March 11, 1938 (18th Parliament, 3rd Session)


John Frederick Johnston (Deputy Chair of Committees of the Whole)


Mr. JOHNSTON (Lake Centre):

No, I
have not, though I have looked into it. No doubt there was an increase in the price of steel and other raw material, and there was some little increase in labour cost. I will admit that since the committee reported ,V,st April, there were increases, but I am g/iing to try to indicate before I conclude that even with those increases in the prices of materials going into the construction of farm implements, the increased prices were not necessary or justified.
What does that mean? I have stated to the house that the annual requirement in farm implements in this country amounts to $51,700,000. This backlog that has grown up because the farmers have not been able to make their annual purchases amounts to $200,000,000. I have a table here which I think gives ample proof that the backlog does exist. We have the average increase on these twelve typical implements which, as I have said,

amounted to 7-8 per cent, but in order to be on the safe side we will say that on the whole line of machinery manufactured by these companies the increase of November 1 amounted to five per cent. Take that together with the three per cent increase in 1936 and you have eight per cent in all. Hon. members will see that on the annual requirement this means an extra amount of over $4,000,000 that must be paid by the farmers, while on the backlog it amounts to some $16,000,000. That is a very serious matter, when we consider the condition of agriculture at the present time.
What do we find with regard to the operation of these companies over the period of years? Number 4 in our conclusions reads:
That the companies engaged in the industry, over the period of their operations as a whole, have made substantial profits on the capital invested in each company.
The International Harvester Company, over the period 1926 to 1935, a low period of production and sale, was shown to have earned a minimum profit of 6-3 per cent on their business. That is not a bad return. With regard to the other great company doing business in this country, the Massey-Harris Company, a loss was shown during this period, but the evidence brought out before the committee would indicate that this loss was not altogether due to the depression, but that other considerations came into the picture.
Now I should like to say a word with regard to the finances of these companies and what they have done for themselves during the time they have been serving the Canadian farmer. Time will not permit me to go into all the companies, but what do we find when we turn to the Massey-Harris Company? First of all, Mr. Speaker, we are wrong when we look upon these companies as being purely Canadian. We find that the Massey-Harris Company does sixty per cent of its business outside of Canada. In 1891, when the Massey and Harris interests were merged, together with some other manufacturers, they had a capital of approximately '$3,500,000, of which only $300,000 was put up in cash, the remainder being given in exchange for the assets of the constituent firms that were merged. In that period, 1891 to 1912, the capital remained at $3,500,000, leaving out of consideration for the moment another $1,000,000 that was put in in 1911. What do we find happening during that period? On a capitalization of $3,500,000 this company was able to pay cash dividends amounting to $11,212,349 and stock dividends of $8,500,000, or total dividends of $19,712,349;

Farm Implements Committee Report
to create a rest account of $6,500,000; to set up a special contingency account of $1,680,000 and to retain unallocated in surplus account $1,061,000, or a total of $28,959,349. That is a very substantial return on a capital which amounted to $3,500,000 at the inception of the company and which remained at that figure until near the end of that period, when an additional $1,000,000 was put in. I am sure no one would say the prices this company charged its customers during that period were not sufficient to pay them a good rate of interest on the original investment, to give their stockholders sufficient in the way of dividends and still leave a very, very wide margin. Such is the situation with regard to that company, and broadly speaking it may be said to apply to many of the other companies, with perhaps a little less force.
Before our committee these companies indicated that they had suffered very severe losses in connection with time sales. That is so. I would desire that all purchasers of farm implements in this country should note the exact situation in regard to this matter. I have here a statement which was furnished to the committee by the auditors and which shows the approximate net sales in Canada of the four big companies, International Harvester, Massey-Harris, John Deere and Cock-shutt Plow-Frost and Wood. During the period under review, 1926 to 1935, the sales of these four companies amounted to $246,740,000. Their bad debt loss in connection with these sales amounted to $12,726,000, or 5-2 per cent. That is too much for these companies to lose, and I think they have done the right thing in increasing the cash payment. The result of that loss, as in all cases, has been that the man who does pay must make up for the fellow who does not pay, and the sooner the farmers of this country come to realize the fact that it will pay them to buy their machinery for cash, the better it will be.
In connection with the increased cost of producing these machines, No. 14 of our conclusions reads:
That the relative increase in the cost of labour has been one of the important elements in the increase of prices occurring between 1913 and 1936.
It was established before the committee that during that period labour costs had increased a full one hundred per cent. The farmer has no quarrel with the labour employed in those factories, but his contention is that if there were a greater number of men employed in the factories, performing more hours of labour, the farmer would be able to have his machinery at a lesser cost. There
is no fight between the farmer and the man employed in the factories. During this period the federal and provincial governments have spent tens of millions of dollars in an endeavour to keep farmers on the land, and to rehabilitate those who are on the land, particularly in the drought areas of western Canada. I suggest there is no group in the dominion which benefits more by those expenditures than do the farm implement companies. They benefit in a direct way.
I suggest to you, Mr. Speaker, and to the house, that the agriculturists are not looking for too much when they ask the farm implement people to make a contribution. But what contribution do we get? Another increase in prices. Having lived in the drought area during the last few years I know of the difficulties experienced by the people there. They have to take the loss; they cannot pass it on, and cannot get away from it. It is their loss. On the other hand the farm implement companies, having, as they claim, made a loss during the drought period, are now passing it on. Not only must the farmer consider his annual requirements, but the one who has not been able to purchase his requirements during that period will be penalized an extra eight or ten per cent to catch up on the backlog.
I have before me a quotation from a speech delivered by Sir Edward Beatty, touching on this point, at a joint meeting of the Canadian Chamber of Commerce and the Kiwanis Club of Toronto on February 5, 1936. I hope my farm implement friends will pay some heed to what Sir Edward had to say in the matter. Although his observations were not made directly to them, I believe they apply. He said:
The business leaders of this country must face facts. Men attracted from farms to cities by high wages offered them by business institutions, and then abandoned to unemployment through no fault of their own, have a legitimate criticism to make of the skill with which private business has conducted its affairs. To deny this is to be smug. For a business man living in comfort-
And these are the words to which I direct the attention of farm implement companies-
-even if his dividends and profits have shrunk to nothing, to tell men who do not know where to obtain their next meal, except from public or private charity, that this is all inevitable, is wrong.
I should like to point out to the farm implement companies that if they made no profits during the period of depression, neither did the farmer. He is not in a position in any degree to pass on his loss. On the other hand
Farm Implements Committee Report
to-day the farm implement companies are not only increasing their prices on the farmer's annual requirements but are calling upon him to pay a penalty on the backlog he was not able to take up during the period of depression. In street parlance, I suggest to the house that it is not playing the game.
Conclusion No. 16 reads:
That it is the opinion of the committee that the cost of cream separators to the consumers should be reduced and with that end in view recommends that this item be placed on the free list.
I am not going to discuss this conclusion in detail, because I believe it will be dealt with by other hon. members representing dairying constituencies. It was proven, however, that with regard to one machine the mark-up over cost amounted to ninety per cent. The cream separator in my opinion may be looked upon as the hand maiden of thrift. Any farmer who has the ambition to augment his income by using one of these machines should have it at the lowest possible cost. For that reason the committee have recommended that cream separators again be placed on the free list, where they had been many years prior to 1930.
Conclusion No. 17 is:
That reduction in the tariff should and does in the long run tend to lower the price level to the farmer, depending on the extent of free price competition in the industry.
Let me give a case or two in point. In January, 1936, tractors valued over $1,400 were placed on the free list. The Caterpillar Tractor Company gave evidence before the committee. As a result of this tariff change on one model of tractor manufactured by this company there was a price reduction of $880, and every dollar of it was passed on to the purchaser. When it is said a reduction in tariff does not amount to anything I would suggest that we take notice of a reduction in price of this kind. There should be reductions such as I have indicated, unless there is within an organization, if not a monopoly, at least an understanding with respect to a way of getting together to defeat the action of parliament when tariffs are reduced.
We find further, that as a result of the tariff reductions in January, 1936, the International Harvester Company of Canada made reductions on 168 items, the Massey-Harris Company on 6 items and the John Deere Manufacturing Company on 103 items. The committee found that while there was competition with regard to sales, there was no competition with regard to prices.
I now direct the attention of the house to conclusions 19 to 22, which deal with the

provisions of the Customs Act and Customs Traiff, affecting the importation of farm implements. The statement is that these measures should be clarified. I shall not read the four conclusions to which I have referred. It is sufficient to say that the inquiry clearly indicated that there were inequalities existing in the application of these regulations, that they were unfair to the importer of farm implements, and that in addition they deprived the dominion treasury of very considerable sums of money.
Let me give an example to illustrate my point. Since 1924 tractors have not been classified as of a class or kind made in Canada. As a result the American parent companies, under regulation of the Department of National Revenue, could have invoiced the tractors to their Canadian companies at the same price as to the American subsidiaries. What was done? They were not so invoiced. The auditor of the committee made a conservative estimate of the amount of income tax that had been lost to the Canadian treasury. His estimate was that at least $400,000 would have been paid into the Canadian treasury by means of income tax had the Department of National Revenue drawn this to the attention of these companies. As I stated at the outset, I hesitated to bring this matter to the attention of the house because of the cost. Let me say that from this one item, many times the cost of the inquiry will be returned to the dominion treasury. In connection with these matters I want to say that I have every confidence that the present Minister of National Revenue (Mr. Ilsley) is doing all that he can and will see to it that his department is a department for the collection of revenue rather than one to curtail the importation of goods into this country.
1 want to say something with regard to the matter of credit-I wanted to speak about a number of other things, but my time is slipping along. The cost of this credit ranged from 24-7 per cent to 50-2 per cent, depending on the time over which it extended and the class of implement purchased. It will need no argument on my part to indicate that no business could carry on under such a load and succeed. The implement companies stated that this was not to be looked upon as an interest charge, that it was put on to induce the farmer to pay cash. I have in my hand two tables, which the International Company worked out for the committee, giving the factory cost of an eight-foot binder. I desire to draw the attention of the farmers of this country to these tables. I believe that if they

Farm Implements Committee Report
realize what it costs to purchase farm machinery on time, they will make a greater effort to buy only for cash.
What do we find with regard to the increase in the cost of these machines? Back in 1913 the factory cost of an eight-foot binder was $75.83. In 1930 this cost had increased to $138.39. That was the year in which the right hon. leader of the opposition came into power, and in 1931 there was a further increase to $153.11. In 1935 the factory cost of this binder had dropped to $123.32, a decrease of approximately $30. I remember when this matter was before the house on another occasion the right hon. gentleman said that the companies had given him a letter to the effect that they would not increase prices provided a duty of twenty-five per cent were placed on these machines. He indicated at that time that they had kept faith with him, that they had not increased prices but rather had decreased them.

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