex-
cept for the inspection or service fee which the association
charges. In turn, this fee might be offset by the higher rate
of interest charged by the bank.
Of the important sources of cash loans obtained by growers
the effective interest rate paid cooperatives was lower in prac-






F. ',/.; Agricultural Experiment Station


tically all size groups than that paid banks and production credit
associations. Not only is the interest rate asked by cooperatives
usually as low as from other sources, but more particularly other
costs in connection with making loans are kept at a minimum
due to the policy of many cooperatives.8"
This discussion on variation in cost with size of loan and by
different sources serves to indicate that, under conditions pre-
vailing at the time this study was made, the borrower in attempt-
ing to obtain credit at the lowest possible cost will be influenced
in his selection of an agency by the size of the loan. This state-
ment, of course, assumes that the borrower is in a position to
obtain credit from the various sources, an assumption which has
definite limitations for many growers. There are, however,
many growers who feel they are limited to only one source of
credit when in reality other agencies would be glad to accommo-
date them.
That there are advantages for both the grower and the lend-
er in the grower continuing to use the same credit source no one
will deny. Yet a grower will continue to borrow from an agency
when it is no longer to his advantage. Too many borrowers
have the idea that the lender is doing a favor in granting them
credit, when actually it is the borrower who is performing the
favor for the lender. Farmers, as well as others, hesitate to
approach an untried lending agency. Yet the farmer who has
a good credit rating and can provide adequate security, if de-
sired, need not make apologies to any lending agency in asking
for legitimate credit. Traditionally, lending agencies have had
the reputation for being "hard boiled". As custodians of other
persons' funds, as most of them are, it is essential that they care-
fully scrutinize every loan. Yet it does not follow that the bor-
rower who is a good risk should feel himself at the mercy of
lending agencies. Rather, when he is in a position to do so, he
should scrutinize his purchasing of credit the same as the pur-
chasing of goods, namely, to get the most for his money, assum-
ing that the source from which he obtains the credit is a depend-
able one.

"See page 20.







Production Credit in Florida Citrus anid Vegetable Areas 31

VARIATION IN TERM OF LOAN BY SOURCE
The average term of cash loans from all sources for citrus,
citrus-truck and truck growers was 6.9 months. The term varied
considerably, however, by type of cash lending agency. Except
for brokerage and commission firms which often make advances
toward the end of the growing season to secure the marketing
of the crop, loans from banks bore the shortest term with an
average of 4.6 months (Table 13). Banks because of their de-
sire and necessity to keep in a liquid position prefer loans not to
exceed three months, although the grower frequently gives a
note for three months with the understanding it will be renewed
for an additional period. Loans from cooperatives and inde-
pendent shippers averaged 6.5 months while the term for local
production credit associations, the Florida Citrus Production
Credit Association, and the Growers Loan and Guaranty Com-
pany loans averaged 7.4. 9.8. and 8.3 months, respectively. The
longest term was on loans obtained from miscellaneous cash
sources with an average term of 11.5 months.
Citrus loans on the average were obtained for a 1.3 months
longer term than were truck loans, the terms being 6.8 and 5.5
months, respectively. This is to be expected when one consid-
ers the nature of the two types of farming. Yet two agencies.
banks and cooperatives, reverse themselves from the average
picture. Citrus loans from banks ran for 4.6 months, whereas
truck loans were obtained for 5.4 months. A similar picture
prevails for cooperatives, the respective figures being 6.3 and
7.2 months. It appears that banks come nearer to meeting the
needs of truck growers than citrus growers in regard to term
of loan. Although bankers generally prefer to lend on the se-
curity of a citrus crop over truck, they hesitate on the longer
term loans which are required for citrus. As a result, much of
the demand for bank credit made by citrus growers represents a
relatively short period toward the end of the growing season.
This disposition to lend for a short term only frequently compels
the grower to obtain his credit for fertilizer and other early
needs from a source other than a bank.







Florida Agricultural Experiment Station


TABLE 13.-TERM OF LOANS ACCORDING TO SOURCE, FLORIDA CITRUUS AND VEGE-
TABLE GROWERS, 1937-38 SEASON.

Term (months)
Source itrI
Citrus Citru- Truck All Types
Truck

Banks 4.6 3.6 5.4 4.6
Florida Citrus Production
Credit Association 10.0 9.2 9.8
Local production credit
associations 9.0 7.7 6.8 7.4
Cooperatives 6.3 5.9 7.2 6.5
Growers Loan and Guar-
anty Company 8.3 8.3
Individuals 12.9 9.0 3.7 8.2
Independent shippers 5.3 7.8 6.9 6.5
Brokers and commission
firms 4.3 4.3
Direct government
agencies 10.9 6.1 8.6 8.4
Other cash sources 12.5 6.0 12.2 11.5

Fertilizer 6.9 5.6 4.5 5.3
Other merchant 5.5 3.6 4.0 4.3
All sources 6.8 5.5 5.5 6.0

For example, 23 of the 38 bank loans obtained by citrus
growers were made between August and January, the period
just prior to and during the marketing season. On the other
hand, only 1 out of 15 and 1 out of 10 loans, respectively, of the
citrus and local production credit associations were obtained
during this period. Approximately one-half of the coopera-
tive loans were made during the same period, many of which
were obtained on the basis of fruit having been delivered but
on which payments had not been made from the pools. Al-
though not conclusive, these figures indicate the attitude of
banks with respect to term of loans as well as their desire to be
able to see tangible returns from the crop.
Production credit associations attempt to gear their loans
to the needs of each type of farming. Their source of funds is







Production Credit in Florida Citrus and Vegetable Areas 33

such that they do not feel the necessity to keep in as liquid a
position as do commercial banks. It is, therefore, significant
to note that loans obtained by truck growers from local produc-
tion credit associations ran for 6.8 months, whereas citrus loans
from this source were for 9 months. Loans from the state-wide
Florida Citrus Production Credit Association were obtained for
an average of 10 months (Table 13). It would seem as though
these terms are fairly indicative of the most advantageous term
of loan on the average for truck and citrus growers who must
finance their major operations on credit. Other things being
equal, it most certainly is to the grower's advantage to obtain
the loan from a source which can see him through the season.
SECURITY REQUIREMENTS
According to information provided by 389 Florida citrus
and vegetable growers, some type of security was given on ap-
proximately 75 percent of the cash loans obtained. The security
offered varied greatly in quality, ranging from real estate mort-
gages to crop liens and marketing agreements. Within each of
the types of security offered there was likewise much variation
in quality (Table 14). Equally as significant was the variation
in security requirements among lending agencies and among
types of growers.
All loans obtained from production credit associations and
the Growers Loan and Guaranty Company were secured. Not
only were these loans all secured but the security provided was
in all cases real estate or combinations therewith. In addition
to real estate, production credit association loans were backed
by crop liens and chattel mortgages. The binding of all prop-
erty of the growers is designed not only to provide the most
substantial security but also to insure that the grower will not
be in a position to pledge any part of his holdings to other lend-
ing agencies and thus complicate his credit position. Such a
policy, however, has its limitations from the grower standpoint
when in periods of financial stress sufficient credit cannot be
obtained from production credit associations. In such instances
the grower is often forced to obtain fertilizer on credit, yet the
fertilizer company must rely largely upon secondary security
or take only a personal note." Unless the grower can make

"Under Florida law the grower could give a crop lien on fruit which
blooms after the granting of a crop lien to another agency. This would
usually apply to the following rather than to the current crop. Ch.
10279 Acts of 1925 (C. G. L. 1927, Sec. 5741, 5742).








TABLE 14.-SECURITY GIVEN BY 389 FLORIDA CITRUS AND TRUCK GROWERS ACCORDING TO TYPE OF LENDING AGENCY, 1937-38 SEASON.


Source





Cash:
Banks
Florida Citrus Production
Credit Association
Local production credit
associations
Cooperatives
Growers Loan and Guar-
anty Company
Individuals
Independent shippers
Brokers and commission
firms
Direct government agencies
Other cash sources

Total or average (cash)
Merchant:
Fertilizer
Other commodity credit*
Total or average
(merchant)
Total or average (cash and
merchant)


84

21

44
86

6
20
34

6
52
11

364

200
111

311

675


NUMBER OF LOANS

Cl wO ,. OC D



-co a) 'ajU Q a) a 1' Q 0,
a4 041eug 040 04 .

35.7 7.1 9.5 19.1 $106,120

100.0 100.0 45,3501

100.0 100.0 187,075
90.7 38.4 25.6 9.3 17.4 152,1731

100.0 100.0 28,0001
30.0 10.0 10.0 10.0 18,166
82.4 3.0 35.3 8.8 35.3 72,2921

16.7 16.7 22,2821
92.3 19.2 34.6 38.5 15,907
90.9 27.3 63.6 13,262

74.7 34.6 17.3 3.0 19.8 $660,6271

24.0 3.0 15.0 4.0 2.0 $186,364
30.6 2.7 17.1 6.3 4.5 ] 38,862

26.4 2.9 15.7 4.8 2.9 $225,226f

52.4 20.0 16.6 3.8 12.0 $885,853


VOLUME OF LOANS


58.8

100.0

100.0
97.6

100.0
64.5
93.0

1.6
94.8
61.9

86.9

21.0
31.6

23.0


14.7
100.0





100.0
70.6


14.7
100.0

100.0
70.6

100.0
39.6
1.1


27.0
38.1

60.7

8.0
5.81

7.6


70.6 1 47.2 1


0 -04

5.6

~o 0




18.1



8.3 15.2

22.6
18.1 7.9

1.6
26.4


8.1- 4.4

8.3 2.5
13.6 3.6

9.2 2.7


8.4 3.9 11.1


*Does not include installment credit.


CQ








26.0
3.5








2.3
65.9


41.4
23.8

13.7
26.0

3.5

2.3
65.9

41.4
23.8

13.7

2.2
8.6

3.3






Production Credit in Florida Citrus and Vegetable Areas 35

such arrangements with a fertilizer company the agency de-
manding rigid security requirements cannot afford to enter into
a lending agreement. This situation forces the borrower to ob-
tain a goodly part of his credit from a high cost source.
Of 84 loans obtained from banks only 35.7 percent were se-
cured and only 7.1 percent were secured by real estate (Table
14). Not only is the banker at liberty to accept personal notes
when he feels the circumstances justify it, but in the case of
security he may choose a rather wide range. Other sources of
credit used by the growers involving minimum security require-
ments include individuals and brokers and commission firms.
As previously indicated, brokers and commission firms loan in
order to insure their handling of a sufficient volume of fruits
and vegetables. Usually such loans are made under a "gentle-
man's agreement" that the grower will market through the bro-
kerage or commission firm. Where the "gentlemen's agree-
ment" is fulfilled the marketing agency can then deduct the loan
from the proceeds of the sale. Such a collection may not be leg-
ally assured but in practice it is fairly effective.
Although 90.7 and 82.4 percent of the loans obtained from
cooperative and independent shippers, respectively, were se-
cured, a large number represented rather simple security re-
quirements (Table 14). In the case of cooperatives practically
all loans are made to members who already have a marketing
agreement with the association. The crop lien and other forms
of security such as the endorsement are most widely used by in-
dependent shippers.
Many growers object to giving security, but the giving in it-
self is not bad. In fact, it could be argued that the credit system
would be improved if more rigid requirements were adhered to
by the various agencies. The difficulty in giving security under
present property laws is the additional expense and trouble of
obtaining loans when a real estate mortgage is required. It
would greatly simplify matters and over a period of time reduce
costs in giving mortgages if growers as well as other real prop-
erty owners could register the title to their holdings. Under the
present system titles are not registered, only the evidence of
title. Consequently, in order to feel reasonably secure a lend-
ing agency in accepting a mortgage feels the need of thoroughly
examining each title to property. It would seem that borrowers
and lending agencies would be justified in seeking legislation
which would permit the registration of title to property and thus






Florida Agricultural Experiment Station


remove excessive costs and delays in transferring titles or in
pledging certificates of title as security.20 A borrower thus equip-
ped with a certificate of title could give a mortgage to his proper-
ty almost as quickly as a loan on a personal note could be ob-
tained.
In the case of truck growers over 75 percent of cash loans
obtained were secured. Almost 40 percent were secured by
real estate or a combination of real estate and other security.
The percentages on the basis of amount loaned were 86.0 and
62.1, respectively (Appendix, Table 6). Similar figures for cit-
rus and citrus-truck borrowers are also in evidence, although the
percentages are not quite so high for the citrus-truck group. Nor
is the percentage of loans secured by real estate so high for citrus
and citrus-truck growers as it is for truck growers (Appendix,
Tables 4, 5, 6). With these percentages existing during the
1937-38 season and with an increasing tendency on the part of
lending agencies to require real estate as security on production
loans the need for simplifying the procedure in providing a real
estate mortgage as security becomes evident.

RELATION OF EQUITY IN BUSINESS TO SECURITY
REQUIREMENTS
Since banks and cooperatives made the largest number of
loans of any type of agency, and since their practices in handling
individual loans can be rather flexible, the security requirements
on loans made by them were compared with the degree of in-
debtedness of the borrower. There were 62, or 73.8 percent, of
the 84 bank loans made to growers who had a net equity in their
business of 75 percent and over; whereas only 49, or 57.6 percent,
of the 85 cooperatives loans were made to borrowers as favorably
situated. Both banks and cooperatives require a higher percent
of their loans, particularly those under $500, to be secured when
the equity is below 50 percent than when the grower's equity is
greater than 50 percent. Apparently the security required when
the equity is low is other than real estate. This is to be expected
because in all probability the real estate is so heavily encum-
bered as to be practically worthless as security. Most of these
smaller loans are secured by crop liens. Bankers rely but little
on real estate security even on larger loans. They have a high

"See any standard treatment of the Torrens System or the Uniform
Land Registration Act., e. g., Massie, E. C., "The Torrens System A
Manual of the Uniform Land Registration Act," Richmond, 1916.







Production Credit in Florida Citrus and Vegetable .reas


preference for more liquid security and consequently try to avoid
real estate mortgages on short-term loans.

LIFE INSURANCE AS SECURITY FOR LOANS
Since the cash value of life insurance represents a high
grade of liquid security, borrowers were asked to report such se-
curity. Only a few growers offered life insurance, although some
indicated that the ownership of a policy, even though the cash
value were small, strengthened their credit position, especially
in borrowing on a personal note. To obtain a loan for operating
a business in which a high risk is involved, the pledging of life
insurance assets from the standpoint of personal finance is high-
ly questionable. More of it might be done, however, were it not
for the fact that 48.6 percent or almost one-half of the growers
who borrowed for production purposes carried no life insurance
(Table 15). Another 29.8 percent carried less than $5,000, a con-
siderable portion of which had only a small cash value. The
average cash value of insurance carried by 386 borrowers was
$576; however, on the basis of the above percentages it is ob-
vious that the volume accounting for this average figure was
represented in a rather small percentage of the larger policy
holders.

TABLE 15.-LIFE INSURANCE CARRIED BY 389 CITRUS AND TRUCK GROWERS WHO
BORROWED FOR PRODUCTION PURPOSES, FLORIDA, AUGUST 1, 1937.

Life Insurance
(face surane Number of Growers Percent

None 189 48.6
Under $5.000 116 29.8
$5,000 $9,999 42 10.8
$10,000 $24,999 30 7.7
$25,000 and over 9 2.3
Not reporting 3 0.8
Total 389 100.0

BUDGETING AND REPAYMENT PLANS
In recent years cash lending agencies have given increasing
attention to the budgeting of loans. For the borrower budgeting
has two advantages, namely, interest is paid only as funds are
advanced and funds will be made available when most urgently








TABLE 16.-THE NUMBER or BUDGETED AND NON-BUDGETED CASH LOANS OBTAINED BY 3011 FLORIDA
SOURCE OF CASH CREDIT, 1937-38.


CITRUS AND TRUCK GROWERS, BY


Budgeted
Non-budgeted


Budgeted
Non-budgeted


Budgeted
Non-budgeted


Total


73
77

21
29


116
45


361


0

I-)
0
g

-"0




SI?




9 7
29 8


5
14


9
16


82


3
321





21


2 35 6 4
8 21 5

37 citrus-truck growers
2 4
1 2 3
1 2

137 truck growers
26 24 4
5 4


44 86 6 20


~Although records were obtained from 389 growers, only 301 borrowed cash. These 301 obtained 364 loans.
'Information on budgeting loans was not available for three loans, two from banks and one from brokers and
commission firms.


10
1a








3







17 2
3 3


34 5


6
2 1


33
7


52


-----






Production Credit in Florida Citrus and Vegetable Areas 39

needed. For the lender it permits closer supervision of the loan
and helps to assure the use of the funds for the purpose in-
tended. From the 301 cash borrowers interviewed information
was sought as to the number of loans which were budgeted. Of
361 loans upon which information was obtained 210 were classed
as budgeted. For citrus and citrus-truck growers the number of
budgeted loans is slightly less than the non-budgeted ones. How-
ever, for truck loans the number budgeted was over two and a
half times the non-budgeted (Table 16).
As shown in the accompanying table, banks made the small-
est percentage of budgeted loans. Although it is the policy of
production credit associations to require all loans to be budgeted,
in practice some are not because at the time the loan is made the
entire amount is needed. This may be especially true with a cit-
rus grower who borrows to cover only one application of fertiliz-
er or spray or dust. As will be noted, 26 out of 31 loans obtained
by truck growers from production credit associations were
budgeted. In the case of truck growers the need for funds in
general is more widely distributed seasonally. The purchases of
fertilizer, seed, spray and dust, labor and marketing supplies are
scattered throughout the production and marketing period. Loans
from cooperatives, which exercise rather close supervision over
Dollars I I I I I

150,000 -" "_
/

125,000 Jacksonville* /

100,000 /

75,000 -- -

50,000 / Sanford.** / ,
/ -- / Florida Citrus
25,000 .

0 I I
Aug. Sep. Oct. Nov. Dec. Jan.Feb. Mar. Alpr. May Jun. July

Fig. 2.-Seasonal variation in amount loaned by three production
credit associations, each representing a different type of farming,
Florida, average 1936-37 and 1937-38 seasons.
*Loans in Hastings potato area predominate.
**Loans in Sanford celery area predominate.
**Citrus loans only-entire state.






40 Florida Agricultural Experiment Station

loans, were mostly budgeted. In fact, all truck loans from this
source were budgeted and 35 of the 56 citrus loans were.
That the budgeting of truck loans is more feasible and at
the same time more desirable for both borrowers and lenders is
indicated by the accompanying figure showing the seasonal va-
riation in amount loaned by production credit associations ope-
rating in three different types of farming areas (Fig. 2). It will
be noted that the Jacksonville association, whose lending opera-
tions are heavily weighted by loans in the Hastings potato area,
has five months, from October through February, when the ad-
vances are heavy. The Sanford association, with the bulk of
its loans to Sanford-Oviedo celery growers, has an active lending
period of seven months, from August through February. One
can hardly say there is a peak month in the Sanford area since
the advances in the months of September, October and Decem-
ber are about equally divided. With citrus loans the major ad-
vances are made in a four months period from April through
July with May, June and July being by far the heaviest months.
It is during this period when little or no returns are received
from fruit and summer applications of sprays and insecticides
along with fertilizer are being made. Thus it is seen that while
it is desirable to budget citrus loans it is even more important
to budget truck loans. That lending agencies are cognizant of
this is borne out by the reports from the growers representing
the different types of farming.
While citrus loans may require a shorter period of budgeting
than truck loans, their schedule of repayment is just the reverse.
Since the average citrus crop is marketed over a period of sev-
eral months it is important for both the borrower and lender
that the repayment schedule correspond with the marketing
period. In the case of truck loans there is usually a peak mar-
keting month for each crop, although this varies with the crop
and area. For example, the Jacksonville association reports
repayments in May almost double those of any other month,
while in the two months April and May 56 percent of the repay-
ments for the entire year were made. In the case of the San-
ford association repayments are heavy during the months of
March, April, May and June, with the peak being in March.
However, in the case of citrus loans substantial repayments were
made to the Florida Citrus Production Credit Association over
a six-months period from December through May. The peak






Production Credit in Florida Citrus and Vegetable Areas 41

repayment period on citrus loans was in March for the two-year
period ending with the 1937-38 season (Fig. 3).
Dollars I I I I I

150,000
Jacksonville*
125, 000 -

100,000 Florida Citrus*** /\\1

75,000 oo/ \ _

50,000 -
Sanford** / / \\
25,000 /


Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.Apr. May Jun. July
Fig. 3.-Seasonal variation in loan repayments to three production
credit associations, each representing a different type of farming, Flor-
ida, average 1936-37 and 1937-38 seasons.
*Loans in Hastings potato area predominate.
**Loans in Sanford celery area predominate.
***Citrus loans only-entire state.
MERCHANT CREDIT FOR GROWERS
Merchants represent a rather important source of operating
credit for Florida citrus and vegetable growers, especially vege-
table growers. Of the 675 cash and merchant loans obtained by
389 growers interviewed, 46 percent were from merchants. In
amount 25.4 percent was furnished by merchants. This does not
include installment loans. Over 95 percent of merchant credit
for citrus and truck growers consisted of fertilizer, spray and
dust, grove caretaking and seed. The balance was for miscel-
laneous items including some consumption loans.
The extent to which merchant credit was used varied con-
siderably between types of growers. Of the total number of
loans obtained by citrus growers 35.4 percent represented mer-
chant credit as compared with 46.3 for citrus-truck and 53.2 for
truck growers. In amount the respective figures were 11.7, 17.9
and 33.2 (Table 17). Considering only the number of borrow-
ers, regardless of the number of loans, 38.2 percent of the citrus,
64.5 percent of the citrus-truck and 64.2 percent of the truck
growers who obtained either cash or merchant credit borrowed
from merchants (Table 19). Of the total amount of merchant











TABLE 17.-MERCHANT CREDIT1 COMPARED WITH CASH AND ACCORDING TO TYPE OF GROWER, 389 FLORIDA GROWERS, 1937-38.


All Types
Merchant
a---
nrt Jt
^U CI
"T S~ S
s14 "r- o


Number of
loans

Percent

Amount of
loans

Percent


111

16.4

38,862

4.4


Average size
of loan $ 1,312 $ 932 $ 350


'Does not include installment merchan


TYPE O
Citrus Growers


F GROWER
Citrus-Truck Gro


iviercnant ivierchna






232 57 25 95 32

100.0 24.6 10.8 100.0 33.7

$244,9571$ 22,6251J 5,866 $ 87,396|$ 13,803$

100.0 9.3 2.4 100.0 15.8

$ 1,056$ 397$ 235 $ 925|$ 431 $


t credit.


wers Truck Growers
nt Merchant


0 5 0o



12 348 111 74

12.6 100.0 31.9 21.3

1,833 $552,983 $149,936 $ 31,163

2.1 100.0 27.6 5.6

154 $ 1,5891$ 1,351 $ 421


~


r






Production Credit in Florida Citrus and Vegetable Areas


credit reported by all three types of growers truck growers bor-
rowed 80.4 percent of it, yet they borrowed but 56.3 of the total
cash obtained. Citrus growers, on the other hand, obtained 12.7
percent of the merchant credit and 32.8 percent of the cash
credit.
It is readily seen that truck growers, because of the high
risk involved, the nature of their business, or the greater need for
credit, turn to merchants much more extensively than do citrus
growers.
Growers whose equity in their business was 75 percent and
over used a much smaller amount of merchant credit per acre
of crops than when the equity was 50 percent or below. Truck
growers whose equity fell below 25 percent used five times the
amount of merchant credit as did those whose equity was over
75 percent (Table 18). There is not such a pronounced rela-
tionship between equity in business and the amount of cash cred-
it used. One might expect those with high equities to use more
cash than those with low equities. This does not follow because
growers with high equities not only use but little merchant
credit but also have less need for cash credit. It is apparent that
they are able to finance a large part of their operating expenses
out of their own funds.
Although not consistently true, especially for merchant cred-
it to citrus growers, there is a decided tendency for effective in-
terest rates to decline as the percent of equity increases. (Table
18).

SIZE OF MERCHANT LOANS
The average size of the 311 loans obtained by the 207 bor-
rowers who borrowed from merchants was $724. Per borrower
the average amount was $1,088. Just as a larger percent of
truck borrowers received advances from merchants, so were
these advances larger than those obtained by citrus growers.
The average size of merchant loan to truck growers was $979
as compared to $347 for citrus growers and $355 in the citrus-
truck classification (Table 19).
Fertilizer loans were by far the largest. This type of loan
averaged $1,351. for truck and $431 and $397, respectively, for
citrus-truck and citrus growers. All other types of merchant
loans averaged $421, $154 and $235, respectively (Table 17).






Florida Agricultural Experiment Station


TABLE 18-RELATION OF EQUITY IN BUSINESS TO THE AMOUNT OF MERCHANT AND
CASH CREDIT, FLORIDA CITRUS AND TRUCK GROWERS, 1937-38.

162* Florida Citrus Growers 176 Florida Truck Growers
Merchant Cash Merchant Cash
Credit Credit Credit Credit
Percent
equity in
business w 1 11





75 & over $11 11.3 $28 6.1 $10 17.1 $36 5.5
50 -74 18 11.7 32 5.9 49 33.2 63 6.2
25-49 25 6.0 20 6.6 32 28.2 70 6.5
Under 25 40 7.1 52 31.1 32 7.1
*Information concerning assets and liabilities was complete on 162 of
the 165 citrus records.




TABLE 19.-NUMBER OF BORROWERS AND AMOUNT BORROWED FROM MERCHANTS WITH
DISTRIBUTION OF BORROWINGS BY TYPE OF PURChASE, 389 FLORIDA CITRUS
AND TRUCK GROWERS, 1937-38.


Number borrowing from all
sources
Number borrowing from merchants
Percent of borrowers borrowing
from merchants
Number of loans from merchants
Amount borrowed from merchants
Average size of merchant loan
Average amount per borrower
Percent merchant borrowing by
type of purchase:
Fertilizer
Spray and dust
Grove care
Seed
Above types not separated
All other


165
63

38.2
82
28,491 $
347 $
452 $

79.4
4.1
9.3

5.6
1.6


48
31

64.5
44
15,636
355
504


88.3
3.3
1.9

6.0
.5


U

d C


176 389
113 207

64.2 53.1
185 311
$181,099 $225,226
$ 979 $ 724
$ 1,603 $ 1,088

82.8 82.7
2.9 3.1
... 1.3
9.3 7.5
1.5 1.9
3.5 3.5






Production Credit in Florida Citrus and Vegetable Areas 45

PURPOSE OF MERCHANT LOANS
Of the $225,226 in merchant credit obtained by the 207 bor-
rowers 82.7 percent was for fertilizer; 7.5 percent was for seed;
the remaining 9.8 percent was for spray and dust, grove care and
miscellaneous, and a combination of these items with fertilizer
and seed where the respective amounts could not be separated in
the account. By type of grower, fertilizer was most important
for citrus-truck growers; however, for none of the three types did
it fall below 79 percent of the total amount of merchant credit ob-
tained (Table 19).

COST OF MERCHANT CREDIT
In relation to the cost of cash loans, growers paid dearly for
merchant credit, particularly to fertilizer agencies from which
the greatest amount of such credit was obtained. There were 193
growers who obtained 200 fertilizer loans for which the effective
interest rate averaged 22.8 percent. Other types of merchant
credit were obtained by 78 growers representing 111 accounts for
which an effective rate of 7.7 percent was paid (Table 20). In
comparison with these figures the effective interest rate on cash
loans was 5.9 percent (Table 5).
There was a wide variation in effective rates paid for fertiliz-
er credit by truck as compared with citrus growers. For the
former the rate was 24.3 percent and for the latter 13.0 percent.
This wide variation cannot be easily explained. The most ob-
vious explanation for a part of the difference is to be found in the
term of loan. Citrus fertilizer loans averaged 6.9 months, while
truck growers repaid their advances within 4.5 months on the
average. Since it is the difference between the time and cash
price which is the chief factor in making for a high effective in-
terest rate, this difference in term is significant. Term alone,
however, does not explain the difference. It appears that citrus
growers when buying fertilizer on credit can drive a harder bar-
gain than truck growers. This is, no doubt, related to the risk
factor as reflected by the higher percent equity the average cit-
rus grower has over the average truck grower. The fact that 60.3
percent of citrus growers who borrowed from merchants re-
ported they could have borrowed cash for such purchase, while
only 46.9 percent of truck growers were so situated, lends cred-
ence to this assumption.







TABLE 20.-EFFECTIVE INTEREST RATES AND TERM OF LOAN ON MER CHANT CREDIT ACCORDING TO SECURITY, 207 FLORIDA CITRUS AND
TRUCK GROWERS, 1937-38.


TYPE OF GROWER


Effective interest rate:
All loans
Secured loans
Unsecured loans
Average term (months):
All loans
Secured loans
Unsecured loans
Percent of loans
Secured (number)
Percent of loans
Secured (amount)


Citrus




a;i



13.0
13.1
13.0


6.9
6.6
7.0


31.6

38.2


Growers Citrus-Truck Growers


0 c




4.9 11.3 23.7 18.6 23.1
5.8 10.9 28.7 28.7
3.5 11.7 23.0 18.6 22.4


5.5
5.7
5.4


52.0

62.3


37.8 25.0

43.2 12.2


3.6 5.2
5.4
3.6 5.1


0.0 18.2

0.0 10.8


Truck Growers


*M





24.3 7.6 21.4
32.4 19.1 29.3
22.4 3.4 19.4


4.5 4.0 4.3
6.0 4.8 5.4
4.1 3.6 3.9


19.8 28.4 23.2

19.2 27.7 20.7


All Three Types
+3
c
Q) I




22.8 7.7 20.2
27.7 15.0 24.6
21.5 4.4 18.9


32.1


4.9
5.7
4.7


26.4

S22.9


1


I

i :


5.3
6.1
5.1


24.0

21.0





Production Credit in Florida Citrus and Vegetable Arcas


SECURED MERCHANT LOANS AND THEIR RELATION TO TERM
AND COST
Slightly over one-fourth in number of merchant loans were
secured, while in amount 22.9 percent were so classed. This se-
curity represents a wide range in character from crop liens and
endorsements to real estate mortgages. But the character of the
security does not always indicate the quality. An endorsement
may be far superior to a second mortgage on real estate. Hence,
in considering security on merchant credit no attempt will be
made to measure its quality. At best, the term "secured" can
only be used to denote that the merchant was not satisfied with
a personal note or open account in making the advance.
The cost of secured merchant loans was higher than for un-
secured loans, even though the term of the loan over which fixed
credit charges could be distributed was longer. For all merchant
credit the effective interest rate was 20.2 percent, while on se-
cured and unsecured loans the rate was 24.6 and 18.9 percent,
respectively. Yet the term on secured loans was 5.7 months as
compared to 4.7 months on unsecured (Table 20). Obviously one
reason for the higher rate on secured loans was the additional
cost involved in offering security. Furthermore, where security
was given it was usually not offered by the borrower but re-
quired by the merchant. Thus, the financial condition of the
borrower was indicated to be precarious and in such cases there
was little tendency for the agency extending credit to keep cash
discounts allowed and other charges at a minimum. Neither was
the borrower in a position to make an effective bargain. On the
other hand, in many instances where security was not offered
the borrower's credit position was perhaps such as to command
a nominal discount as well as to escape security obligation.

INSTALLMENT CREDIT
Merchant installment credit does not occupy a very promin-
ent place in short-term borrowings of Florida citrus and vegetable
producers. Out of the 389 growers interviewed only 63 install-
ment purchases were reported, which represent 8.5 percent of the
total number of all types of loans and only 3.4 percent of the to-
tal amount borrowed (Table 4). These 63 installment purchases
represented $31,340 in credit, the average size being $497 (Table
21).
The cost of installment credit when reduced to an effective
interest rate basis occupies a position somewhat between cash






Production Credit in Florida Citrus and Vegetable Areas 41

repayment period on citrus loans was in March for the two-year
period ending with the 1937-38 season (Fig. 3).
Dollars I I I I I

150,000
Jacksonville*
125, 000 -

100,000 Florida Citrus*** /\\1

75,000 oo/ \ _

50,000 -
Sanford** / / \\
25,000 /


Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.Apr. May Jun. July
Fig. 3.-Seasonal variation in loan repayments to three production
credit associations, each representing a different type of farming, Flor-
ida, average 1936-37 and 1937-38 seasons.
*Loans in Hastings potato area predominate.
**Loans in Sanford celery area predominate.
***Citrus loans only-entire state.
MERCHANT CREDIT FOR GROWERS
Merchants represent a rather important source of operating
credit for Florida citrus and vegetable growers, especially vege-
table growers. Of the 675 cash and merchant loans obtained by
389 growers interviewed, 46 percent were from merchants. In
amount 25.4 percent was furnished by merchants. This does not
include installment loans. Over 95 percent of merchant credit
for citrus and truck growers consisted of fertilizer, spray and
dust, grove caretaking and seed. The balance was for miscel-
laneous items including some consumption loans.
The extent to which merchant credit was used varied con-
siderably between types of growers. Of the total number of
loans obtained by citrus growers 35.4 percent represented mer-
chant credit as compared with 46.3 for citrus-truck and 53.2 for
truck growers. In amount the respective figures were 11.7, 17.9
and 33.2 (Table 17). Considering only the number of borrow-
ers, regardless of the number of loans, 38.2 percent of the citrus,
64.5 percent of the citrus-truck and 64.2 percent of the truck
growers who obtained either cash or merchant credit borrowed
from merchants (Table 19). Of the total amount of merchant





Florida Agricultural Experiment Station


and merchant credit. The average rate for all types of install-
ment purchases was 1-.6 percent. Data were not available for
computing the effective interest rate on all purchases. The above
figure is based upon 36 loans amounting to $14,822.
Slightly over 80 percent of the dollar volume of installment
purchases was for tractors and trucks, and most of the remaining
20 percent was for automobiles (Table 22).

TABLE 21.-NUMBER, AMAou"nT AND COST OF INSTALLMENT PURCHASES BY FLORIDA
GROWERS, 1937-38.

a Amount
Type of m t
Grower C Z- u Co ,
o-, Dollars' Percent .i M


Citrus 19 $ 8,070 25.8 $425 15.02
Truck 34 17,180 54.8 505 10.3"
Citrus-truck 10 6,090 19.4 609 11.2'

Total 63 $31,340 100.0 $497 11.6'

'Balance after initial o. down payment.
"Interest data complete on only 9 loans amounting to $2,890.
'Interest data complete on only 19 loans amounting to $8,242.
'Interest data complete on only 8 loans amounting to $3,690.
'Interest data complete on only 36 loans amounting to $14,822.

TABLE 22.-INSTALLMENT BUYING CLASSIFIED ACCORDING TO TYPE OF PURCHASE,
FLORID\ GROWERS, 1937-38 SEASON.
T f Purchase Number of Amount of Average Size
Type of Purchase Loans Credit of Loan


Trucks 18 $11,301 $628
Tractors 16 13,841- 865
Farm machinery 4 422 106
Automobiles 10 4,059 406
Auto supplies 2 56 28
Other 13 1,661 128

Total or average 63 $31,340 $497
'One truck grower account included tools with truck purchase.
'One truck grower account included plows with tractor purchase.





Production Credit in Florida Citrus and Vegetable Arcas


SECURED MERCHANT LOANS AND THEIR RELATION TO TERM
AND COST
Slightly over one-fourth in number of merchant loans were
secured, while in amount 22.9 percent were so classed. This se-
curity represents a wide range in character from crop liens and
endorsements to real estate mortgages. But the character of the
security does not always indicate the quality. An endorsement
may be far superior to a second mortgage on real estate. Hence,
in considering security on merchant credit no attempt will be
made to measure its quality. At best, the term "secured" can
only be used to denote that the merchant was not satisfied with
a personal note or open account in making the advance.
The cost of secured merchant loans was higher than for un-
secured loans, even though the term of the loan over which fixed
credit charges could be distributed was longer. For all merchant
credit the effective interest rate was 20.2 percent, while on se-
cured and unsecured loans the rate was 24.6 and 18.9 percent,
respectively. Yet the term on secured loans was 5.7 months as
compared to 4.7 months on unsecured (Table 20). Obviously one
reason for the higher rate on secured loans was the additional
cost involved in offering security. Furthermore, where security
was given it was usually not offered by the borrower but re-
quired by the merchant. Thus, the financial condition of the
borrower was indicated to be precarious and in such cases there
was little tendency for the agency extending credit to keep cash
discounts allowed and other charges at a minimum. Neither was
the borrower in a position to make an effective bargain. On the
other hand, in many instances where security was not offered
the borrower's credit position was perhaps such as to command
a nominal discount as well as to escape security obligation.

INSTALLMENT CREDIT
Merchant installment credit does not occupy a very promin-
ent place in short-term borrowings of Florida citrus and vegetable
producers. Out of the 389 growers interviewed only 63 install-
ment purchases were reported, which represent 8.5 percent of the
total number of all types of loans and only 3.4 percent of the to-
tal amount borrowed (Table 4). These 63 installment purchases
represented $31,340 in credit, the average size being $497 (Table
21).
The cost of installment credit when reduced to an effective
interest rate basis occupies a position somewhat between cash






Production Credit in Florida Citrus and Vegetable Areas 49

MISCELLANEOUS CREDIT PROBLEMS OF GROWERS
In the preceding interpretation and analysis of data, atten-
tion has been given to a presentation of the general credit picture
as related to cost, source, term, security and the like in connec-
tion with obtaining loans for production purposes. From such a
presentation, general as well as specific problems regarding
credit have been pictured. There are, however, other problems
which confront the credit system and the individual borrower,
some of which will now be considered.

ADEQUACY OF CREDIT AND CREDIT FACILITIES
The use of the term "adequacy of credit" carries wider im-
plications than the amount of credit which can be obtained to
meet what the grower considers his legitimate needs. In addi-

TABLE 23.-ADEQUACY OF CREDIT FACILITIES AS REPORTED BY 3S9 FLORIDA CITRUS
AND TRUCK GROWERS, 1937-3S.




0 C
I l









Not reporting 16 9.7 2 14 950
o_ I o


Total or average


Reporting adequate
Reporting inadequate
Not reporting
Total or average


Reporting adequate
Reporting inadequate
Not reporting

Total or average


165 100.0 127 38


S$1,704


48 citrus-truck growers
27 56.2 23 4 $2,109
14 29.2 12 2 310
7 14.6 2 5 10,025
48 100.0 37 11 $1,954


176 truck
S61.9
23.3
14.8


growers
93
34
10


$2,523
2,575
4,965


176 100.0 I 137 1 39 $2,734





Florida Agricultural Experiment Station


tion to adequacy with respect to amount of funds obtainable
there is the question of availability of credit facilities, grower-
borrower relationships, amount of red tape, excessive costs, and
the like which may influence the grower in making his decision
as to the general adequacy of the credit system. When a grower
reports credit facilities as being inadequate he means they are
unsatisfactory for any cne or more of several different reasons.
It will be in terms of this general satisfaction or dissatisfaction
with the system that the adequacy of credit will be considered.
Of the 389 short-term borrowers, 72, or 18.5 percent, reported
credit facilities inadequate or unsatisfactory. The variation in
these figures was pronounced between the three types of grow-
ers. Only 17, or 10.3 percent, of the citrus borrowers expressed
dissatisfaction, whereas 23.3 and 29.2 percent, respectively, of
truck and citrus-truck growers felt available credit facilities were
inadequate (Table 23).
A great majority of those who were dissatisfied were cash
borrowers or a combination of cash and merchant borrowers. Of
those who borrowed from merchants only there were but 3 cit-
rus, 2 citrus-truck and 7 truck growers who reported "inade-
quate." Yet of the total borrowers interviewed 38 citrus, 11
citrus-truck and 39 truck growers, or approximately 23 percent
of each group, used merchant credit entirely. This comparison is
made to call attention ;o the fact that even though merchant
credit is more costly than cash credit some growers apparently
consider other features 'o be more important than the cost fac-
tor as a measure of their degree of satisfaction. It thus appears
that increasing the cost of credit may not be the most important
consideration for those merchants who wish to discourage credit
sales.
There appears to be no general tendency for growers to ex-
press dissatisfaction with credit facilities in accordance with the
size of their cash borrowings. In the case of citrus borrowers
those procuring on the average the larger loans reported "inade-
quate", whereas with citrus-truck growers it was the smallest
borrowers, and with truck growers the size of loans for borrow-
ers reporting inadequacy was about the average of the group.
The reasons given by the 72 growers for credit facilities be-
ing inadequate are shown in Table 24. That sufficient cash loans
cannot be obtained to reet their needs was the most frequent
reason given. The exten; of borrower bias in this opinion is hard
to determine. It is entirely probable that a cash lending agency






Production Credit in Florida Citrus and Vegetable Areas


in restricting a line of credit to an individual borrower is per-
fectly justified in doing so for any number of reasons. For the
individual borrower, however, who believes his request for cash
credit is legitimate but is forced to obtain credit from merchants,
the objection is a real one. Such a situation requires that he
apply to at least two lending agencies which not only adds to the
time and trouble of obtaining credit but to the cost as well.
Second in importance as an objection to present credit facili-
ties was that the creditor controlled the marketing of the crop.
This attitude was most prevalent among truck growers. Those
borrowers who objected to the control of the marketing of their
crop by the lender did not obtain their loans from any one source.
The complaints were fairly well divided between bank, coopera-
tive, independent shippers and commission firm loans. From the
grower's standpoint the desirability of being able to exercise
freedom in the sale of his product can readily be seen. How-
ever, the fact that in order to procure credit he must give a crop
lien may in itself be indicative of a relatively poor credit posi-
tion. In such a case one cannot condemn the lending agencies

TABLE 24.-REASONS FOR REPORTING INADEQIOATE CREDIT FACILITIES BY 72 FLORIDA
CITRUS AND TRUCK GROWERS FOR 1937-38 SEASON.

Number of Growers
Reason given

U E

Cash obtainable insufficient to meet needs 4 4 10 18
Lender controls marketing of crop 1 1 10 12
Could not obtain cash early enough and
then amount was too small 4 4
Too much "red tape" in borrowing 2 2 3 7
Collection policy of lending agency too
severe following poor year 2 _- -- 2
Refused cash credit entirely 4 4
Interest rate too high 1 1 2
Doesn't like to repay loan out of early
crop proceeds 1 1
Doesn't like to buy "worthless" stock in
production credit association r 1 1
Don't like to give security 2 2
Credit agencies do not understand
farmer's problems 1 1 2
Poor service 1 1
No definite reason given 5 3 8 16

Total 17 14 41 72





Florida Ag cultural Experiment Station


which handle produce for their insistence on handling the crops
on which they hold liens. Why should they assume high risks
with their funds unless they insure to themselves the opportuni-
ty of handling the grower's produce, both as an item of securing
the loan and of increasing the volume of their business? Of
course, lenders who control the marketing of the crop and malic-
iously take advantage of the grower who seems to have no other
opportunity for credit should be condemned by growers and
others alike.
The objection of cooperative members to the control of the
marketing of the crop i:; unjustified. It should be remembered
that the non-borrower cooperative member is likewise bound to
market his crop through the cooperative. Thus the requirement
comes with membership which with rare exception precedes bor-
rowing.
Other reasons given by growers for the inadequacy of credit
facilities include: Too much "red tape", cash loans not available
early enough in season, inability to obtain cash credit, and others
as shown in Table 24. Only two of the 72 dissatisfied borrowers
mentioned the cost of credit as an objection. It is apparent that
growers who find diss tisfaction with the credit system feel
there are more important objections than high cost. This, how-
ever, is not to be wondered at for those growers who must have
credit or else not operate. What one does wonder at is the large
number whose credit costs are apparently excessive yet who did
not register disapproval of facilities. In these cases it is again
apparent that in the case uf getting credit, lack of "red tape", more
lenient collection policy lower security requirements and the
like offset the disadvantage of a higher credit cost in the in-
dividual opinion of growrs. Another reason why growers may
not object to high credit costs is that they do not carefully figure
the costs. If this be the case, as it no doubt is in many instances,
then the education of gr wers with respect to credit costs is of
real importance.

SHIFTS [N SOURCE OF CREDIT
Shifting from one source of credit to another may be de-
sirable and an indication of good business judgment on the part
of the grower. On the ether hand, such shifts instead of being
voluntary may be forced. The grower may find that the agency
from which he has previously obtained credit no longer sees
fit to meet his request and he is, therefore, forced to go else-






Production Credit in Florida Citrus and Vegetable Areas


where. Again, the agency may have adopted a policy which
makes credit from that source, even though available, highly un-
satisfactory. Furthermore, the credit agency may have gone out
of business which makes a shift, as here considered, necessary.
Whatever may have been the specific cause, many of these shifts
reflect a certain amount of confusion and lack of stability by bor-
rowers in relation to credit agencies.
It was found that among the cash borrowers interviewed,
who had borrowed in two out of five of the years ending with
1937-38, 91 had shifted at least once during the period from one
source of credit to another. There were 22 who had shifted two
or more times. In comparison with the 91 there were 163 who
had used the same source of credit throughout (Table 25). These
figures do not equate with the 301 cash borrowers from whom
records were obtained which have been previously considered in
this study. The discrepancy exists because some of the cash bor-
rowers had borrowed in only the year 1937-38, hence could not
have shifted, and others could not accurately give the five-year
history.
In general the growers who did not shift their source of cred-

TABLE 25.--SIrFTs IN SOURCES OF CASH CREDIT, 1933-34 THROUGH 1937-3S.

Number of Shifts Number of Borrowers Average Size of Loans


Citrus Growers
None 72 $1,613
One 25 1,334
Two 10 1,089

Truck Growers
None 83 $2,699
One 34 1.641
Two 5 982

Citrus-Truck Growers
None 8 $ 503
One 10 2,175
Two 6 484
Three 1 280
All Growers
None 163 S2.112
One 69 1.607
Two 21 891
Three 1 280






Florida Agricultural Experiment Station


it during the five-year period borrowed much larger amounts
than growers who did make shifts. The average size of loan
obtained by those who used the same source throughout was
$2,112; whereas with one shift the size dropped to $1,607 and for
two shifts to $891.
Of the 254 growers furnishing adequate information on shift
in source of credit, 35.8 percent changed one or more times dur-
ing the period. It was during this period that production credit
associations came into being. A considerable portion of this
shifting was to these associations; although some of it represented
a shift away from them.
Another indication of the adequacy of credit facilities is to
compare the number of cash borrowers borrowing from a par-
ticular source who also had to borrow from other sources dur-
ing the same season. This comparison is shown in Table 26. The
percent of cash borrowers who had to borrow cash or a combina-
tion of cash, installment or merchant credit from other sources
varied from 25 in the case of the Florida Citrus Production Credit
Association to over 80 for "other" sources. Almost two-thirds of
the growers who obtained cash funds from banks, local produc-
tion credit associations, independent shippers, brokers and com-
mission men, direct government agencies and individuals ob-
tained credit from other sources. The information contained in
Table 26 does not show from what source the first loan of the
season was obtained. For example, many of the loans from
banks were supplemental loans and do not necessarily indicate
that it was the bank which in the first place refused to extend
adequate credit for the season's operation. The same could be
said of the other lending agencies.
A smaller percentage of growers than the percentage that
borrowed from more than one source reported "inadequate credit
facilities". Apparently some growers do not consider it an incon-
venience or a more costly procedure to divide their requests for
credit. As long as growers voluntarily and of their own desire
seek credit from more than one source the credit system may not
appear to be at fault. The fact, however, that some growers do
not report dissatisfaction over splitting their line of credit may be
a case of habitually obtaining funds from separate sources with-
out giving serious consideration as to the desirability of this
method. But when growers divide their credit because of being
forced to do so the systera is at fault. It is at fault because if a
grower cannot obtain sufficient funds from one source yet can












TABLE 26.-NuMBiEBR OF CASIH BORsuOK 13 BY SOURCE, ToGiiTiiEiR WITH il. N .uiiu |{(ioox'IN(; F1'Ou Oiii Smi w's, FjoRmTA 1937-38.

Number borrowing from other sources
-I-

Source C) C) I n
CC CC0 ) 0 a'wz
oCKI -^ 2i o
0 M a0 0 C V O)
S Mo U Z, U-c H M 4V pZU


Banks
Florida Citrus Production Credit
Association
Local Production Credit
Associations
Cooperatives
Growers Loan and Guaranty
Company
Individuals
Independent shippers
Brokrs and commission firms
Direct government agencies
All other


78 11 22 17

20 2 2 1

44 3 19 5
74 7 19 6

6 1 1
19 1 5 6
34 17 6
6 3 1
50 1 26 5
11 4 5


50 64.1 18.4

5 25.0 21.1

27 61.4 12.5
32 43.2 18.1

2 33.3 16.7
12 63.2 36.8
23 67.6 25.0
4 66.7 16.7
32 64.0 37.0
9 81.8 50.0






Florida Agricultural Experiment Station


obtain additional funds elsewhere either the first source is fol-
lowing a too stringent policy or the second a too lenient policy.
The question may be asked from the grower's standpoint as to
why he doesn't obtain his entire needs from the more lenient
source. All too frequently this source provides a limited type of
credit such as fertilizer or other forms of merchant credit. Or
again the funds of the agency may be limited to making accom-
modation loans to tide the grower over a short period or to gain
control of the marketing of the crop. This is often the case with
loans from independent shippers, brokers and commission firms.
Splitting of the line of credit is least pronounced for citrus
growers. In no case do more than 50 percent of the cash borrow-
ers from any agency obtain credit from other sources. Yet for
citrus-truck growers these percentages vary from 20 percent for
borrowers from the Floricda Citrus Production Credit Association
to 100 percent for local production credit associations, individuals
and others. Truck growers occupy a position between citrus and
citrus-truck growers, although much nearer the situation found
for citrus-truck growers. (See Appendix, Table 7.) Here again
evidence shows that the problems confronting truck growers in
obtaining credit are more complex and further from solution
than those facing citrus growers and the problems of the citrus-
truck growers appear even more acute.

CONTROL OVER MARKETING OF CROP
One of the major complaints of growers who reported inade-
quate credit facilities was Ihe control of lending agencies over the
marketing of their crop. The extent of this control on 362 cash
loans is shown in Table 27. For all classes of growers 36.7 per-
cent of the loans bound the grower to market through a specific
agency. With citrus growers 47.3 percent were so obligated, as
were 32.7 percent of the truck growers. The higher percentage
for citrus growers is due to the larger proportion of such borrow-
ers who obtain funds from cooperatives where membership in it-
self binds the grower to market through the association regard-
less of any borrowing operations.
The data in Table 27 clearly indicate that those agencies
whose primary business is lending grant the grower freedom in
selecting his market outlet. Thus banks, production credit asso-
ciations, and other government sources do not generally specify
a marketing agency. However, where the agency has an interest
in a marketing function that interest dictates its lending policy,







Production Credit in Florida Citrus and Vegetable Areas 57

the predominant characteristic of which is to control the market-
ing of the grower's crop. Cooperatives are a notable exception,
where extending credit is considered an opportunity to render
greater service to grower members who are already obligated by
contract to market through their association.

TIME REQUIRED TO CLOSE LOANS
In Table 24 it was shown that the third most important ob-
jection to the existing credit system was too much "red tape." This
criticism is based not only on the trouble and inconvenience of
having to submit information and security requested by lending
agencies, but more particularly the delay in obtaining needed
funds which often accompanies the providing of necessary in-
formation and security.

TABLE 27.-NU-_MBER OF CASiH Lo.Axs OBT.AINL. A CIIRLS AND TRTCK GROWERS
ir WHICH CONTROL OVER THE MARKETING Or THEIR CROP WAS GRANTED, AC-
CORDING TO LENDING AGENCIES, FLORIDA, 1937-3S.


Number of Loans

Market No Market Total
Control Control

Banks 1 81 82
Production credit associations 0 65 65
Cooperatives, including Growers
Loan and Guaranty Company 88 4 92
Individuals 3 17 20
Independent shippers and brokers
and commission firms 39 1 40
Direct government agencies 0 ] 52 52
Other cash sources 2 9 11
Total 133 229 362


The delay growers faced in obtaining funds varied greatly
among different credit sources. Those agencies intimately fam-
iliar with the grower and whose credit policy permits much flexi-
bility in making loans acted in less than a week from date of
application. In fact the majority of loans from banks, coope-
ratives, individuals, and independent marketing agencies were
closed in one day. Whereas, such agencies as production credit
associations, Growers Loan and Guaranty Company, and direct
government sources more remote from the grower and operating






Florida Agricultural Experiment Station


under uniform regulations required a week or more to approve
loans. Growers should recognize that to obtain funds from some
agencies involves delay. Hence, rather than criticize these agen-
cies the grower might well consider his responsibility in mak-
ing application for funds at a sufficiently early date to avoid in-
convenience.

CASH EXPENSES AND CREDIT REQUIREMENTS
Many growers whc borrow for production purposes have
to meet a large proportion of their production expenses by
credit. Citrus borrowers borrowed 40.5 percent of their cash
expenses while for truck growers the percentage was 48.6 (Tables
28 and 29). When it is considered that a portion of the annual
cash expenses does not arise or need not be met until the crop
is marketed, it is evident that a higher percentage of current
operating expense mus; be met by financing than the above
figures indicate.
As the age of citrus groves increased the percent of annual
expenses covered by short-term credit also increased (Table 28).
One might reasonably expect the reverse to be true, since with
increased age returns are better and the grower should be in a
better position to meet production expenses. However, as the
age increases expenses also increase and it appears that it may
be total expense rather than the income which is more apt to
influence the relative amount borrowed. This would be es-
pecially true for those borrowers who follow the policy of "let-
ting the grove carry itself" which usually involves borrowing
to meet all current operating expenses even though the personal
finances of the operator might not require it. It should be noted,
however, that with incr eased borrowings per acre for more ma-
ture groves the increase is in cash rather than merchant credit
or installment purchases.
In the case of truck growers, which are divided according
to producing areas or type of farming, it is found that in general
the larger the expense )er acre the greater the proportion that
is represented by credit. It is in the celery areas where the
greatest cost per acre exists that the highest proportion of ex-
penses are met by borrowing. This larger percentage may be
due to two or more causes. Probably most important is the
greater need for credit as the total cash outlay increased. Also,
credit facilities appear to be more adequate in the Sanford and
Manatee celery areas than in some other areas. This latter ob-









TABLE 28.-SHORT-TERM CASH, COMMODITY AND INSTALLMENT CREDIT WITI CASH EXPENSES PER ACRE BY AVERAGE AGE OF GROVES,
1601 FLORIDA CITRUS GROWERS, 1937-38 SEASON,

Average per Acre of Citrus
Percent
Number Acres Percent e n
Average Age of Groves Number Acres rct Total Credit
(Years) Records Grove Age Group 0 U E xpnses

co 0

6 to 10 14 18.1 4.2 $17 $5 $* $64 34.3
11 to 15 48 46.7 37.0 21 4 1 76 34.2
16 to 20 51 37.8 31.8 32 5 1 86 44.2 4
21 and over 47 34.1 27.0 30 5 1 77 46.8
Totals or average 160 37.9 100.0 27 5 1 79 40.5


*Less than 50 cents.
'Although credit records were obtained from 165 citrus growers, expense data are complete on only 160.








TABLE 29.--SHORT-TERM CASH, COMMODITY AND INSTALLMENT CREDIT WITH CASH EXPENSES PER ACRE BY AREAS, 1681 FLORIDA TRUCK
GROWERS, 1937-38 SEASON.


Area





Hastings

Sanford

Plant City

Manatee

Belle Glade

Pompano

Dade (potatoes)

Homestead

State


26

31

35

15

25

17

6

13

168


Total Acres
per Farm



a a



108.0 84.5

43.7 34.0

15.0 11.2

16.8 13.0

120.5 74.0

76.7 60.0

161.2 27.0

43.5 35.0

64.2 35.0


Truck Acres
per Farm



cs a
a
a


59.8

35.0

11.1

14.4

118.9

76.7

161.2

41.3

53.7


50.5

28.0

8.5

11.5

74.0

60.0

127.0

35.0

28.0


Average per Acre of Truck








015 11 4 114
a3

8 17 3 107


$ 45 $ 11 $ 1 $ 99

132 59 2 273

15 11 4 114

123 32 5 217

11 10 2 67

8 17 3 107

60 14 0 162

12 18 2 110

39 1 19 2 123


'Although credit records were obtained from 176 truck growers, expense data are complete on only 168.


a- a






57.5

70.6

27.0

73.5

34.0

26.0

45.7

28.6

48.6






Production Credit in Florida Citrus and Vrgctable Areas 61

servation is based upon the relatively large proportion of total
borrowings from cash sources; whereas in areas where the per-
centage of total borrowings in relation to cash expenses is lower,
merchant credit and installment purchases are proportionally
higher. For example, in the Pompano area where only 26 percent
of total cash expenses were borrowed, $20 of merchant or in-
stallment credit was obtained per acre as compared to $8 of cash
credit. A similar situation prevails for the Belle Glade and
Homestead areas (Table 29).

LOANS REMAINING UNPAID
Having once obtained funds for production purposes the
grower's problem of credit then becomes one of repaying the
loan when due. In any one year the ability of borrowers to make
payment depends primarily on market and natural hazards; i. e.,
if we assume good intentions and a fair degree of managerial
ability on the part of the borrower and not too exorbitant a debt
load. The extent to which Florida citrus and truck growers
repaid their operating credit obligations for the 1937-38 season
is shown in Table 30. Obviously, no general conclusions can be
drawn as to whether this is a normal situation. It merely in-
dicates what happened in a single year.
Of the loans obtained by citrus growers which were due in
their entirety at the end of the 1937-38 season, 27.6 percent re-
mained unpaid either in full or in part. For citrus-truck and
truck growers the respective percentages were 31.2 and 45.6.
Although the percentage of unpaid or partially unpaid loans was
less for citrus than for truck growers, in terms of the amount
remaining unpaid the truck growers had the better record.
Twenty-two percent of the total amount borrowed remained un-
paid for citrus growers, whereas the percentage was only 14.7
for truck growers.
Mention should be made that the amount of production loans
remaining unpaid for any one crop season cannot be used as a
basis for determining the loss which lending agencies may even-
tually have to take or the extent to which the grower defaults in
meeting his obligations. Only the experience of lending agen-
cies covering a period of years could be conveniently used in
answering this question. Inability of a large number of growers
to repay their loans in a given year represents an unsatisfactory
season for the industry, but if the loans are adequately secured






Florida Agricultural Experiment Station


or the grower's net woith is substantial, the loss to be incurred
by a lending agency may be negligible.
For both citrus and citrus-truck growers the largest per-
centages of loans remaining unpaid to any source were obtained
from independent shippers. Yet for truck growers this same
source shows in relation to other agencies a favorable record of
repayment.
In the number and amount of unpaid loans to banks the
record is no better on the average than for production credit as-
sociations. Certainly in terms of dollars loaned the record of
repayments to the state-wide Florida Citrus Production Credit
Association was far better than to banks. This is significant
since, as will be shown later, a number of bankers expressed an
unwillingness to loan to many borrowers whom they knew were
obtaining funds from production credit associations.
RELATION OF AMOUNT OF UNPAID LOANS TO NET WORTH
When those loans which remained unpaid either in full or
in part are divided according to the percent of the amount bor-
rowed remaining unpaid it is found that for truck growers there
is a decrease in the borrower's net worth as the percent of the
loan remaining unpaid ir.creases (Table 31). Certainly one can-
not attribute this decrease in net worth to the fact that the loan
was unpaid. But the decrease indicates that a low net worth
is symptomatic of the inability of the operator to provide for a
going farm unit. This inability in some instances accumulates
with years of farm operation and for each year the loan is un-
paid a lower net worth faces the grower and lender. Thus, the
increase of liabilities in relation to assets with an increase in the
percent of the loan unpaid for truck growers is not without
significance.
Since the above situation does not prevail for citrus grow-
ers, one might conclude that competition among citrus growers
and especially on the basis of size of operation is not so great as
among truck growers. C -rtainly in coping with natural hazards
and in growing a crop the truck grower is faced with the need
for making more frequent decisions and thus there exists a need
for greater managerial ability as well as a thorough knowledge
of the arts of farming. Where these are lacking the decline in
the net worth of a truck grower is likely to be quicker than that
of a citrus grower, assuming that both types of farming are faced
with equal market risks.







Production Credit in Florida Citrus and Vegetable Areas


TABLE 30.-CASH LOANS UNPAID ACCORDING TO
GROWERS, 1937-38.


Source


Ea S
DP, c&
0~. 0


SOURCE OF LOAN, FLORIDA


Cl
Cl
Cl
C
ClC
0r
C.'


Percent
Sof Unpaid
SLoansSe-
o 0 curedby



o C CS u
C)


Banks
Florida Citrus Production
Credit Association
Local production credit
association
Cooperatives
Growers Loan & Guaranty
Company
Individuals
Independent shippers
Direct government agencies
Other sources
Total


Citrus growers
37 6 16.2 37.8 84.6 50.0

14 3 21.4 3.4 23.7 100.0


145 40 27.6


56.0 70.4 100.0 -
15.8 66.2 16.7i 72.2

1.8 50.0 0.0100.0
11.8 53.6 0.01 50.0
68.2 73.4 0.0 83.3
22.2 40.0 50.0i 50.0
.0 -
22.2 70.3 22.51 60.0


Banks
Florida Citrus Production
Credit Association
Local production credit
associations
Cooperatives
Individuals
Independent shippers
Direct government agencies
Total


Banks
Local production credit
associations
Cooperatives
Individuals
Independent shippers
Brokers and commission
firms
Direct government agencies
Other sources
Total


19 3 1

6 0

3 3 10
6 1 1
3 2 6
3 2 6
8 4 5
48 15 3


24 10 4

31 14 4
24 14 5
7 4 5
20 8 4

6 1 1
38 19 5
7 2 2
157 72 4


Citrus-truck growers
5.8 7.6 87.5 33.3

0.0 0.0 -

)0.0 23.0 23.0 100.0
6.7 .5 100.0 100.0
6.7 33.3 100.0 -
6.7 53.2 74.3 100.0
0.0 44.2 71.8 75.01 25.0
31.2 7.9 33.8 1 40.01 33.3

Truck growers
1.7 17.8 59.4 20.0| 20.0

15.2 17.4 43.3 i100.0 -
8.3 13.6 29.6 92.9i 7.1
7.1 63.4 85.9 25.0
10.0 8.9 19.1 87.5

6.7 1.6 100.0 100.0
0.0 27.0 45.0 10.51 73.7
!8.6 41.2 100.0 100.0
15.6 14.7 38.0 43.11 38.9
1 1_1


'Loans not yet due on July 31, 1938, are not included.











TABLE 31.-CASH LOANS UNPAID ACCORDING TO PERCENT UNPAID PER BORROWER, TOGETHER WITH OTHER FACTORS, FLORIDA GROWERS,
1937-38.


Percent of Cash
Loans Unpaid
(Amount)


Under 50

50 and over


Total


Under 50

50 and over

Total


Number'


Average
Amount
Borrowed


127
$1,727

2,386

$2,141


41

25

66


137
$3,087

1,823

$2,609


Percent of
Amount
Borrowed
Unpaid


citrus growers
18.7

I 79.2

61.1

truck growers
19.3

62.7

31.2


Percent
Cash Re-
ceipts are
Cash
Expenses



93.7

85.0

87.1


81.4

64.7

76.6


Percent
Liabilities Net Worth per
Are of Borrower
Assets


^


14.0

16.1


17.9

31.4

21.7


$15,490
26,407

$22,318


$13,211

7,297

$10,993


'Loans not yet due on July 31, 1938, are not included. Citrus-truck grower records are not included because the
number of unpaid loans in this classification was too small to be used as a basis of comparison.







Production Credit in Florida Citrus and Vegctable A-rcas 65

For truck growers the smaller loans, as indicated by the
amount remaining unpaid, were more in distress than the larger
loans. The reverse was true for citrus growers.

REASONS FOR UNPAID LOANS

With but few exceptions growers failing to repay their 1937-
38 loans in full attributed their failure to low prices or poor crops
or a combination thereof (Table 32). Poor prices and low yields
accounted for over 90 percent of the failures. In general, grow-
ers accepted prices as being beyond their individual control and
the majority attributed crop failures to drought or freeze. Thus
the factors preventing repayment were, in the grower's estima-
tion at least, beyond his control. It is generally recognized that
the reasons given represent the two great hazards confronting
growers. There no doubt were some growers whose prices or
yields were low due to poor management. However, it would
be only natural for such growers to place the blame elsewhere.
This they could do honestly if they did not know wherein they
were at fault.


TABLE 32.--REASON GIVEN BY FLORIDA GROWERS FOR FAII.IRE TO REPAY CASH
LoANx is FULL, 1037-3S SEASON.

NUMBER OF GROWERS
Reasons
Citrus Citrus-truck Truck Total


Poor prices 14 5 40 59
Poor crop 4 6 10 20
Poor crop and
prices 16 1 8 25
Other 0 0 3 3
No reason given 1 1 5 7


Totals


35 13


66 114






Production Credit in Florida Citrus and Vrgctable Areas 61

servation is based upon the relatively large proportion of total
borrowings from cash sources; whereas in areas where the per-
centage of total borrowings in relation to cash expenses is lower,
merchant credit and installment purchases are proportionally
higher. For example, in the Pompano area where only 26 percent
of total cash expenses were borrowed, $20 of merchant or in-
stallment credit was obtained per acre as compared to $8 of cash
credit. A similar situation prevails for the Belle Glade and
Homestead areas (Table 29).

LOANS REMAINING UNPAID
Having once obtained funds for production purposes the
grower's problem of credit then becomes one of repaying the
loan when due. In any one year the ability of borrowers to make
payment depends primarily on market and natural hazards; i. e.,
if we assume good intentions and a fair degree of managerial
ability on the part of the borrower and not too exorbitant a debt
load. The extent to which Florida citrus and truck growers
repaid their operating credit obligations for the 1937-38 season
is shown in Table 30. Obviously, no general conclusions can be
drawn as to whether this is a normal situation. It merely in-
dicates what happened in a single year.
Of the loans obtained by citrus growers which were due in
their entirety at the end of the 1937-38 season, 27.6 percent re-
mained unpaid either in full or in part. For citrus-truck and
truck growers the respective percentages were 31.2 and 45.6.
Although the percentage of unpaid or partially unpaid loans was
less for citrus than for truck growers, in terms of the amount
remaining unpaid the truck growers had the better record.
Twenty-two percent of the total amount borrowed remained un-
paid for citrus growers, whereas the percentage was only 14.7
for truck growers.
Mention should be made that the amount of production loans
remaining unpaid for any one crop season cannot be used as a
basis for determining the loss which lending agencies may even-
tually have to take or the extent to which the grower defaults in
meeting his obligations. Only the experience of lending agen-
cies covering a period of years could be conveniently used in
answering this question. Inability of a large number of growers
to repay their loans in a given year represents an unsatisfactory
season for the industry, but if the loans are adequately secured






Florida Agricultural Experiment Station


LENDING OPERATIONS OF CASH CREDIT AGENCIES AND
MERCHANTS
Having examined the data gathered from grower records in
the light of the grower's response to credit situations and prob-
lems, it will be the purpose of this section to consider credit pol-
icies and problems from the viewpoint of lending agencies.
The basis for this presentation rests on data summarized
from records obtained from cash lending agencies and merchant
firms which extended credit for production purposes to Florida
growers covering the season of 1937-38. A description of the
method of obtaining these schedules has already been given".
The number of records by type of agency is shown in Table
33. In analyzing these records chief attention will be given to
practices, policies and problems of lending agencies rather than
to quantitative data. The reason for minimizing the quantitative
data is variation in coverage of the various agencies. For ex-
ample, all production credit associations operating in the major
citrus and vegetable areas furnished records, as did the majority
of banks, yet in the field of merchant and cash credit from ship-
pers, brokers and commission firms the coverage is not nearly so
complete. Hence conclusions to be drawn from the amount
loaned and the use of Eimilar aggregate figures could not be con-
sidered as being representative of the area under study. But in
pointing out trends, practices and policies the conclusions have
relevance.
Mention might be made also that in the various stages of
analysis not all of the records can be used, in that the particular
phase being analyzed may not be applicable to an individual firm.
For example, a firm which has been in business for only a year

TABLE 33.--NUMBER OF AGENCIES FURNISHING CREDIT INFORMATION.

Type of Agency Number

Banks 39
Production credit associations 6
Cooperatives 32
Shippers, brokers and commission firms 19
Growers Loan and Guaranty Company 1
Direct government sources 2
Merchant 52
Total 151
21See pages 9, 10 and 11.






Production Crcdit in Florida Citrus and Vegetable Areas 67

or two could not provide such information as the trend in the
amounts loaned, extent of losses normally encountered, trend with
respect to security requirements, and the like. Yet in regard to
existing practices these agencies and firms are included.
The estimated amount of credit granted to citrus and vege-
table growers by the agencies interviewed is shown in Table 34.
The amounts shown under merchant credit include only those
amounts for which a credit charge was made. Consequently it
represents only that credit granted for periods greater than 30
days which either bears an interest rate or a price for goods
higher than the cash price or both.
TREND IN LOANS OF CASH LENDING AGENCIES
In order to obtain a picture of the trend in lending operations
of the major cash credit agencies serving citrus and vegetable
growers, information was obtained from 25 banks, 6 production
credit associations, 16 cooperatives, 6 independent shippers and
the Growers Loan and Guaranty Company on the volume of
loans to farmers over the five-year period ending with the 1937-
38 season. These estimates are summarized in Table 35. The
volume of bank and cooperative association loans remained fair-
ly constant during the period. Loans from the Growers Loan and
Guaranty Company and independent marketing agencies de-
creased, whereas production credit associations recorded their en-
tire substantial growth during this period. From these data it
appears that production credit associations extended their activ-
ities during this period by taking on borrowers who had previous-
ly borrowed from the Growers Loan and Guaranty Company and
independent marketing agencies, and by expanding into areas
where cash credit facilities had not been adequate to meet cur-
rent needs.
On the basis of the total volume of loans covering a four-
year period for the 54 agencies summarized in Table 35 it is ap-
parent that production credit needs do not fluctuate greatly from
year to year, even though the trend may change. This is to be
expected in citrus and vegetable areas where cash costs of pro-
duction are high in relation to total expenses and total returns.
It is also evident that since production credit associations were
organized the total volume of cash loans is tending upward. It
is hard to say whether this is due to normal expansion of the in-
dustry, shifting from merchant to cash loans, or to borrowers
obtaining larger amounts of credit than previously because funds







TABLE 34.-EsTIMA.TED A rIUNT LOANED TO FLORIDA CITRUS AND VEGETABLE GROWnERS A(C(RI)IN(G T TYPIE o' AGENCY AND
151 FIRMS INTERVIEWED, FLORIDA, 1037-38


Type of Agency


KIND OF CREDIT,


Number Amount i Average Size
Reporting ; Loaned of Loan


Cash credit:
Banks
Production credit associations
Cooperatives
Growers Loan and Guaranty Company
Independent shippers, brokers and commission firms
Direct government agencies: Emergency Crop and Feed Loan
Faiim Seculriy Administration
Total cash
Merchant credit:
General farm supply stores
Fertilizer companies
Insecticide companies
Caretaking organizations
Hardware and machinery stores
Grocery stores
Cooperatives (grove and supply service)
Total merchant
Total cash and merchant


38 $ 1,839,280
6 2,596,178
27 1,112,800'
1 847,115
17 530,758
1 156.620
1 130,000-
91 $ 7,212,751


$ 129,600
4,202,000:
469,200
131,467
270,220
22,125
491,443
$ 5,716,055
$12,928,806


'Includes some advance of supplies not included under merchant credit.
Estimated by author on basis of county data submitted by Farm Security Administration for 1938-39 season.
'Includes some credit to general farmers as well as citrus and vegetable growers-also there is some duplication in
this figure with general farm supplies, caretaking organizations, cooperatives and independent shippers, since it is cred-
it operations as reported by the central offices of fertilizer companies.
'The number reporting is not the same as for Table 33, since there are duplications in the above classifications of
cash and merchant credit. For example, both a cash lending and a merchant schedule were obtained from the same
firm in some instances.
'Based on an estimated 5,365 loans for a total of $6,658,878. Some banks and independent shippers did not report
the number of loans made.


$ 6
2,7
1,4
9,6
1,0


$1,2


i53
'90
27
26
98
inq

,41


a"


s
a






TABLE .i5.-TRENI) IN VOLUME OF CASH LOANS TO FLORIDA CITRUS AND VEI;GI',TABI.E (GRWKinRS, 10 ,4,-.4 TI()U(;II 107-38 vOR SI .Ei'TE:
AGEN('-ES


Banks

Production credit
associations'

Cooperatives

Growers Loan and Guar-
anty Company

Independent shippers

Totals
Totals (ommitting
Growers Loan &
Guaranty Company)
Totals (ommitting
Growers Loan &
Guaranty Company &
Production credit
associations)
'Data not available.


0 0
S oy
0


25


1937-38




1,863 1,159,200

1,863 $1,159,200


1936-37


1,887 $1 0
a <



1,887 $1,231,500


Loans made
1935-36


1,863 $1,203



1l,863 $1,203.050


1934-35



1, 1 1,175,550
E |



1,851 $1,175,550


6 1,092 3,046,968 873 1,981,079 978 1,573,126 819 1,192,716

16 651 895,025i 693 888,771 710 812,150 729 837,150


88

302

3,996


847,115

166,700p

$6,115,0081


53 3,908 $5,267.893|


93 624,5931

256 188,900

3,802 $4,914,843


S 1,831,513

244 188,200

$5.608,039!


1,809,463

329 287,700

|$5,302,579


'a
S



1,8 1:


1933-:






3 $1


800




439


3,709 $4,290,250 3,795 $3,776,526 3,728 |$3,493,116


S 47 2,816 $2,220,925| 2,836 1$2,309,171 2,817 $2,203,400 2,909 !$2,300,400| 3,052 | $2


'Includes some livestock loans amounting, for the 1937-38 season, to
of the production credit associations' loans.


34






,187.000




935,950




562,200









,685,150


5.8 percent of the bank loans and 14.8 percent
10







Florida Agricultural Experiment Station


are more readily available. Probably the trend upward is due to
the operation of all three forces.
While the above de ta show trends in the aggregate it does not
follow that all agencies within a particular group are going up-
ward or downward. The trend in volume of loans of one agency
doing a large business may more than offset an opposite trend for
more than one smaller agency. Thus, while the aggregate volume
shows no trend for bank loans, only two-fifths of the individual
banks followed this pattern with respect to production loans to
farmers.

TABLE 36.-PERCENT OF CASH LENDING AGENCIES REPORTING A TREND IN VOLUME OF
LOANS A CORDING TO DIRECTION OF TREND.

Percent
17
Agency C

oH 0


Banks 34.3 25.7 40.0
Production credit associations 100.0 0.0 0.0
Cooperatives 30.0 45.0 25.0
Growers Loan & Guaranty Company 0.0 100.0 0.0
Independent marketing Egencies 9.1 63.6 27.2

Total 34.2 35.6 30.2

Slightly over one-fourth showed a downward trend and over
one-third reported an upward trend for the five years ending
with 1937-38. Forty-five percent of the cooperative associations
reported a downward trend, 25 no trend and 30 percent an up-
ward trend (Table 36). Other than for the Growers Loan and
Guaranty Company, whose operations were downward, inde-
pendent marketing agencies had the largest percentage with a
downward trend. Their aggregate loans were also sharply down-
ward.

PERCENT OF BUSINESS OF CASH LENDING AGENCIES WITH
FARMERS
Other than for banks, all loans granted by the cash lending
agencies interviewed were obtained by farmers. Only a relative-
ly small amount of tl e lending business of banks could be so
designated. For 37 barks for which data were adequate only 15.7






Production Credit in Florida Citrus and Vegetable Areas 71

percent of an estimated $12,615,000 in loans and discounts went
to farmers. This included advances to cattlemen and general
farmers, as well as to citrus and vegetable growers. How this
15.7 percent was distributed among the various types of growers
is shown in Table 37.
In general, the banks with the smaller volume of lending
operations granted a higher percent of this volume to growers
than did the larger banks. The larger banks are in larger urban
and commercial centers and consequently a greater proportion
of their business is not in direct agricultural loans.
Indirectly these banks support the short-term agricultural
credit structure to a much greater extent than the 15.7 percent of
their volume of loans would indicate. Through loans to coopera-
tives, independent shippers, brokers and commission firms, and
merchants, bank funds have a far-reaching influence. These loans
are, however, included under the agency dealing directly with
the grower. Consequently, bank loans to growers as here con-
sidered include only those for production purposes in which the
bank deals directly with the grower.

TABLE 37.-RELATIONSHIP Or TOTAL VOLUME OF LOANS AND DISCOUNTS TO PERCENT
OF VOLUME LOANED TO FARMERS, 37 FLORIDA BANKS, 1937-38.


Total Loans and
Discounts


a S


Under $50,000 3

$ 50,000 $99,999 6
100,000 149,999 3
150,000 199,999 2
200,000 299,999 9
300,000 399,999 3
400,000 499,999 2
500,000 749,999 4
750,000 999,999 2
1,000,000 and over 3


Total


Percent of Farm Loans to

C s :-a --J ----

60 E-O 0

15.2 97.5 0.0 2.5
33.2 44.1 48.0 7.9
15.2 84.5 15.5 0.0
20.0 87.5 0.0 12.5
33.6 54.1 44.5 1.4
5.2 87.7 6.9 5.4
16.3 48.4 35.2 16.4
11.9 62.8 32.3 4.9
15.2 8.2 86.8 5.0
8.7 22.1 61.5 16.4

15.7 47.1 46.3 6.6






Florida Agricultural Experiment Station


In discussing lending practices with officers of the larger
banks the impression is quickly gained that bankers prefer to
get their funds to the farmer through recognized farm credit
agencies rather than to deal with the grower directly. By so
doing they are, through an intermediary, providing a cushion
against possible grower losses. Furthermore, they are in a man-
ner delegating funds to a particular agency which, because of its
intimate contact with growers, is in a better position to extend
credit on a judicious basis. This latter reason has not prevailed
in the smaller community where the local banker is well ac-
quainted with most of the bank's potential borrowers.

VARIATION IN COST OF LOANS FROM CASH LENDING AGENCIES
In calculating costs for loans fro mborrowers' records the
variation in interest charges because of size of loan or security
offered was somewhat obscured in the averages. So that growers
may more clearly see how individual circumstances may affect
the price they may have to pay for the use of funds, the prac-
tices and policies of certain lending agencies will now be con-
sidered.
There is no basis for comparing practices of production cred-
it associations, Growers Loan and Guaranty Company, and direct
government agencies since by law or central administrative pol-
icy interest rates are uniformly fixed for each specific agency on
all loans accepted. There is, however, a significant variation in
costs according to size of loan for these agencies due to certain
fixed charges for providing security and in the case of production
credit associations for servicing the loan. It has already been
shown that the costs when reduced to an effective interest rate
vary inversely with the size of loan.
For cooperatives, independent shippers, brokers and commis-
sion firms and banks there is freedom for the individual firm to
vary its charges, particularly interest, in accordance with the cir-
cumstances surrounding the making of each loan. In actual prac-
tice, however, individual cooperatives did not vary the interest
rate among members, but there was a variation of 0 to 8 percent
from one cooperative to another. One-sixth of the cooperatives
interviewed did not charge interest, whereas slightly over one-
sixth charged 8 percent. The most common rate was 6 percent
charged by two-fifths of the associations. The majority of those
cooperatives which charged no interest did not in reality extend
credit on a seasonal basis. Theirs were largely cash advances





Production (Credit in Florida Citrus and Vegetable Areas 73

for periods usually under two or three months just prior to
harvest or while the grower's crop was still in the pool.
A situation somewhat similar to cooperatives prevailed for
independent shippers, brokers, and commission firms. Only two
firms varied their rates in accordance with the size or security of
the loan. Here the range was from 5 percent on large secured
loans to 8 percent for small or poorly secured ones. The remain-
ing firms did not vary their rates among individual borrowers,
but the variation among firms was pronounced. Almost two-
thirds of them did not charge interest, while the remaining one-
third charged either 6 or 8 percent with the former figure pre-
dominating.
The significant feature about cooperatives and independent
marketing agencies in extending credit is that their primary mo-
tive is not to record a profit on lending operations as such, but
indirectly to profit by insuring that a sufficient volume of pro-
duce will be handled. For cooperatives this motive may in some
respects be secondary. They may loan believing it is a desirable
service to render grower-members even though they might not
lose the grower and thus his patronage from their membership.
As previously shown, not only do certain independent marketing
agencies forego the collection of interest on funds advanced but
in several instances it was found that the borrower did not even
pay legal costs when they arose in connection with making a
loan. This, coupled with the fact that normal losses on loans
from these agencies were estimated at 5.0 percent," is indicative
of the underlying purpose in such lending operations. The range
in losses as reported by the independent marketing firms varied
from 1 to slightly over 15 percent.
It remains for the banks to demonstrate how a lending agen-
cy, whose first concern is making a profit from lending opera-
tions, can provide for a flexible system of costs to meet the par-
ticular circumstances surrounding the making of a loan. In Table
38 is shown the number and percent of banks which varied their
interest rate to individual borrowers in accordance with certain
conditions of the loan. Almost one-third of the banks reported
that a lower rate of interest was granted to borrowers who could
provide acceptable security, while an equal number varied the
rate in accordance with the size of the loan or a combination of
size and security. Usually a lower rate was not granted for size
'See Table 42.





Florida Agricultural Experiment Station


TABLE 38.-NUMBER OF BANKS REPORTING VARIATIONS IN INTEREST RATE ACCORDING
TO SIZE OF LOAN, SECURITY OFFERED AND CHARACTER OF BORROWER.


Reason for Varying Rate Number of ent In' te
Banks Percent interest rate
(percent)

Security only 12 31.6 4-8
Size of loan only 6 15.8 6-8
Size of loan and security 6 15.8 4-10
Size of loan, security and character 2 5.3 6-8
To meet competition 1 2.6 6-8
No variation 11 28.9 6-10

Total 38 100.0 4-10


until the loan exceeded $500. Such loans also had to come up to
certain security requirements. As here used, security does not
necessarily mean the pledging of real estate, chattels or collateral,
but the knowledge on the part of the bank that the borrower
could and would be willing to pledge good security if unable to
meet the loan when due. It should not be concluded from Table
38 that all of the 12 banks which reported security as a factor in
affecting the rate of interest charged, reduced their rate to 4 per-
cent. For some the reduction may have been only to 6 percent.
Neither does it follow that the maximum rate in the range shown
was charged by all banks. So it is with the other reasons for
varying the rate.
Almost 30 percent of the banks did not vary their rates to
growers for any cause. The range among these banks was from
6 to 10 percent. One bank charged a uniform rate of 10 percent
on all growers' loans, while another charged 10 percent on the
least desirable loans which it accepted. The most frequent rate
for all banks on loans which did not receive special considera-
tion as to size or security and which were most usually granted
on a personal note was 8 percent. In fact 33 of the 38 banks re-
porting charged 8 percent under these circumstances, whereas
only 4 charged 6 percent, the remaining 1 charged 10 percent as
mentioned above.





Production Credit in Florida Citrus and Vegetable Areas 75

POLICIES AND PRACTICES OF LENDING AGENCIES
There is a wide variation in policies and practices among dif-
ferent types of lending agencies, as well as among different firms
within the same type. Some of these differences result from
legal restrictions which bind one type of agency to a more rigid
policy than another type. Again the variation may arise over
differences in the primary purpose of an agency extending
credit. For example, an independent shipper whose primary in-
terest is handling a volume of produce has quite a different ob-
jective in lending than does the banker who loans for the sole
purpose of receiving income for advancing money. These pur-
poses or objectives in turn affect the lending policy. The ship-
per will be more lenient than the banker. Where differences
exist among firms of the same type they are usually the result of
differing viewpoints and experience on the part of the manage-
ment. The management is also influenced by the kind of farm-
ing followed in its community as to both type and relative prof-
itableness, as well as other factors which enter into the making
of decisions.
Variation in Security Requirements.-One of the widest var-
iations in practices among different types of lending agencies is in
security requirements. While 100 percent of production credit
associations and Growers Loan and Guaranty Company loans

TABLE 39.-PERCENT OF LOANs ACCORDING TO TYPES OF SECURITY TOGETHER WITH
UNSECURED BY SOURCE, 1937-38.

Percent of Loans Secured by

en D 3n
Type of Agency o



Banks 37.3 2.7 24.1 4.0 18.5 2.6 24.0
Production credit
associations 100.0 100.0 100.0 0.0 0.0 0.0 0.0
Cooperatives 83.9 7.0 90.3 0.0 0.0 0.0 8.2
Growers Loan and
Guaranty Company 100.0 0.0 100.0 0.0 0.0 0.0 0.0
Independent shippers 16.8 2.9 39.0 0.0 0.0 0.01 56.1

'One firm reported that the borrower is required to take out life in-
surance, even though it is not pledged as security.





76 Florida .Agricultural Experiment Station

were reported secured by real estate, only 16.8 percent of inde-
pendent shippers and 37.3 percent of bank loans were so secured
(Table 39). These estimates, given by executive officers of the
various agencies, of the proportion of loans supported by differ-
ent types of security do not reflect the exact percentage secured
in actual practice and hence the data cannot be compared with
the security requirements obtained from growers' records as
shown in Table 14. This discrepancy arises from the fact that
certain individual institutions reported that it was their policy,
for example, to have loans backed by real estate mortgages. Al-
though this may have been a general policy, exceptions were
admittedly made. Likewise, when available and offered as se-
curity, production credit associations, cooperatives, and the Grow-
ers Loan and Guaranty would accept stocks and bonds, endorse-
ments, and life insurance in lieu of other security requirements.
Hence, the percentages in Table 39 may be either higher or lower
than those found in actual practice as represented by the loans
made to growers. This is an illustration of the deviation of prac-
tice from policy.
Banks reported the use of three types of security not re-
ported by other agencies, namely, stocks and bonds, endorse-
ments and life insurance. Endorsements are especially favored
by a few banks. These three types of security were not unknown
in practice to the other agencies but it was not their policy to use
them.
The chattel mortgage is required mainly by production credit
associations. These associations follow the policy of requiring
chattels in order that the grower will not lose his operating
equipment in the event he should pledge it for an additional
loan. This not only helps to insure to the association that the
grower's operations will be maintained in case of an adverse sea-
son, but it is likewise considered a Drotection for the borrower.
In general, lending agencies more frequently require real
estate mortgages from truck growers than from citrus growers.
On the other hand, the crop lien is more widely used on citrus
loans. The fact that truck growers usually need a large portion
of their advances at planting time, whereas with citrus growers
much of the lending is done after the new crop of fruit is set and
some indication of the yield can be had even though the price be
still uncertain, may in part explain this variation in security re-
quirements.





Production Credit in Florida Citrus and Iegetable Areas 77

The Use of Operating and Financial Statements.-One of the
best examples of how types of lending agencies vary their prac-
tices due to proximity and familiarity with the grower, as well as
variations in central administrative regulations, is found in the
percent of agencies requiring financial and operating statements
from borrowers. This comparison is shown in Table 40. Pro-
duction credit associations and the Growers Loan and Guaranty
Company universally required financial statements prior to
granting loans. A high percentage of banks had this require-

TABLE 40.-PERCENT OF AGENCIES REQUIRING FINANCIAL AND OPERATING STATEMENTS
oF BORROWERS, 1937-38.







Financial statement:
Requiring 89.7 100.0 31.8 100.0 21.4
Not requiring 10.3 0.0 68.2 0.0 78.6
Operating statement:
Requiring 43.6 100.0 13.6 0.0 14.3
Not requiring 56.4 0.0 86.4 100.0 85.7


ment; however, many banks did not require a statement from
all borrowers. In fact, only about one-fourth of them did. The
remaining percentage made the request dependent upon certain
circumstances. Most generally the statement was required on
loans in excess of $500 and from borrowers with whom the man-
agement was not familiar. Cooperatives and independent mar-
keting agencies did not use the financial or operating statement
very extensively. The managers of these agencies reported that
they were usually familiar enough with the borrower's financial
standing and production record without requiring a formal state-
ment.
Even though not requested, growers can well consider the
desirability of presenting to the lender a financial and operating
statement in making application for a loan. Such statements
commend the grower to the lender who appreciates good busi-
ness methods and as a result his application will generally re-
ceive more favorable consideration.





78 Florida Agricultural Experiment Station

Basis for Limiting Amount of Loan.-It is somewhat diffi-
cult for officers of lending agencies to give in a short statement
their basis for limiting the maximum amount which they will
loan to an individual grower. It appears that banks, regard-
less of a borrower's needs or crop prospects, more generally con-
sider security offered or its availability if needed, and the char-
acter and capacity of the borrower in setting the maximum to
be loaned. This attitude is reflected by over one-half the banks
interviewed. In over 20 percent of the cases the management
frankly admitted that security was the sole criterion. This limit-
ed group apparently is not concerned over the use to be made
of the funds or of the possibility of the loans being repaid from
crop proceeds. They are satisfied if assured the funds loaned
will be repaid even though the security has to be liquidated."
In contrast to this practice, production credit associations and
cooperatives give primary consideration to the grower's produc-
tion needs, and limit the size of the loan on the basis of a maxi-
mum per unit of the estimated yield or a maximum sum per
acre. Obviously security, character and capacity of the grower
is given serious consideration, but however good these may be
the maximum does not exceed certain limits either as to es-
timated needs for production purposes or the limits set on a yield
unit or acre basis.
However, all banks do not operate as described above. Ap-
proximately one-third of them keep within limits comparable to
those set by production credit associations. A smaller group in
addition to adhering to the standards of capacity, security and
character give attention to the grower's needs as a considera-
tion in limiting the maximum amount.
Budgeting, Supervision of Production and Control of Mar-
keting Policies.-As was evident in the analysis of grower sche-
dules a wide variation exists between different types of cash
lending agencies with respect to budgeting loans, supervising
of borrowers and in exercising control over the marketing of a
borrower's crop. In Table 41 is shown the percent of the num-
ber of each type of agency whose policy it is to require one or
more of these provisions in granting loans.

"One banker stated, "We don't care if he throws the money in the
ditch as long as we get it back." His, however, was an extreme state-
ment. In contrast another banker stated that he felt a banker had a
social responsibility not only of making sound loans for the protection
of depositors, as did the first banker, but also of seeing to it that bor-
rowers used funds to the best purpose.






Production Credit in Florida Citrus and Vegetable Areas 79

TABLE 41.-PROPORTION OF CASH LENDING AGENCIES FOLLOWING THE POLICY
OF BUDGETING LOANS, SUPERVISING PRODUCTION, AND CONTROLLING THE MARKET-
ING OF CROPS, FLORIDA, 1937-38.
Supervise NControl
Type of Agency Budget Loans Productin Marketing
Production^ of Crop

Banks 28.2 0.0 0.0
Production credit
associations 100.0 0.0 0.0
Cooperatives 45.5 86.4 100.0
Growers Loan and Guaranty
Company 100.0 0.0 100.0
Independent shippers 64.3 42.9 100.0
Direct government agencies 50.0 50.0 0.0


Fewer restrictions are imposed by banks than by any of the
other agencies. Independent marketing agencies and coopera-
tive associations are more universal in their restrictions. The
data in Table 41 reflect policies which are not always carried
over into practice. For example, 11, or 28.2 percent, of the 39
banks interviewed reported it was their policy to budget loans.
While this was a policy of these banks it did not follow that all
loans to growers were budgeted. Some loans may not lend
themselves to budgeting when the full amount is to meet imme-
diate expenses. Again the bank may deviate in practice due
to the characteristics of the borrower. The same situation ap-
plies to the 100 percent figures shown. They represent a policy
with which borrowers may well be familiar but which may be
deviated from in practice.
Special note should be made of those agencies whose gen-
eral policy it is to supervise production. Such supervision does
not represent a detailed, or a day-to-day, direction of farm ope-
rations. Instead it is more likely to take the form of advising
the borrower when to plant or when to fertilize or spray and
to suggest the quantities to use. In the case of cooperatives this
rather general type of supervision applies but little if any more
to borrower than to non-borrower members. Through their
grove service departments a rather close check is kept on all
member operations to help insure economic yields and to aid
in the production of high quality fruit.





Florida Agricultural Experiment Station


Included in the direct government agencies are emergency
crop and feed loans and Farm Security Administration loans.
The latter agency carefully budgets loans and works out detailed
programs of farm operation with the grower. It is more than
an agency to advance funds, for it combines with its lending a
definite educational and advisory program to aid in the rehabil-
itation of low-income farmers.
The policy of lending agencies, with an interest in market-
ing, to control the marketing of the grower's crop is demonstrat-
ed in Table 41. Here again, however, this policy frequently is
not applied to the point of a legal contract in individual cases.
But where the legal aspects are lacking it is usually understood
that on the basis of a "gentleman's agreement" the borrower
will market through the agency which advances the funds.

LOSSES AND LOAN CARRYOVER" OF CASH-LENDING AGENCIES
From the standpoint of lending agencies the best measure
of success of the above described policies and practices is to be
found in the percent of loan carryovers and losses. Considering
only four of the major cash-lending agencies from which carry-
over and loss information was obtained, it is found that banks
occupy the most favored position (Table 42). Production credit
associations, although having a larger carryover, compare favor-
ably with banks on losses. The situation with regard to carry-
overs and losses is not so favorable for cooperatives, although the
data do not by any means indicate poor results from lending
operations. The majority of cooperative marketing associations

TABLE 42.-PERCENT OF LOANS TO FLORIDA CITRUS AND VEGETABLE GROWERS NOR-
MALLY CARRIED OVER OR LOST ACCORDING TO TYPE OF CASI LENDING AGENCY.

Percent Norm- Percent Norm-
Type of Agency ally Carried ally Charged
Over* off*
Banks 4.8 .2
Production credit associations 8.7 .3
Cooperatives 11.6 1.3
Independent shippers 25.5 5.0

*Percentages based upon amount loaned and weighted according
to volume of loans made in the 1937-38 season.
"Carryover refers to carrying over a loan in part or in full from
one season to the next.






Production credit t in Florida Citrus and Vcgrtabbl .1rras 81

reported losses are negligible. Four associations account for most
of the loss as represented by the 1.3 percent shown. Independ-
ent marketing agencies, whose lending policies and practices
throughout this study have been shown to be lenient, suffer-
ed the greatest loss, the average per dollar loaned being 5 per-
cent.
Loans are usually carried over for a period before being
charged off as losses. It is, therefore, to be expected that the
higher the percent carryover the greater the loss. This is dem-
onstrated in Table 42. Furthermore, the increase in loss is pro-
portionally much greater than the relative increase in carryover.
A few individual firms among independent marketing agencies
reported from 30 to 100 percent of loans carried over resulted in
loss.
REASONS FOR LOAN CARRYOVER IN 1937-38 SEASON
Since it is in loan carryovers that potential losses exist it is
important to note the reasons given by various lending agencies
for these carryovers from the 1937-38 season. For both citrus
and vegetables and for all types of lending agencies low price
was given as the principal cause for loans remaining unpaid.
Next in importance was low yield due to drought or freeze. Al-
though not mentioned as a major factor by banks or coopera-
tives, one-third of the independent marketing agencies reported
character as the chief contributing cause. One production credit
association which had a small loan carryover likewise reported
character as important. The charge was based upon but one
or two loans which had broken down due to the misuse of funds
by the borrower.

ATTITUDE OF CASH LENDING AGENCIES TOWARD PRODUCTION
CREDIT ASSOCIATIONS.
Since the establishment of production credit associations
by an Act of Congress in 1933 there has been considerable inter-
est in the attitude of established cash lending agencies toward
these associations. The attitudes of the three types of agencies
making cash loans in 1938 are shown in Table 43. and are group-
ed according to favorable, neutral and unfavorable. A large
proportion of banks and cooperatives was favorable, or at least
favorable or neutral, toward production credit associations;
whereas almost one-half of the independent marketing agencies
were unfavorable.





Ft",.i.!, Agricultural Experiment Station


TABLE 43.--ATTITUDE OF CASII LENDING AGENCIES TOWARD PRODUCTION CREDIT
ASSOCIATIONS, 1938.

Attitude Banks Cooperatives Independent
Shippers
(Percent) (Percent) (Percent)
Favorable 66.7 71.4 46.2
Neutral 23.1 23.8 7.6
Unfavorable 10.2 4.8 46.2


The reasons back of these attitudes are of primary interest.
Banks reporting a favorable attitude did so mainly because pro-
duction credit associations could grant loans to farmers where
the banks either could not or would not. In expressing the
"could not" reason bankers were not casting reflection upon the
character of the loan, but due to certain banking regulations it
was impossible for the bank to grant credit. Several bankers
indicated their willingness to accept these "could not" loans
were it not for banking regulations. In the case of "would not"
loans it was the opinion that such loans were slightly below
standard for a bank portfolio. Yet bankers in general realized
that both types of loans were needed and that it was desirable
for such an institution as the production credit association to
make them. Regarding loans accepted by production credit
associations which certain bankers said they would not take, it
was found that in general the loss on loans suffered by produc-
tion credit associations, although higher, compares favorably
with the losses incurred by banks on the average. Other rea-
sons given by bankers for their favorable attitude were, "helps
farmer to keep out of shipper's hands," "production credit asso-
ciation operates on a business basis," "puts money in circulation
and gives farmers a chance to operate."
Only four bankers were definitely unfavorable toward pro-
duction credit associations. Two of them felt that the associa-
tions aided in stimulating overproductoin of crops, another dis-
liked losing some of his better customers to the associations,
while the other maintained that production credit associations
being somewhat subsidized and less hampered by banking regu-
lations were a source of unfair competition.
Although cooperatives were generally more favorable to
production credit associations, the reasons given for their atti-





Production Credit in Florida Citrus and Vegetable Areas 83

tude were less clear-cut than for bankers. Almost one-half re-
porting a favorable attitude gave no reason. The majority of
the remaining group believed that the associations were perform-
ing a much-needed credit service for growers. The reason that
production credit associations might reduce the demand on co-
operatives for production credit was notably absent. Only one
cooperative so reported. Apparently many cooperatives are
willing to accept the responsibility of granting loans to their
members.
On the unfavorable side the management of one large co-
operative complained that there was a conflict between a pro-
duction credit association and his cooperative as to which should
loan to growers. The manager felt both agencies should con-
tinue to serve growers, whereas the production credit associa-
tion felt, according to this manager, that the cooperative should
relinquish acceptable credit business to the association.
Independent marketing agencies were evenly divided in their
attitude toward production credit associations. The majority
of those being favorable were citrus marketing firms, whereas
all but one agency expressing an unfavorable attitude were deal-
ers in vegetables. Those favoring production credit associations
did so because they believed the associations were rendering a
needed and satisfactory credit service to farmers. Those op-
posing felt that the associations were extending too much credit,
particularly to large growers, which led to overproduction. This
attitude was most positive and almost unanimous among the
vegetable dealers in the Belle Glade and Pompano areas. None
indicated that production credit association loans were under-
mining their business. Instead, a number indicated they were
perfectly willing to have the associations take care of the de-
mands for credit if they would not make large loans which re-
sulted in expanded production. One shipper went so far as to
state that the growers in general would be better off if neither
shippers nor production credit associations could loan more than
$1,000 to a grower. However much this suggestion might be
questioned, it nonetheless expresses pretty well the trend of
thinking on the part of a number of vegetable shippers in those
areas where the expansion of a few large operators will exert a
measurable influence on central market prices. In these same
areas a good portion of the farmers operating small and medium
sized units expressed a similar attitude.





Florida Agricultural Experiment Station


CREDIT PRACTICES AND POLICIES OF MERCHANTS
As here used, merchant credit refers to the advancing of
supplies and goods for a period of over 30 days and for which
a credit charge is made. Cooperatives which advance credit on
this basis are included in the merchant category. The extent of
such lending by various types of merchants providing data for
this study has previously been given." It will be the purpose
of this section to review briefly practices, policies and problems
involved in extending this type of credit.
VARIATION IN COSTS BY TYPES OF MERCHANT CREDIT
The principal cost on most merchant credit is the loss of
the cash discount. Interest charges, other than those made by
hardware and machinery dealers, are usually secondary, since
some firms do not charge interest but take the cash discount or
ask a higher price for goods purchased on credit. The most com-
mon rate of cash discount offered by all types of merchants in-
terviewed was 5 percent. The next most important was 10 per-
cent, although an equal number of agencies made no provision
for cash discounts (Table 44).
There was, however, considerable variation among the var-
ious types of merchants in the proportion offering different per-
centage discounts. Grocery stores offered no cash discount, and
70 percent of the cooperatives fell into the same classification.

TABLE 44--PERCENT OF FIRMS inY TYPE i 01 MERCHANT OFFERING CASH DISCOUNTS
A(CoRDIN TO TIII PERCE'L(NT UF UDS l'UNT OFEREI), FLORIDA, 1037-38.

Type of Merchant Cash Discount Offered (percent)
25 10 8 5 2 1 None

General farm supplies 50.0 37.5 12.5
Fertilizer companies 36.8 63.2
Insecticide companies 33.3 66.7
Caretaking organizations 9.1 9.1 9.1 63.6 9.1
Hardware and machinery 8.3 41.7 25.0 25.0
Groceries 100.0
Cooperatives 10.0 20.0 70.0

Total 1.5 21.5 1.5 44.7 6.2 3.1 21.5


:'See Table 34.






Production Crcdit in Florida Citrus and IVcgetable Areas 85

In those cases where the borrower was not penalized by losing
a cash discount interest was charged.
The majority of fertilizer companies, notably the larger
firms, tend to follow the practice of granting 5 percent discounts
for cash. However, over one-third of the companies granted a
10 percent cash discount during the 1937-38 season.
That a firm should grant a 25 percent discount as is shown
for 9.1 percent of caretaking organizations requires explanation.
This discount represents the practice of but one firm and applies
only to labor on local groves for which arrangement is made
considerably in advance of the operation.
Cash discounts of 5 and 10 percent offered by hardware and
farm implement dealers usually apply to small implements,
whereas on tractors, trucks, spray machines and the like the dis-
count is generally smaller. Such discount practices do not fol-
low a clear-cut policy but are conditioned by the bargaining
position of buyers, consequently those who purchase on credit
often do not know the amount of discount lost.
In addition to retaining the cash discount as a charge for
credit a large proportion of merchants charge interest. The
distribution of those charging different rates of interest is shown
in Table 45. Six percent was the most common rate for all
groups with the exception of caretaking organizations and gro-

TABILE 45,--PitLI LI ir FIRM, 1i TPe_ 11l MLR(11IIHA CHIAR;IN, INTEREST A(-
r(uRDIN.; Toi TiHE R \I (or I INTREST, FLORIDA, 1037-38.

Type of Merchant Rate of Interest
8 7 6 I Flat 6 | None

General farm supplies 37.5 50.0 12.5
Fertilizer companies 84.2 15.8
Insecticide companies 66.7 33.3
Caretaking organizations 18.2 27.3 54.5
Hardware and machinery 25.0 8.4 33.3 33.3
Groceries 100.0 I
Cooperatives 30.0 ,60.0 10.0

Total 20.0 1.5 53.8 6.2 18.5

.Flat rate" as here used applies to a charge of 6 percent on a 12
months, or less basis: however, when monthly installments are made the
effective rate of interest is slightly over 11 percent.





Florida Agricultural Experiment Station


cery stores. Over one-half of the former made no interest charge
but the latter uniformly charged 8 percent. The practice of
charging a flat rate'" was not widespread. Only machinery
dealers, principally dealers in tractors and trucks, followed the
practice. This was in connection with finance plans of com-
panies national in scope which handled installment credit for
these firms.

SECURITY REQUIREMENTS AND TRENDS
As a general rule, security was not required by merchants
in selling on credit. The vast majority of credit sales was made
on open account or personal note. Where a note was taken only
dealers in farm implements, including tractors and trucks, sell-
ing on the installment plan followed a fairly uniform policy of
asking for security. This usually took the form of a retain certi-
ficate on the equipment purchased. The percentage selling on
open account and by note together with the percentage of firms
sometimes asking for different types of security are shown in
Table 46. Almost one-third of the firms extended credit on
open account, and the replies for those requiring notes would

TABLE 46.-PERCENT or MERCHANT FIRMS EXTENDING CREDIT ON OPEN ACCOUNT
AND PERSONAL NOTES TOGETHER WITH THE PERCENT OF FIRMS OCCASIONALLY
REQUIRING DIFFERENT TYPES OF SECURITY.


Type
of
Merchant


General farm supplies
Fertilizer companies
Insecticide companies
Caretaking organi-
zations

Hardware and machinery
Groceries
Cooperatives

Total


a
0<


37.5 62.5
15.8 84.2
66.7 33.3

72.7 27.3
16.7 83.3
0.0 100.0
10.0 90.0

29.2 70.8


Percent of Firms
Occasionally Requiring Security


U m |
d 0 0 0



40.0 60.0
S56.3 6.2 31.2 6.2
I 1


33.3

10.0 90.0 10.0
100.0 100.0

1100.0 11.1 22.2

4.3 54.3 28.3 17.4 2.2






Production Credit in Florida Citrus and Vegetable Areas 87

indicate that well over 75 percent are unsecured. For example,
all firms dealing in general farm supplies report that they some-
times ask for endorsement or crop liens as security on notes
taken, nevertheless only a small percent of their loans are actu-
ally so secured. Thus the percentages with respect to security
represent not even a policy but merely an occasional practice
in connection with individual loans. The major exceptions are
with implement dealers as previously mentioned, and for coope-
ratives which usually require crop liens.
Perhaps more significant than the security requirements in
1938 was the attitude of merchants concerning their future policy
or practice in requiring security. One-third of the firms report-
ed that in the future they were going to be more exacting in
their security requirements and that a larger percentage of their
loans would be secured. The remainder, with one exception, re-
ported there would be no change in their practices and policies.
The one exception reported a downward trend in security re-
quirements. Fertilizer companies and cooperatives reported a
much stronger tendency to require security than did other types
of merchants. Thus it would seem that growers who in the
past have borrowed from merchants by preference because of
their rather lenient credit policies and practices will find them-
selves more and more confronted with the same requirements
as are more generally established for cash loans. This should
result in an increasing tendency to finance more production
credit by cash loans which should prove to the grower's benefit
insofar as credit costs are concerned.
PREFERENCE OF MERCHANTS FOR CASH OVER CREDIT
BUSINESS
Of the merchants interviewed who extended credit to farmers,
81.6 percent preferred to operate on a strictly cash basis, 16.9
looked with favor on a credit business and 1.5 percent expressed
no preference. If such a large proportion prefer cash, then why
do they extend credit? The answer is "competition" for three-
fourths of those which would prefer a cash business. That is, in-
dividual firms find extension of credit is necessary in order to
maintain or increase their volume of business. This problem
exists for all firms as long as one or more firms in the area make
time sales. Another element of competition not so closely re-
lated to volume is the feeling on the part of certain firms that
there is less price competition on credit business. The grower






Florida Agricultural Experiment Station


who pays cash is in a bargaining position. Of the remaining
one-fourth of the firms which sell on credit, but prefer cash, a
variety of reasons was given including "no real objection to
credit business except it (cash) is simpler," "believes company
should carry its share of the credit load" and "as long as a sub-
sidiary finance company handles the credit business for the firm
it is not much of a problem."
Over 50 percent of the firms expressing a preference for
credit business were fertilizer companies. The principal rea-
son for this preference was that the company had sufficient ope-
rating capital and surplus and saw in credit an opportunity to
put it to profitable use. The element of greater price compe-
tition also entered. In the case of cooperatives it was felt that
their associations were designed to serve growers and if credit
was a service which they could render in accordance with good
business practices there was no justification for them to evade
their responsibility.
Assuming that volume of business could be maintained,
merchants were asked how much they could lower prices if they
operated entirely on a cash basis. Of those firms dealing in fer-
tilizer, including fertilizer companies, general farm supply
houses, caretaking organizations and cooperatives, 44 percent re-
ported that their price on fertilizer could be reduced by 5 percent
and 34 percent by 10 or more percent. Only 22 percent reported
they could not reduce their price. This consisted of cooperatives
and caretakers who were apparently already selling at a cash
price to those who purchased on credit. Likewise, the majority
of firms dealing in seeds, insecticides and small equipment re-
ported that on a strictly cash basis, with volume maintained,
prices could be reduced from 3 to 5 or more percent. Five out
of six dealers in tractors and trucks estimated they could reduce
prices by over 5 percent if all business were on a cash basis.
Two of these six set their estimate at 10 percent or above.

AVERAGE TERM OF ACCOUNTS
Of the merchant firms reporting on term of loan, 43.4 per-
cent made the majority of their loans for six months. The ma-
jority of citrus loans were six months and over while the ma-
jority of vegetable loans were six months and under. Almost
80 percent of all loans from all types of merchants were for six
months and over; however, fertilizer loans would average near-
er five months in term.







Production Credit in Florida Citrus and Vegetabc(l Areas 89

NORMAL LOSS BY MERCHANTS ON CREDIT BUSINESS
For the 55 merchants who supplied information for this
study, it was possible to obtain estimates and some book figures
of losses incurred on credit business over a period of years.
The losses by type of firm are shown in Table 47. The largest
percentage loss of 7.7 percent was reported by two grocery firms.
Hardware and machinery dealers with 7.3 percent normal loss
ranked second. The greater part of this 7.3 percent loss was
reported by dealers in tractors, trucks and heavy farm machin-
ery. Fertilizer companies and general farm supply merchants
reported 4.5 and 4.7 percent loss, respectively. These figures
correspond closely with the 5 percent cash discount most fre-
quently quoted by these merchants.
Insecticide dealers, caretaking organizations and coopera-
tives dealing in farm supplies reported the lowest loss, the range
being from 1.1 to 1.6 percent. The loss of 1.6 percent normally
suffered by cooperatives on the amount of supply credit extend-
ed is but slightly higher than the 1.3-= percent loss normally
charged off by cooperatives on cash loans. The slightly higher
loss on the merchant type of lending is to be expected since in
practice purchases of cooperative members which may appear
to be made on a cash basis, that is, to be paid by the 10th of the
month following purchase, frequently remain unpaid and result
in reluctantly accepted short-time credit.
When the previously described costs, together with the losses

TABLE 47.-PERCENT NORMAL Loss ov MIER(HANT LoxAN A('(CORDING; TO TYPE OF
FIRM, 55 FLORIDA MERCHANT FIRMS.
Amount of
Type of Merchant Number of Short-term N al ss
Type of Merchant Firms Credit in Exten Credit
1937-38 Extended'
1937-38
General farm supplies 5 $ 101,430 4.7
Fertilizer companies 17 3,627,000 4.5
Insecticide companies i 3 469,200 1.1
Caretaking organizations 11 131,467 1.6
Hardware and machinery 9 250,263 7.3
Groceries 2 22,125 7.7
Cooperatives 8 315.508 1.6
Total 55 $4,916,993 4.1
Normal loss represents an estimate or book value figure covering
three or more years operation prior to the 1937-38 season. Obviously it
does not apply to the amount loaned in the 1937-38 season since the
losses at the time of making the survey were not then known. The
amount loaned in 1937-38. however, was used as a basis of weighting
in combining the losses by firms.
"See Table 42.






Florida Agricultural Experiment Station


shown above, are evaluated compositely it is at once apparent
that growers by preference or necessity are maintaining an inef-
ficient credit system. Yet its inefficiency is not the fault of the
individual merchant, for most merchants would prefer to operate
on a cash basis. It represents a system which both borrowers
and merchants have created and over which, operating singly,
they have no control. That merchant credit is costly to grow-
ers needs no further demonstration. Yet merchants apparently
are not making undue credit profits at the expense of the grow-
ers. For example, it might appear that fertilizer companies ac-
cepting the 5 percent discount and charging 6 percent interest
would stand to profit when their estimated losses are 4.5 percent.
However, this difference can be easily absorbed in additional
expenses incurred in handling credit sales. Most large com-
panies have set up distinct credit departments whose duties are
to pass upon credit requests and make collections. The cost of
these departments would need to be assessed before charging
merchants surveyed for this study with making undue profits.
What many growers are actually doing is supporting a mer-
chant credit system which could probably be absorbed by exist-
ing cash lending agencies with but little addition to personnel or
physical facilities. It is probable that a fair portion of mer-
chant credit business would not be acceptable to banks, produc-
tion credit associations, and cooperatives, but that which can be
justifiably extended could possibly be handled by direct govern-
ment agencies dealing in submarginal loans. Only mutual agree-
ment on the part of lending merchant firms to operate on a cash
basis could bring this about. Under present conditions mer-
chants are likely to find a gradual decline in the quality of their
credit risks as more and more growers turn to cash lending agen-
cies. This growers will do as they come to realize that they are
supporting an inefficient and possibly an unnecessary credit
system.
SUMMARY
In the 1937-38 season it is estimated that Florida citrus and
vegetable growers obtained approximately $13,500,000 of short-
term credit from merchants and cash lending agencies.
Based on the cost of obtaining credit, as reported by 389
growers, to borrow $13,500,000 in the manner followed by those
growers, the annual cost of production credit is approximately
$675,000. Of this amount almost $225,000 could have been saved







Production Credit in Florida Citrus and Vegetable Areas 91

had all advances been obtained from cash lending agencies un-
der the same average conditions as prevailed for those who did
borrow from cash sources.
To obtain data for this study 1,000 citrus and vegetable
growers were interviewed, 389 of whom borrowed for production
purposes. Of 653 citrus growers interviewed 25.3 percent bor-
rowed for production purposes as compared with 47.1 and 71.8
percent, respectively, for 102 citrus-truck and 245 truck growers.
Records covering receipts, expenses and borrowing operations
as well as other information pertaining to the farm business
were taken only from those growers and farmers who borrowed
for production purposes during the 1937-38 crop season. Thus
there are included in the study 165 citrus, 48 citrus-truck and 176
truck records. Information on practices and policies was ob-
tained from 151 lending agencies including commercial banks,
production credit associations, shippers, brokers and commission
firms, cooperative marketing associations, direct government
agencies and merchants.
The 389 growers obtained $917,193 in production loans, of
which $660,627, or 72.1 percent, was advanced by cash lending
agencies. The average size of loan was $1,815 and $724, respec-
tively, for cash lending agencies and merchants. Citrus pro-
ducers who borrowed obtained 40.5 percent of their cash ex-
penses as compared to 48.6 percent for truck growers.
Production credit associations furnished 35.2 percent, co-
operative marketing associations, including the Growers Loan
and Guaranty Company, 27.2 percent, banks 16.1 percent, and
independent marketing agencies 14.3 percent of the cash credit
obtained by 301 of the 389 growers who borrowed from cash
sources. The remaining 7.2 percent was furnished by direct
government agencies. The average size of truck, citrus-truck
and citrus loan from all sources was $2,281, $1,417 and $1,443,
respectively.
An average interest rate of 5.3 percent was paid on cash
loans. Of the leading sources of cash credit the highest average
rate of 6.9 percent was charged by banks and the lowest of 5.0
percent by production credit associations. When costs such as
inspection and legal fees are included the effective interest rate
on all loans was 5.9 percent. The effective rate for the Growers
Loan and Guaranty Company was 7.2, banks 7.1, Florida Citrus
Production Credit Association, 6.6, local production credit asso-






Florida Agricultural Experiment Station


ciations 6.0, independent shippers 6.0 and cooperatives 5.4 per-
cent.
The effective interest rate was influenced by the amount
,:nd kind of security offered, size of loan and term of loan. When
a mortgage was given, legal fees were increased and if the term
of loan was short the effective rate was much higher than on
longer term loans. Also, in general, legal fees on small loans
were proportionally much higher than on large loans.
Some type of security was given on approximately 75 per-
cent of the cash loans, while only 26.4 percent of the merchant
loans were secured. There was a wide variation in security re-
quirements among agencies. Government sources and agen-
cies most remote from the grower had the most uniform security
requirements. The greatest flexibility was found among loans
obtained from banks, individuals, and brokers and commission
firms.
Of 675 cash and merchant loans obtained by the 389 growers,
46 percent were from merchants which represents 25.4 percent
of the total amount of cash and merchant credit obtained. Con-
sidering only the number of borrowers, regardless of the num-
ber of loans, 38.2 percent of the citrus, 64.5 percent of the citrus-
truck and 64.2 percent of the truck growers borrowed from mer-
chants. Many of those who borrowed from merchants also ob-
tained funds from cash lending agencies. Eighty-three percent
of the merchant credit was for fertilizer, 7.5 percent was for
seed, and the remaining 9.8 percent was for spray and dust, grove
care and miscellaneous purposes.
Merchant credit, especially for the important item of fer-
tilizer, was costly. There were 193 growers who obtained 200
fertilizer loans for which the effective interest rate was 22.8
percent. The average effective rate on other types of merchant
credit was 7.7 percent. Citrus growers obtained fertilizer credit
at an effective rate of 13.0 percent as compared with 24.3 per-
cent for truck growers.
Installment credit was not of great importance. Only 63
installment purchases were reported by the 389 growers. This
represented but 8.5 percent of the total number of all loans and
only 3.4 percent of the total amount borrowed. Slightly over
80 percent of the amount of installment purchases was for trac-
tors and trucks. The average effective interest rate for all in-
stallment purchases was 11.6 percent.
Growers whose equity in their business was low borrowed






Production C'rdit in Florida( Citrus and 'cgertabli Arras


much more of their requirements from merchants than from
cash agencies. Truck growers whose equity fell below 25 per-
cent used five times the amount of merchant credit of those
whose equity was over 75 percent.
Seventy-two of the 389 borrowers expressed dissatisfaction
with the present system of credit. The most important objec-
tions were that sufficient cash credit could not be obtained to
meet needs and that the lender controlled the marketing of the
crop. Almost two-thirds of the growers who obtained loans
from banks, local production credit associations, independent
shippers, brokers and commission firms, direct government agen-
cies and individuals obtained credit from other sources. Obtain-
ing credit from more than one source is less pronounced for cit-
rus than for truck growers. For all classes of growers 36.7 per-
cent of cash loans bound the grower to market through a speci-
fic agency.
As the age of grove increased, citrus growers borrowed a
higher percent of their cash expenses. Likewise for those truck
crops with the greater expense per acre the higher was the
proportion of cash outlay represented by credit.
Over 90 percent of the growers who failed to repay their
1937-38 loans in full attributed their failure to low prices or
poor crops or a combination thereof.
According to the data from lending agencies, production
credit requests from citrus and vegetable growers do not fluc-
tuate widely from year to year, even though the trend may
change. The total amount of credit extended by all agencies
was upward during the four-year period ending with the 1937-
38 season. The trend was decidedly upward for production
credit associations and definitely downward for the Growers
Loan and Guaranty Company and independent marketing agen-
cies. Bank credit in the aggregate showed neither an upward
nor downward trend.
Lending practices and policies were much more flexible
for some lending agencies than for others. Since government
agencies operate under uniform rules and regulations there was
little flexibility in security requirements and none in interest
rates. Among banks the greatest variations existed. Almost
three-fourths of the banks, for example, varied interest rates in
accordance with security offered, size of loan, character of bor-
rower or combination thereof.
Banks reported that .2 percent of their loans to growers






94 Florida Agricultural Experiment Station

were normally charged off. The respective figures for produc-
tion credit associations, cooperatives, and independent shippers
were 0.3, 1.3 and 5.0 percent.
The principal cost of most merchant credit was the loss of
the cash discount. The most common rate of cash discount of-
fered by all types of merchants interviewed was 5 percent
Second in importance was 10 percent.
Over 80 percent of the merchants advancing credit would
prefer to operate on a cash basis, but are unable to do so be-
cause of competition. Some merchants advance credit because
there is usually less price competition on credit sales.
The normal losses on advances to growers reported by dif-
ferent types of merchant firms are as follows: hardware and
machinery 7.3 percent, fertilizer 4.5 percent, and general farm
supplies 4.7 percent.

CONCLUSIONS AND RECOMMENDATIONS
When the various aspects of this study are considered joint-
ly it is at once clear that there is much room for improvement
in the system of short-term credit for Florida citrus and vege-
table growers. Some aspects of the problem are the excessive
costs as represented by cumbersome methods in handling real
estate and other security, together with high charges for mer-
chant credit. Growers are also handicapped in obtaining ade-
quate funds from a single source and of getting those funds at
the proper time. While less than commonly supposed, many
growers are forced to obtain credit from sources which gain con-
trol over the marketing of a crop and thereby weaken the bar-
gaining position of such growers in selling. Finally the volume
of credit extended because of competition among diverse sources
of credit creates a problem in those truck producing areas whose
market outlet is limited. Through stimulating production,
loose credit practices and policies of agencies can intensify the
price hazard which along with low yield represents the funda-
mental problem to both growers and lenders.
Growers, especially those whose financial position is good,
should scrutinize their source of credit more carefully in order
to obtain funds at the lowest cost and at the same time be as-
sured of a dependable source of credit.
Since the cost and trouble of obtaining short-term credit
is greatly increased when real estate security is pledged, grow-
ers and lending agencies should attempt to simplify the proced-






Florida Agricultural Experiment Station


shown above, are evaluated compositely it is at once apparent
that growers by preference or necessity are maintaining an inef-
ficient credit system. Yet its inefficiency is not the fault of the
individual merchant, for most merchants would prefer to operate
on a cash basis. It represents a system which both borrowers
and merchants have created and over which, operating singly,
they have no control. That merchant credit is costly to grow-
ers needs no further demonstration. Yet merchants apparently
are not making undue credit profits at the expense of the grow-
ers. For example, it might appear that fertilizer companies ac-
cepting the 5 percent discount and charging 6 percent interest
would stand to profit when their estimated losses are 4.5 percent.
However, this difference can be easily absorbed in additional
expenses incurred in handling credit sales. Most large com-
panies have set up distinct credit departments whose duties are
to pass upon credit requests and make collections. The cost of
these departments would need to be assessed before charging
merchants surveyed for this study with making undue profits.
What many growers are actually doing is supporting a mer-
chant credit system which could probably be absorbed by exist-
ing cash lending agencies with but little addition to personnel or
physical facilities. It is probable that a fair portion of mer-
chant credit business would not be acceptable to banks, produc-
tion credit associations, and cooperatives, but that which can be
justifiably extended could possibly be handled by direct govern-
ment agencies dealing in submarginal loans. Only mutual agree-
ment on the part of lending merchant firms to operate on a cash
basis could bring this about. Under present conditions mer-
chants are likely to find a gradual decline in the quality of their
credit risks as more and more growers turn to cash lending agen-
cies. This growers will do as they come to realize that they are
supporting an inefficient and possibly an unnecessary credit
system.
SUMMARY
In the 1937-38 season it is estimated that Florida citrus and
vegetable growers obtained approximately $13,500,000 of short-
term credit from merchants and cash lending agencies.
Based on the cost of obtaining credit, as reported by 389
growers, to borrow $13,500,000 in the manner followed by those
growers, the annual cost of production credit is approximately
$675,000. Of this amount almost $225,000 could have been saved






Production Credit in Florida Citrus and Vegetable Areas 95

ure in giving such security. This might be done by passing
legislation to permit the registration of title to property. Such
titles could then be transferred without delay and with a mini-
mum of cost.
Merchant credit represents a costly system. The credit ad-
vanced from this source could probably be absorbed by existing
cash agencies, including the Farm Security Administration and
emergency crop and feed loan service with but little addition
to personnel or physical facilities. Informed growers are turn-
ing more and more to cash lending agencies, and merchants are
faced with a gradual decline in the quality of their credit risks.
Merchants should, therefore, give serious consideration to ope-
rating on a cash or 30-day basis and leave the granting of credit
to cash lending agencies.
Because of price and production hazards there is need for
both growers and lenders to consider a short-term system of
credit in which average needs and ability to repay are consid-
ered over a five-year period rather than on the basis of a single
season. There are too many growers who follow the practice
of borrowing the same amount each year regardless of the earn-
ings of the previous year. Growers and lenders might well co-
operate on building up a reserve in good years to be equalized
over a five-year period in order to insure a more permanent and
dependable credit system.




University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs