January, ip20 



BETTER FRUIT 



Page II 



Some Observations on Financing Horticulture 



By W. S. Peachy, Vice President of the Seattle National Bank 



THE caption assigned to me indi- 

 cates an unlimited field in which 

 to roam. A pardon must be granted 

 me if I go too far afield or cover any 

 part of my subject too thinly. 



I have been becoming acquainted 

 with the subject of financing fruit to 

 market for three or four years, but will 

 not attempt to present the last word in 

 fruit financing. I want to be as definite 

 however, as I can, and I shall commence 

 with the one definite statement that 

 financing the fruit crop of the Pacific 

 Northwest is now one of the clearly 

 recognized functions of the banks in 

 this field. In fact, I have seen evidence 

 of competition for the preferred class 

 of this business, where previously there 

 had been reluctance. The bankers have 

 changed their attitude only because the 

 fruit growers have done so; because 

 organization and science have in many 

 instances succeeded haphazard opera- 

 tion and speculation. 



Financing horticulture, like financing 

 any other crop, goes from the ground 

 up. Undoubtedly the banking fratern- 

 ity got some of its worst experiences 

 on the ground floor when it was assist- 

 ing in speculation in orchard lands. 

 Sad though it may be, it seems to have 

 been a necessary experience — only on 

 the theory, however, that all things are 

 for the best. Presumably, the lesson 

 had to be learned and let us profoundly 

 hope that the losses of that unhappy 

 time have in many cases at least been 

 offset by those who turned their specu- 

 lative swords into plougshares and by 

 untiring and continuous industry have 

 brought conditions up to the solid state 

 they are in today when the fondest 

 dreams of horticulturists are being 

 realized so far as price is concerned. 



When I was asked to cover this sub- 

 ject my first impulse was to gel among 

 other things — statistical facts and fig- 

 ures that would show clearly the results 

 to banks of financing horticulture, but 

 I abandoned this idea because of insuffi- 

 cient time, and for the further reason 

 that I was disinclined to open old sores, 

 as I undoubtedly would have done by a 

 state-wide search for financial results 

 to banks; and also because on disagree- 

 able subjects like this one does not al- 

 ways bring forth true revelations. The 

 next best way in which I can do justice 

 to the subject is to tell in detail why 

 the bankers are now warming up to the 

 financing of horticulture and how they 

 will be glad to go further under certain 

 conditions. 



In the first place, the banks are 

 pretty well satisfied that the speculative 

 era has departed, so far as land is con- 

 cerned, and that so far as the products 

 are concerned, the tendency to specu- 

 l.nle at present in waning. This is a 

 good place to warn against a revival 

 of land speculation and against any 

 tendency toward fruit speculation. Per- 

 haps the prime basis of this disinclina- 

 tion of bankers in this respect, is the 

 perishable nature of fruit. To add spec- 

 ulation to this objectionable feature 



would and should prove fatal to those 

 desiring banking cooperation in the in- 

 dustry. 



The technicalities of handling finan- 

 cial transactions to facilitate the fruit 

 growing movement are many and va- 

 ried, each with its weakness and mer- 

 its. I shall attempt to discuss a few 

 of the most familiar types. Possibly the 

 oldest and the best known is the ordi- 

 nary rancher crop moving loan, which 

 comes to the bank like any other crop 

 loan and is liquidated as the crop is 

 liquidated. If the borrower is good in 

 the usual respects and a good fruit man 

 besides, with proper equipment for 

 packing and storage this type of loan 

 may well be acceptable to the banker. 

 If the statement of the maker is satis- 

 factory his notes can be rediscounted 

 at the Federal Reserve Bank. Next 

 comes the unit, the strength of which 

 makes all the difference to the banker 

 and his judgment of the paper and also 

 to the Federal Reserve Bank. It means 

 everything to the banks to know that 

 the unit is strong, well organized and 

 equipped. 



The unit must be well organized from 

 every angle. Generous allowances 

 should be made for unit purposes, ware- 

 houses, machinery, advertising and lean 

 years. Of these perhaps the most press- 

 ing requirement is warehousing, for 

 stabilizing the market and to provide 

 against car shortage. This unit paper 

 is likewise acceptable at the Federal 

 Reserve Bank, if the unit statement is 

 satisfactory. Next comes the central 

 selling organization, really a collection 

 of units and on the strength of that 

 organization depends more completely 

 its credit standing with the bank than 

 in the first two named cases. The Fed- 

 eral Reserve Bank of this district has 

 adopted a liberal policy toward fruit 

 crop movement paper, no matter how it 

 originates, and provided it is received 

 from strong initial sources through 

 member banks. 



The paper most desired by the bank 

 is the draft payable at thirty days or 

 so, after date, with documents attached 

 covering the fruit in transit. These 

 drafts can be handled on an interest 

 basis for outstanding time. Some local 

 bankers, depending on the standing of 

 the drawer make advances on these 

 drafts as high as face value, with in- 

 terest adjustment as mentioned above. 

 It is quite essential in some cases to 

 require a margin of the value of the 

 draft to protect against fatalities, which 

 the banker may consider not properly 

 protected by the general credit of the 

 drawer. This practice is particularly 

 in vogue between dealers or factors and 

 the banks. Many of these dealers are 

 highly responsible firms whose ratings 

 are such as to require but ordinary 

 banking precautions. Others are able 

 to do business only under a guarantee 

 or letter of credit from buying sources. 

 Others handle on consignment, a prac- 

 tice mostly in lean years. I am re- 



liably informed that there are firms, 

 often with high sounding names, who 

 establish themselves with an office, 

 make arrangements for space in a ware- 

 house, then attempt to do business with- 

 out any capital to speak of, trusting 

 entirely to their resourcefulness in 

 establishing credit and in holding off 

 settlement until they get returns. The 

 career of this type of dealer or agent 

 is usually short with the bank. 



I mention these numerous means of 

 financing for the stress I wish to put 

 upon the preferred type of customer the 

 bank likes to cooperate with, and that 

 is the organized unit. The organized 

 unit is the thing, in my opinion, and 

 organization should be the main cry 

 of the fruitgrowers of the Pacific 

 Northwest. 



Too little emphasis is placed upon 

 this vitally important subject by a ma- 

 jority of the growers. There is a far 

 too large proportion of the growers 

 totally unorganized; too much of a 

 tendency to play a lone hand — to "go 

 it alone." There is a true saying that 

 "Cooperation is born of adversity and 

 dies of prosperity." Since 1915 pros- 

 perity has come to the fruit growers of 

 the Northwest in steady increasing 

 measure and many of them have for- 

 gotten the lessons of 1912 and 1914, be- 

 coming blinded to the inexorable laws 

 of cause and effect — of action and re- 

 action. 



Yet many of these so-called inde- 

 pendents will concede, under pressure, 

 that a large share of their success is 

 due to the unremitting toil, sustained 

 through the years gone by, of a faith- 

 ful minority of earnest growers who 

 have steadfastly supported local and 

 general associations. These organiza- 

 tions have borne practically the entire 

 burden of the constructive development 

 of the industry. They have supported 

 their vision with their credit and used 

 this credit to finance the construction 

 of a majority of the best buildings now 

 serving the industry, lacking which, 

 this very season appalling losses would 

 have been sustained. They, and they 

 alone, are responsible for the amazing 

 growth of market development and dis- 

 tribution, which is the most important 

 single economic factor in the entire in- 

 dustrial equation. 



Consider the figures descriptive of 

 this accomplishment. Prior to 1910, it 

 is estimated that boxed apples were dis- 

 tributed direct from the Northwest in 

 carload lots to less than twenty-five 

 cities in the entire United States and 

 Canada. The great majority were 

 bought up by a few large speculators 

 and shipped to Chicago, New York, 

 Philadelphia, Pittsburg, and Boston, 

 and from these centers the surplus re- 

 shipped in small lots to other markets. 

 This indirect method of distribution 

 was not conducive to free consumption 

 because the expense of so many hand- 

 lings and combinations of freight 

 charges made the fruit a luxury un- 

 available to the man in the street. 



