January, 1915 



iTHE CANADIAN HOETIC ULTURIST 



The Use of Capital by Cooperative Associations 



p. C. Hart, Markets I Branch, Department of Agriculture, Toronto, Ont. 



AS a class, farmers in the past have 

 shunned borrowing money. A man 

 who borrowed money was apt to be 

 looked upon as iinefficient. This was 

 due perhaps to the fact that expensive 

 modern machinery was not required in 

 farming amd a comparatively large capital 

 unnecessary. 



With the growth of farming as a busi- 

 ness, however, and the introduction of more 

 and higher priced implements, capital, as 

 it is in any business, became necessary . 

 To wait till this capital is accum- 

 ulated from the annual profits of the 

 farm is a slo'w process, and especially when 

 the machinery for producing extra profits 

 is lacking. And so the farmer to-day, like 

 the business man, borrows money for pro- 

 ductive purposes. This basic principle is 

 that the borrowed capital should be used m 

 such a way as to return not only interest 

 and depreciation, but something over to pay 

 back the capital. 



In Ontario, farmers are so using large 

 amounts of capital aind have become busi- 

 ness men in the true sense of the word. 

 This is an encouraging fact when we come 

 to consider the formation of cooperative 

 societies for business purposes. 



When a group of men is formed for carry- 

 ing out the business operations of organi- 

 zations, capital is necessary. There are 

 two ways of securing this capital : First, by 

 gathering together the cash savings from 

 the individuals in the group ; second, by 

 using the credit of the members. The first 

 is accomplished by selling shares in the 

 company or associatioin, the members pay- 

 ing for the same in cash. Joint stock com- 

 panies are formed on this basis. The cash 

 so obtained is put to the uses intended, and 

 the earnings are returned in the form of a 

 dividend in proportion to the capital in- 

 vested. Where capital is raised for a co- 

 operative association in this way the returns 

 on the capital are fixed at the usual rate 

 of interest, and extra profits are returned 

 to the members in proportion to the busi- 

 ness each gave to the association. 



The second method of raising capital in 

 a cooperative association by the credit of 

 the members is accomplished by taking a 

 joint and several note of the members, 

 or by individual notes. These motes 

 are placed with the bank or other 

 lender, as collateral, and form a line of 

 credit. By this system the actual cash of 

 the members is not used as capital. This 

 presupposes, of course, that the capital so 

 acquired is put to paying uses. 



The disadvantage of the share system as 

 applied to cooperation is that interest must 

 be paid on the capital whether it is in use 

 or not. The cash has been accepted by the 

 association, amd interest must be paid on it. 

 If this interest is six per cent., and if part 

 of the year the money is lying in the bank 

 at three per cent., a certain loss results. 

 By the note system interest is paid on 

 capital only while in actual use. When the 

 money is mot in use, the notes are redeem- 

 ed. And so long as the association is a 

 paying enterprise, the individual member 

 does not need to have cash in the bank to 

 meet his note : Simply his credit is used. 



In acquiring capital for cooperative as- 

 sociations, certain factors must receive at- 

 tention. The most important is that the 

 loaii must be repaid. The business for 

 which it is to be used must be productive. 

 If the business to be undertaken is unsafe, 

 it is unwise to borrow capital under any 

 conditions. Another factor of importance 

 is that provision should be made for de- 

 preciation, where the capital is used for 



tools or buildings which deteriorate. This 

 depreciation account should amount to the 

 full value of the tools or building by the 

 time they would have to be renewed. For 

 instance, if a siirayiii.n outlil tJoug-lYl wrtii 

 such capital will last for ten years, one- 

 tenth of its full value should be put aside 

 each year. ■ In other words, the equipment 

 should pay for itself within its lifetime. 



A third important factor is the rate of 

 interest. 1 his should be as low as pos- 

 sible. The difterence between five per cent. 

 and seven per cent, is, of course, only two 

 dollars per one hundred dollars a year, but 

 this small difterence is important in any 

 going concern. Under the note system of 

 raising capital, the security offered is of 

 the best, and should command a low rate 

 of interest. Supixise. twenty farmers form 

 ajn association and borrow five thousand 

 dollars. If each farmer has unhampered 

 resources to the value of say eight thou- 

 sand dollars, the security behind the five 

 thousand dollars borrowed would be twenty 

 times eight thousand dollars, or one hun- 

 dred and sixty thousand dollars. 



Many cooperative associations in Ontario 

 are endeavoring to do business without cap- 

 ital. Where limited tramsactions are under- 

 taken, this may work to their entire satis- 

 faction, but where the business undertaken 

 has been previously carried on by a capital- 

 ized concern, the association may find itself 

 at a disadvantage in the details o't its busi- 

 ness. With eggs, for instance, the store- 

 keeper pays cash on delivery. If the egg 

 circle is not able to do the same, dissatis- 

 faction of one kind or another is sure to 

 result. In either case the eggs must pay a 

 profit on capital, and it is just a question 

 as to whether it is the merchant's or mem- 

 bers' capital that is to be used. Under 

 certain circumstances endeavoring to run 

 a business without capital would appear to 

 be umbusinesslike. 



When a permanent outfit is required by 

 an association, such as a storehouse by a 

 fruit association, the difficulty is presented 

 of determining the equity each member has 

 in the building. A non-cooperative method 

 of meeting this difficulty is to form a sub- 

 sidary joint stock company to own and 

 control the building. If, however, a co- 

 operative association cannot be so organ- 

 ized as to ow.n permanent equipment, co- 

 operation will not go very far. The diffi- 

 culty could be met by creating .a reserve 

 fund, into which each member pays, irre- 

 spective of when he joins the association. 

 His equity in the equipment is then but a 

 matter of bookkeeping, and if at any time 

 he wishes to withdraw from the association, 

 his share, less depreciation, can be return- 

 ed to him. 



Im any well-conducted business, capital 

 is necessary. If borrowed, it should be used 

 only for productive purposes. These pur- 

 poses should ensure interest, depreciation, 

 and a return of the principal within a rea- 

 sonable time. 



Our readers will be gratified we are sure 

 with the manner in W/hich the proposal made 

 im the November issue of .'The Canadian 

 Horticulturist to have "The Apple" recog- 

 nized as the national dish of Canada, has 

 been approved in influential quarters. That 

 it has already met with the sanction of Sir 

 Geo. E. Foster, Minister of Trade and 

 Commerce, of the Dominion Fruit Commis- 

 sioner, the Ontario Fruit Growers' Asso- 

 ciation, and the Ontario Horticultural Asso- 

 ciation, means much. Watch the progress 

 of this movement and put in a word for it 

 wherever you can. 



NEW AND RARE SEEDS 



Unique collection. Hundreds of varieties adap- 

 ted for the Canadian climate. Perennial and 

 perfectly hardy. Own saving. Catalog: free. 



Perry's Hardy Plant Farm 



ENFIELD, MIDDLESEX, ENG. 



I FOSTER'S i 



Standako 



We have a largfe 

 stock of all size 



FLOWER POTS 



FERN OR BULB PANS 



^ AZALEA POTS 

 and Rimless Pans 



Orders Filltd Promply Send for Trices 



THE FOSTER POTTERY CO., Ltd. 



HAMILTON, ONT. 



FREE 



Write US, ^^lvl^gsoIlle idea of your spraying- 

 needs, and we will forward, absolutely free, 

 a copy of our valuable illustrated work on Crop 

 ^^ Diseases, also full particulars of a 



It isn t a SPPAMOTOR un ess we made it 



best suited to your requirements. We make SPRA- 

 MOTOKS from $6.(K) up. Write us to-day! 

 Made in'Canada. No Duty to Pay. 



Spramotor^Works, Kin^f,.. London, Can, 



EUROPEAN SEEDS 



K 



Order from ENGLAND NOW 



ELWAY' 



QUOTE and CAN DELIVER 



s 



Vetcb and Flower Seeds 



If you have hitherto placed jrour ordera in 

 other quarterc OUR PRICE under present 

 circumetaiicee, will compel you to buy from ua. 



Please write AT ONCE while stocks last for 

 immediate and later delivery : also on contract 

 for next Fall. 



British Sailing to Canada 

 continues all the time. 



KELWAY & SON, TJ^SIdT 



LANGPORT, ENG. 



