cash in bonds and he directed his wife to borrow money from the Production Credit Association-"it is cheaper than using our own."

Mr. TOOTELL. I didn't know about that one. I hope you tell that story far and wide, Mr. Whitten.

I think this essentially is the reason for it and I am glad of the opportunity to get this in the record.

The Production Credit Association charges a member borrower interest only on the number of dollars that he has borrowed for the number of days he has it borrowed.

At the beginning of the year, when the loan is renewed or when the new loan is made, a line of credit is established, we will say; maybe this is $10,000. And a budgeted type of loan is worked out indicating approximately what months he will need how much, and what his repayment schedule will be. And so he pays interest only on that money which he has borrowed and this would add up to probably, in a typical production loan, to something like a fourth of what the interest would appear to be on this $10,000. Six percent interest on $10,000 is $600; isn't it?

I would say probably that his interest bill would typically be $150. It would be about a fourth of that full year's interest.

Mr. WHITTEN. In other words, this man's advice to his wife would be sound. If she had her money invested where it was drawing interest on a 12-month period, it probably would be wiser to borrow money on a few month's basis to meet her needs, under the circumstances?

Mr. TOOTELL. Even if she had to pay 2 percent more as a face interest rate.

PROSPECTS FOR THE YOUNG FARMER

Mr. WHITTEN. Last year, I believe, or the year before, several land-grant college presidents wrote me that they didn't like my questions when I asked, "How many students in the agricultural colleges of the country were studying agriculture." The percentage was tremendously low.

Now there are many reasons why there are fewer and fewer persons in agriculture with much, much higher investment. We know that in the land-grant colleges and the agricultural colleges in most instances are teaching engineering and many other courses. They are complete universities and the interest of the American people is in many directions.

One of the disturbing factors is that I don't know of anyone in my acquaintance who believes that any young man-I don't care how much training he has could borrow money and go into agriculture tomorrow and ever hope to pay out.

Now you may think they can, but I don't know of anybody that has that confidence. It is the only business I know of where that general attitude prevails. I think the record tends to substantiate. what I am saying.

Now if a son inherits a farm and starts from scratch, owning the land that is one thing. But if you borrow and pay prevailing interest rates, I don't know of anybody who feels that it would be a sound investment. In fact, I don't know of anybody that would lend the money to back a person under those conditions.

Mr. TOOTELL. 100 percent?

Mr. WHITTEN. That's right.

Mr. TOOTELL. I think this is true, Mr. Chairman. I think it would be very questionable whether the typical person who would be interested in entering farming, even though he might be quite an able fellow, would be able to carry the loan and eventually pay out if he borrowed the whole sum.

But I am under the impression that there are very few types of business in which that can be done, and I am also under the impression that over time, very few farmers have done this. Typically, young people have been helped by relatives or friends in the community who knew them well and who were willing to stake them, as it were, and go along with them. It is increasingly difficult because of these very high capital requirements in agriculture nowadays.

Mr. WHITTEN. The higher the capital requirement, the greater the risk. We have mentioned this many times and, I believe the record shows, that it used to take about 6 or 7 years for a man, if he had complete crop failures, to lose his land. This means that he put out very little cash each year. Now I think the latest figure is something like 20 months under present agricultural conditions in many areas. If you had a complete failure for 20 months, slightly less than 2 years, you could lose the land investment. If a man can lose his land in 20 months, it might scare a lot of bankers off.

RESPONSIBILITY OF FARM CREDIT ADMINISTRATION

Mr. ToOTELL. I think this is true, and this is one of the things which makes us realize that a very heavy responsibility rests on our shoulders. The PCA last year lent about 32 billion to some 360,000 farmers. And this really is a tremendous responsibility, to loan the right amount. If you loan a man something less than it takes to really do the job, then you are not a constructive force in this thing. You are not rendering the service that you should.

On the other hand, to loan him more than he can reasonably expect to repay, is no service, so it takes loan men of considerably higher quality nowadays than it did even 10 years ago.

And another one of the things they have to evaluate nowadays that wasn't as important 10 years ago is this factor of management. This becomes the key pretty much when you get into these high investment figures.

Mr. WHITTEN. I mentioned earlier that in many areas of the country now, the farming business has gotten so big and so risky and so complex that frequently the farm management has to be better prepared than many folks actively engaged in agriculture for the Department. I say that in a wider scope than perhaps a man handling an individual position.

Well, it is always interesting to talk to you, Governor, and we always find your program in good shape. I think you have done a fine job, not only you, but those associated with you.

Mr. Natcher?

Mr. NATCHER. Mr. Tootell, I want to join my chairman in thanking you and your staff for appearing before our committee at this time. As our chairman pointed out, Governor, certainly it is a right difficult matter today for anyone to borrow all of the money necessary to buy a farm and have a successful operation.

CAMP BRECKENRIDGE

In the Second Congressional District of Kentucky, we have Camp Breckenridge, which, as you probably know, is a military reservation. This reservation was used from 1941 up until 1953, and it was placed on a standby basis. It has 36,000 acres and, finally, I succeeded in having the authorities declare this reservation surplus.

We are now in the process, Governor Tootell, of having it appraised by the General Services Administration and a number of original owners of farms will be coming to your organization for loans. I hope that every assistance is rendered to these people and especially the ones that want to buy back their homes and the young farmers that want to buy this land and start an operation.

In a great many instances, the original owners will try to buy back their farms. To give you some idea about the difficulty that they will experience, several months ago, before the order declaring this reservation surplus was entered, the Department of Interior decided that they had better lease off a small strip of land at the edge of the reservation to protect the reservation since private interests were drilling on the other side.

They took a small strip of 190 acres, just a very small strip running along the edge of the reservation, and they asked for bids on it. The lowest bid was 12 cents, and the highest bid was some $454,000. You don't hear of anything like that in Texas.

Now, not all of this land has that kind of oil under it. Some of it does. But, at least, Governor Tootell, I would appreciate it if you would alert your people to watch this matter and I do hope that every consideration will be given to those people who want to make reasonable loans to buy back their farms and the young farmers that want to go in and try to buy this land to establish a home.

This is rich farmland, and, in my opinion, it should never have been a military reservation. But it was, and for a period of many years, the people in this section of my district have suffered considerably over this matter.

So, I just want to call it to your attention and I know that every consideration will be given to the people.

Mr. TOOTELL. We will be very glad, Mr. Natcher, to call it to the attention of the officials of the farm credit banks of Louisville, this situation. We have a good deal of confidence in them. Both the President of the Federal land bank and of the intermediate credit bank there are quite alert and, I would say, aggressive operators, and quite cognizant of the importance of rendering service to farmers in your district.

Mr. NATCHER. I certainly appreciate it and, again, I want to thank you and the members of your staff for your appearance.

Mr. TOOTELL. Thank you. Thank you for your compliment.
Mr. WHITTEN. Mr. Addabbo?

AVERAGE INTEREST RATES

Mr. ADDABBO. Governor, what is the average rate of interest charged on the loans?

Mr. TOOTELL. The Federal land bank loans, most of them carry 512 percent rate, one of the districts, 534. There is one that is 5 2/10, but 512 is the typical rate.

The Federal intermediate credit banks, typically now, have a discount rate of 434. This is what they charge a PCA which in turn charges typically 6 percent, as we indicated earlier.

COMPETITION WITH PRIVATE LENDERS

Mr. ADDABBO. Are you in any way in competition with private lending institutions?

Mr. TOOTELL. Yes, I think I have to say quite frankly that to some extent, we are. And here is the problem of which we are faced in this. The reason the farm credit banks came into the picture, starting with Federal land banks in 1916, was because traditionally, the rural areas were short of capital in comparison with cities.

Capital flows into the cities, the money centers. And this takes place particularly in periods of great prosperity, when money is tight. It also takes place in periods of depression, where you get the other extreme. There is conservatism and many people who are lenders in rural areas, commercial banks which are lenders in rural areas during reasonably good times, withdraw from the agriculture lending field. And so Congress established the Federal land banks to begin with, in 1916, and then successive periods these other institutions to provide for agriculture types of credit that were suited to its needs rather than for having to rely on commercial banks which essentially render a type of credit service that is more suited to the needs of industry and

commerce.

In order to have an efficient credit service, you must be in there perpetually. It isn't a matter of going in just when farmers are not otherwise able to get credit. That is a very costly thing and the Farmers Home Administration, to some extent, is involved in this type of an operation, in the sense that its volume of business varies somewhat from time to time. The disaster loan program, for instance, expands during certain periods and contracts during others.

Another aspect of ours, however, that modifies considerably this aspect of competition which appears on the surface is the fact that Congress said to the farmers of the United States, we will make it possible for you folks to go in partnership with each other, join together, in cooperative credit associations, to provide yourselves this type of credit at a minimum of cost-and to render to yourselves a type of service that is best suited to your needs.

And the Federal Government provided the initial capital for this, but with the provision that as farmers used the system, they themselves would invest in the capital structure of these banks and associations and repay the Federal Government. And that has been the pattern. The Federal land banks retired the last of their Government capital in 1947 and they are completely owned by their farmer borrowers. The production credit associations which were capitalized in 1934, with $90 million of Government capital, have repaid all but $85,000 of that capital. The banks for cooperatives are retiring the Government capital with which they originally started.

So that is the pattern and I would say that the majority of commercial banks in rural areas, although admitting some competition and at times, expressing some feelings about it, for the most part, say they believe that these production credit associations and Federal land banks are a necessary adjunct to a successful agriculture.

31-270-64-pt. 4——16

Mr. ADDABBO. Is there any requirement before the Federal land bank can give a loan that the applicant first must go to a commercial bank?

Mr. TOOTELL. No; there is not, because they are not operating on Government money. This is a requirement of Farmers Home Administration which is a subsidized type of loan operation.

Mr. ADDABBO. Is the rate of interest charged by the land banks less than the commercial banks or are they usually about the same?

Mr. TOOTELL. I would say that it runs probably a little less than commercial banks charge. Ordinarily they don't make long-term real estate loans for, well, for nearly as long a time as the land banks. The principal institutional lenders on real estate are the insurance companies and I would say that their rates are very comparable with those of the Federal land banks.

Mr. ADDABBO. Thank you very much.
Mr. WHITTEN. Mr. Michel.

TRENDS IN SIZE OF FARMS

Mr. MICHEL. Governor, you made a statement that some current trends causing farmers to use more capital and credit are commercialization and specialization in agriculture and the larger size of farm operations.

To what extent is this going on?

Mr. TOOTELL. I would say to a very substantial extent.

The number of farms in the United States has been decreasing anywhere from 100,000 to 200,000 a year for many years now, and this is going to continue on. As the total number gets fewer, even at the same percentage decrease, you get a fewer number in the decrease each year. But, I think this is going to continue for sometime until the great majority of our farming units are of an economic size to use modern machinery and technology to advantage efficiently. The remaining farms-or the other category, will be largely farms that have outside sources of income, part-time farmers or subsistence farms, and retirement farms.

Mr. MICHEL. I was very intrigued to give just a cursory look at some of the proposals that are being advanced in this so-called allout war on property, where in some areas they are actually proposing to have the Government serve as an agent to buy up smaller inefficient units into one bigger unit and then in turn, parcel it out again in what the Government determines to be an economic unit.

Now, it just seems to me that kind of proposition is at cross purposes with what comes as a natural consequence in a free competition of supply and demand.

Mr. TOOTELL. Mr. Michel, let me give this explanation.

I would say that in the good agricultural areas of the United States, this sort of program proceeds without any stimulation at all on the part of the Federal Government. If I understand the program that you speak of, it was involved in the President's bill that was sent over to Congress, I believe the day before yesterday. This is focused in those areas of the country which progress and technology largely have bypassed, in poorer agriculture areas, where a farm family doesn't make enough and hasn't made enough overtime on their existing farm resources to accumulate capital that permits them to do these