1923

WHY NOT PROFIT-SHARING IN

AGRICULTURE?

THE chief difficulty in profit-sharing in agriculture seems to be that there are so often years when there is no profit to distribute. The position of a farm labourer who is disappointed of his dividend at the end of the year is far more unenviable than that of an ordinary shareholder in a similar position; for the shareholder merely suffers financial loss, whereas the farm labourer has given his extra toil and care for nothing. When it is remembered that this extra toil is a day-to-day-almost an hour-to-hour-affair, an annual summary of small efforts, each of which has cost him. something in work and determination which he need not have given had he not expected to reap some material benefit, it will be realised that an unfortunate succession of bad years coming at the beginning of a profit-sharing scheme will handicap it so severely that total failure seems inevitable.

The history of agricultural profit-sharing schemes is not encouraging. The large majority have failed. But the fact that any have survived shows that the problem is not insoluble, and failure is not evidence of unattainable success. The idea of profitsharing in agriculture is surely not so idealistic and out of reach as to be beyond the wit of man to realise. But, before going any further, it would perhaps be well to consider the advantages that profit-sharing can offer to employer and employed.

Briefly, it provides the men with an incentive and the farmer with more painstaking and interested labour.

At the present stage of human evolution few people are prepared to give something for nothing. There is the story of a factory owner who stated that if his workmen liked they could save him 10,000l. a year by less waste and better work. He was asked, somewhat pertinently, why he did not offer them 5000l. a year to do it.

There are so many ways in which farming cost could be lessened by greater interest and more expeditious work on the part of the employees. Hay and harvest times are when the greatest saving could be made. If the men knew that direct financial benefit would accrue to them in some proportion to their VOL. XCIII-No. 552

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own efforts, many a rick would be finished and many a last acre of field cut at the end of a day, whereas both are now left till the following morning. When the morning comes, too often the dew has been too heavy to start work at once, and consequently hours are spent in enforced idleness that might have been well employed in shifting the tackle to a fresh field had the work been finished the night before. Since hay-making and harvesting are usually a race against the weather in this country, all farmers will realise what this small extra effort may mean, quite apart from the actual money paid for the men's time.

Where farm implements are used that are adjustable there is a very natural tendency on the part of the men to set them in the position where they work the most easily rather than where they give the best results. This again is due to the lack of a better incentive than fear of 'getting the sack.'

Profit-sharing should bring about more work per hour, more intelligent interest in the farm, greater care of machinery and implements, and a closer bond between employer and employee.

The farmer benefits, and so do the men. For not only does it give them an interest that makes their labour less mechanical, but also, in a fairly successful year, it should yield them a sum additional to their ordinary wage of from 51. to 15l., or an extra 2s. 6d. to 7s. 6d. per week.

It is the uncertainty of agriculture as an industry that makes the introduction of a successful profit-sharing scheme difficult. Apart from this, agriculture offers exceptional opportunities. In no other industry is the bond between master and man more personal, and few workmen are more interested in their work than the farm labourer. One of his favourite Sunday occupations is to walk round neighbouring farms and compare them with the one where he works himself. He remembers the details of every crop in every field for years back, and can bring a shrewd firsthand criticism to bear that is the outcome of generations of experience and contact with the land. Many a farmer has learnt to trust that experience and fall back on the advice of his employees, an act which, ipso facto, takes the farm hand into a measure of co-partnership with the farmer. That the men value this appeal for their advice and are keen to have a voice in the management of the farm is shown by a letter from Lord Robert Cecil in The Times in February 1919, quoted by Sir Henry Rew in his article The Workers' Share in Agriculture,' published in the Journal of the Board of Agriculture, September 1919. Lord Robert wrote:

At the last election in one of the villages in my constituency there was apparent a strong anti-employer feeling, and I was told that it was due to the fact that the local farmer-an incompetent man-declined to listen

to the advice of the men employed by him, who had far greater experience in agriculture than he had. They argued that he was not only ruining himself, which was his affair, but in so doing he was ruining, or likely to ruin, them also, and that it was intolerable that they should not be consulted before such follies were perpetrated.

Granted that there may be another side, that a progressive farmer is up against a stronger conservative instinct than in any other class of the community, that a farm can only be run by one man and not by a committee, yet this farmer must have shown a degree of tactlessness and overbearance to his men, who, generally speaking, are patient and loyal, that one can only hope is extremely

rare.

Profit-sharing is one of the strongest correctives to any form of subversive propaganda. It should go some way towards satisfying the growing desire of the farm worker to possess land himself, and, by realising on a capitalistic basis certain claims made with some justice by the more moderate Socialists, should prove an effective bulwark against the more revolutionary doctrines which in some districts have threatened to sweep labour off its feet, weakened, as it has been, by high prices, discontent, and ignorance.

By becoming a partner in the business, and having the accounts, officially audited, put before him every year, the confidence of the farm labourer would be increased. He would realise that farming is a highly speculative business, offering greater chances of loss and smaller chances of making a fortune than any other industry requiring proportionate capital, and he would be more likely to believe that the farmer was not piling up huge profits at his expense, and that his own interests and the farmer's were identical.

So much for profit-sharing in the abstract. It remains to put forward some concrete scheme for its application. The following scheme is roughly on the lines of one thought out and put into operation by Mr. E. T. Le Lacheur at Pitt Farm, near Winchester. It resembles closely a scheme put forward, a few months after Mr. Le Lacheur started, by Mr. James Wyllie, B.Sc., and made public in the North British Agriculturist in September 1919. Mr. Wyllie's scheme won two prizes of rool. and Iol. offered by Mr. James Ismay for the best scheme for introducing' Profit and Loss Sharing on the Farm.' As the basic facts of both Mr. Wyllie's and Mr. Le Lacheur's scheme are practically identical, I will describe the latter as I have a closer personal knowledge of it and have seen it in operation.

The scheme was started with three main objects:

(1) To increase the productivity of the farm, and thereby the earnings of both employer and employed.

(2) To give the men a greater interest and incentive to work than the mere threat of dismissal.

(3) To bring about closer relationship between employer and employed, whereby both parties may realise that their interests are coincident.

Any scheme of profit-sharing, to be successful, must contain the three following essentials :

(1) The auditing of the farm accounts by an auditor approved by both parties.

(2) A genuine desire of both parties to make the scheme a

success.

(3) A true co-operative spirit that sets greater store by the spirit of the agreement than the letter. Any attempt to snatch technical advantages is fatal.

The financial agreement made by Mr. Le Lacheur was that he charged the farm with 6 per cent. interest on the capital he had invested in it, and then, when this and all other expenses had been deducted from the total receipts for the year, he took half the remaining profit and divided the other half amongst the regular employees. But before this division of profit a small percentage (about 10 per cent.) was set aside as a reserve fund against a bad year. This building up of a reserve is most important, for the employees cannot share in the losses of the farm, except that in a year of loss they have given their extra toil and care for nothing, and it would be unfair to expect the owner to pay on the losses and divide on the profits. It is while this reserve is in the process of reaching a sum large enough to meet unfavourable contingencies that a profit-sharing scheme goes through its most critical time. It resolves itself into a matter of luck as to whether the first few years after the scheme has been started are good or bad for farming.

Given normal conditions and a little good fortune, a reserve fund should be accumulated that should soon enable some distribution to be made every year, even if it were only 2l. per head.

It must be remembered that if the scheme is effective, not only are the profits greater in good years, but the losses are less in bad

ones.

But it must be clearly understood that the scheme is not philanthropic, but a commercial proposition, and therefore the investiment of capital must be given an adequate return. The prevailing rate of interest paid by stocks in which the farmer's money would be invested were he not a farmer can be taken as a general guide, and, when the speculative nature of farming is considered, 6 per cent. seems a moderate rate to expect

Keeping the accounts presents the chief difficulty, but in recent years a far greater number of farmers have begun keeping accounts than formerly. Farm accounts are usually so involved that it would probably turn out best in the long run to employ the services of an accountant every quarter. Farm stock should be valued neither too high nor too low, and no more cash should be kept in hand than is essential for running the business. Account must be kept and the farm credited with the rent of the farmer's house and the produce of the farm consumed by him and his family, and in the same way employees' perquisites must be considered.

Valuation of stock should be made either according to fixed values, or on the basis of estimated cost of production or market value, whichever is the lower. Special occasions will arise when the value of farm stock and produce will suddenly and highly appreciate, showing a very large profit on the year's trading. The war provided an excellent instance of this. Agricultural prices rose to undreamed-of heights. Agriculture seemed at last to have come into its own, and farmers found themselves comparatively rich men Throughout the history of agriculture farmers have been notorious for living right up to their incomes, and on this occasion they increased their scale of living on every side, while many invested their surplus money in speculations that soon suffered inevitable reaction. In the meantime, although the value of stock and produce had risen, the cost of replacing them as they were sold had risen too, while the labour bill was exceedingly heavy. When the slump came in agricultural prices farmers found themselves with crops that had cost them far more to produce than they could ever hope to get back, however favourable the season, and with flocks and herds whose value had depreciated so much since they were bought that heavy inroads on capital had to be made. Many had spent their war profit in living on the increased scale, others in bad speculations. Investments had to be sold out at heavy losses. The result can be seen in the gloom under which the agricultural community is at present labouring. The lesson that arises from this is that seemingly big profits in agriculture are often fictitious, and must be considered in relation to the cost of replacing the produce that has yielded such encouraging financial results. In such an instance the farmer who is running a profit-sharing scheme would be perfectly justified in putting a large percentage of this sudden profit to a special reserve account against the day when the fall in prices comes and the crop that has cost him so much to raise will involve him in a heavy loss.

Considering the value of a crop in relation to its replacement, there is much to be said for making the profit distribution some