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A basis for the tax assessment of orchards in the Okanagan valley of British Columbia Stewart, Earl Walker 1959

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A BASIS POR THE TAX ASSESSMENT OP ORCHARDS IN THE OKANAGAN VALLEY OP BRITISH COLUMBIA by EARL WALKER STEWART B.S.A., University of British Columbia, 19j?6 A THESIS SUBMITTED IN PARTIAL FULFILMENT OP THE REQUIREMENTS POR THE DEGREE OP MASTER OP SCIENCE IN AGRICULTURE in the Department of Agricultural Economics We accept this thesis as conforming to the standard required from candidates for the degree of MASTER OP SCIENCE IN AGRICULTURE Members of the Department of Agricultural Economics THE UNIVERSITY OP BRITISH COLUMBIA April, 1959 i i Abstract The methods of valuation that are available for real prop erty in general have not been f u l l y adapted to the particular problem of farm land assessment for taxation purposes. The main method upon which the assessment of farms is based is an analy sis of the prices received for comparable properties i n the market. Although this method is x^idely used for property other than farm land, because of several inherent weaknesses i n the method i t i s usually supplemented by, i f not subordinate to, the income capitalization method which bases value on the income producing a b i l i t y of the property. This method, however, has found limited use i n farm valuations. The present study is con cerned with the adaptation of the income capitalization method to farm lands as a basis for tax assessment with a detailed analysis of the specific problem of orchard assessment. A review is made of the basic concepts of value and the underlying principles of property valuation which have been i n  fluential i n the development of the present valuation methods. The application of these methods as they are found i n various countries i s also reviewed. The analysis involves the construction of yield, price and cost schedules for two main apple varieties, Red Delicious and Mcintosh. Prom these schedules the annual net incomes of a tree are calculated; these in turn are capitalized to obtain the present value of a tree at different ages i n i t s l i f e cycle. The present level of prices for Mcintosh apples i s found to be too low to realize a positive net income from these trees. Under these circumstances the only value of such an orchard l i e s i n i t s basic site value for alternative uses. Por the Red Delicious variety positive net incomes are obtained after the trees reach fourteen years of age. The annual net incomes are discounted back from forty years of age to the various age groups within Ttfhich the trees are commonly placed. This pro cedure provides a level of values based upon the earning power of the trees. In order to apply these values i t i s necessary to adjust them for variations i n the physical characteristics of the orchards such as s o i l types, topography, erosion and frost. The use of this method of valuation as a basis for tax assessment would provide a more sensitive reflection of the real differences i n value between varieties and kinds of f r u i t as well as those attributable to the variations in the physical characteristics of the orchard. This would result in a more equitable distribution of the property tax. In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of thi s thesis for scholarly purposes may be granted by the Head .of my Department or by his representatives. It is.understood that copying or publication of this thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of stf?s^ux££*zS ^ ^ ^ g ^ ^ d ^ The University of B r i t i s h Columbia, Vancouver 8\ Canada. Date j t /<?<$~<? iv Preface The methods that are used i n assessing property for tax ation purposes have certain advantages and disadvantages which make them suitable to a greater or lesser degree depending upon the severity of the limitations under particular circumstances. In view of this situation i t seems desirable to employ the meth od which has the least number of limitations as a basis for assessment and to employ other methods as checks on the f i r s t . In most cases, however, only one method i s used to indicate the level of values. When this is done, the limitations of this method undoubtedly play an important part i n the f i n a l determin ation of value although the effects of such limitations may not be evident because of the absence of checks. The present study explores the po s s i b i l i t i e s of adapting another method of valuation, the income capitalization method, to the assessment of orchard lands for taxation purposes. The reason for the adaptation of this method i s to supplement or replace as the main basis, the sales analysis method which is presently in use. It i s f e l t that the income capitalization method would establish more equitable assessments because of t i t s greater sensitivity to value determinants than that which can be obtained by the sales method because of the lack of a sufficient number of representative sales of orchard properties. The author wishes to express sincere appreciation to Dr.W. J. Anderson, Chairman of the Department of Agricultural Econom ics for his assistance and suggestions i n the development and writing of this thesis. He also wishes to thank the members of the V C o m m i t t e e , Dean B . A . E a g l e s , P r o f e s s o r P . H . W h i t e , P r o f e s s o r C . C . G o u r l a y , D r . C . A . H o r n b y a n d D r . J . J . R i c h t e r f o r g u i d  ance a n d c r i t i c i s m . The a u t h o r i s a l s o i n d e b t e d t o members o f t h e Summerland E x p e r i m e n t a l S t a t i o n a n d t h e E c o n o m i c s D i v i s i o n o f t h e Canada Department o f A g r i c u l t u r e , t h e B r i t i s h C o l u m b i a D e p a r t m e n t o f H o r t i c u l t u r e a n d t o o r c h a r d i s t s who a s s i s t e d i n t h e e s t a b l i s h  ment o f much o f t h e b a s i c d a t a . v i TABLE OP CONTENTS Page LIST OP TABLES v i i LIST OP ILLUSTRATIONS v i i i Chapter I THE BASIC CONCEPTS OP VALUE 1 Property Value 6 II THE GENERAL THEORY OP ASSESSMENT AND VALUATION . . . 10 Appraisal Theory 12 Purpose and Function of Appraisal llj. III METHODS OP ASSESSMENT IN OTHER COUNTRIES 18 IV METHODS OP VALUATION IN CANADA 23 V A BASIS POR ASSESSMENT OP ORCHARD LAND 29 Determination of Actual Value 35 Determination of Yields 37 Determination of Prices I|.6 Determination of Cost of Production hi Capitalization of Net Income 52 Calculation of Present Values Sh APPENDIX 62 BIBLIOGRAPHY 69 v i i LIST OP TABLES Table 1 S o i l P r o d u c t i v i t y Ratings f o r the Summerland Area o f the Okanagan V a l l e y o f B r i t i s h Columbia . . . . 2 Adjustments to S o i l P r o d u c t i v i t y Ratings f o r Topography 3 Adjustments to S o i l P r o d u c t i v i t y Ratings f o r E r o s i o n l\. Adjustments to S o i l P r o d u c t i v i t y Ratings f o r Blossom F r o s t 5> C a l c u l a t i o n o f Present Values f o r Red D e l i c i o u s Apple Trees By Ages 6 Summary o f Weighted Average P r i c e s P a i d to Growers by Years f o r Apples Per Packed Box, Okanagan V a l l e y , B.C 7 Expected Normal Revenue Per Tree f o r Apples by Age Groups and V a r i e t y 8 Cost o f Apple P r o d u c t i o n Per Acre i n D o l l a r s by Age o f Trees f o r the Summerland Tree F r u i t Area o f the Okanagan V a l l e y 9 C a l c u l a t i o n o f Net Revenue Per Tree by Age Groups . . . . . . . . . . v i i i LIST OP FIGURES Figure 1 Normal Yield for Mcintosh Apples . . . 2 Normal Yield for Red Delicious Apples 3 Expected Normal Income and Costs for Re Delicious Apple Trees l± Expected Normal Income and Costs for Mcintosh Apple Trees 5>. Present Value of Future Income Per Red Delicious Apple Tree . . . . . . . 1 C H A P T E R I T H E B A S I C C O N C E P T S O F V A L U E T h e w o r d v a l u e i s c o m m o n l y u s e d a s a s y n o n y m f o r p r i c e b u t e v e n i n a n e c o n o m i c c o n t e x t i t i s s o m e t i m e s u s e d t o m e a n s o m e  t h i n g q u i t e d i f f e r e n t . T h e " v a l u e " o f a c o m m o d i t y r e l a t e s t o i t s p o w e r t o c o m m a n d o t h e r c o m m o d i t i e s i n e x c h a n g e a n d m a y b e e x p r e s s e d i n t e r m s o f i t s p o w e r t o e x c h a n g e f o r g o o d s o r m o n e y . T h e " p r i c e " o f a c o m m o d i t y r e f e r s t o i t s p o w e r t o c o m m a n d m o n e y , s p e c i f i c a l l y , i n e x c h a n g e . I t c a n b e s a i d t h e n t h a t t h e t e r m " m a r k e t p r i c e " i s a n a m e f o r m a r k e t v a l u e e x p r e s s e d i n t e r m s o f m o n e y . I n r e f e r e n c e t o t h e v a l u e o f a c o m m o d i t y , A d a m S m i t h s a i d t h a t v a l u e d e p e n d e d u p o n t h e a m o u n t o f t h e c o m m o d i t y p r o d u c e d . S i n c e p r o d u c e r s t e n d e d t o e m p l o y t h e i r r e s o u r c e s i n t h e p r o d u c t  i o n o f t h e m o r e v a l u a b l e p r o d u c t S m i t h e m p h a s i z e d c o s t o f p r o  d u c t i o n a s a b a s i s o f v a l u e a n d m a i n t a i n e d t h a t t h e " n a t u r a l " p r i c e o f a c o m m o d i t y w a s d e t e r m i n e d w h e n i t c o v e r e d t h e " n a t u r a l " c o s t s o f w a g e s , r e n t a n d p r o f i t s . I t i s s t a t e d b y R i c a r d o t h a t a c o m m o d i t y m u s t b e u s e f u l t o h a v e e x c h a n g e v a l u e , b u t i t s v a l u e w i l l n o t b e i n p r o p o r t i o n t o i t s u s e f u l n e s s b u t r a t h e r t o i t s s c a r c i t y o r t o t h e q u a n t i t y o f l a b o r r e q u i r e d t o o b t a i n i t . I n t h e c a s e o f r a r e p a i n t i n g s , f o r e x a m p l e , h e b e l i e v e d t h a t s c a r c i t y d e t e r m i n e d v a l u e ; I n t h e c a s e o f r e p r o d u c i b l e c o m m o d i t i e s , v a l u e d e p e n d e d u p o n t h e " c o m p a r a t i v e q u a n t i t y o f l a b o u r e x p e n d e d o n e a c h " f 1 A d a m S m i t h , T h e W e a l t h o f N a t i o n s (1776). L o n d o n , M e t h u e n , 190lf, B o o k 1, C h a p t e r 5 . ^ D a v i d R i c a r d o , P r i n c i p l e s o f P o l i t i c a l E c o n o m y a n d T a x   a t i o n (l8l£). L o n d o n , M a c M i l l a n , C h a p t e r 2. 2 Jevons, of the "marginal u t i l i t y " school, emphasized the principle that cost of production affected value only as i t affected supply. He said that cost was derived from price and was not the cause of price, that the effective use value of any commodity decreased as the supply expanded, and that i t was the use value of the last or marginal unit which determined the value of the entire supply. The "marginal u t i l i t y " of a commodity, then, was the usefulness of the last unit added to the supply which presumably would be put to the least important use of a l l the units available. Since a l l the units were interchangeable, however, competition would reduce the value of a l l of them to the value of the last or marginal unit.3 From the standpoint of value theory, Marshall merged the cost of production and marginal u t i l i t y concepts. Not u t i l i t y alone, nor cost of prodiiction alone, but both of these factors were necessary to explain value according to Marshall. "We might as reasonably dispute whether i t is the upper or the under blade of a pair of scissors that cuts a piece of paper as whether value is governed by u t i l i t y or cost of production."^- A further refine ment was provided by dividing the problem of value and price determination Into different periods of time; the short-run, the long-run, and the very long-run periods during which secular trends were involved. He placed the greatest emphasis on the "long-run normal" situation. 3 W.S. Jevons, The Theory of P o l i t i c a l Economy, 2nd ed., London, MacMillan, I879, p. 201 f f . ^ Alfred Marshall, Principles of Economics. 8th ed.,London, Macmillan, 192$, p. 3l+8. 3 Marshall tried to find the point of equilibrium or tendency toward equilibrium of the prices (and values) of specific commod i t i e s . By considering one commodity only i n a static situation, he said that the value of that commodity could be defined as the point of balance between the supply and demand forces.£ Most of the references to value, by the classical economists at least, centre around the term "exchange value" rather than "market value". John Stuart M i l l declared this tendency, "The word value, when used without adjunct, always means,in political economy, value i n e x c h a n g e . T h i s may be because the adjunct "exchange" expresses more clearly the concept of value than the adjunct "market" which i t s e l f i s often not clearly defined. The acceptance of exchange value as the basic concept by the earlier economists has been expressed somewhat differently by various authorities. This i s illustrated by the following quotations. The value, that i s exchange value, of one thing in terms of another at any place and time, i s the amount of that second thing which can be got there and then i n exchange for the f i r s t . Thus the term value is relative, and expresses the relation be tween two things at a particular place and time. Instead of expressing the values of lead and t i n , and wood, and corn and other things i n terms of one another, we express them i n terms of money in the f i r s t instance and c a l l the value of each thing thus expressed i t s price . . . .7 3 Ibid., Bk V, chap. I l l , IV, XV. ° John Stuart M i l l , Principles of P o l i t i c a l Economy, ed. Asley, New York, Longmans, Greene and Co., 1926, Bk. I l l , Chapter 1, Section 2. 7 Alfred Marshall, Principles of Economics, 8th ed., London, Macmillan, 1927, p. 61. The value of a commodity means i n economics i t s power of commanding other commodities i n exchange. It means the rate at which the com modity exchanges for others. . . .By the price of a commodity i s signified the amount of money which i t w i l l command; i n other words i t s value in terms of the accepted medium of exchange.8 Value i s the power which an article confers upon Its possessor irrespective of legal auth ority or personal sentiments, of commanding, i n exchange for i t s e l f , the labor, or the products of labor, of others.° These definitions are not widely divergent in their intended meanings but the exact implications of each are subject to interp retation. In a discussion of value definitions Bonbright states that Marshall's definition i s the least satisfactory i n that i t seems "to imply that the value of a commodity i s the physical tiling for which i t can be exchanged. This violates the accepted notion of the nature of value, which regards value as an attribute or quality of an object rather than as an object itself. " 1 0 He says that Taussig's definition, although preferable i n this respect, implies that the commodity possesses the power to exchange Itself. Walker's definition avoids this implication by stating that such exchange power l i e s with the possessor of the commodity. Bonbright points out that i n defining exchange value i n terms of the price for which a specific commodity can be sold, Walker's definition is the most satisfactory. Another explanation of exchange value is the current price Frank W. Taussig, Principles of Economics, 3rd ed., Hew York, Harper, 1922, vol. 1, pp'. 111-113. ^ Francis A. Walker, P o l i t i c a l Economy, New York, Crofts, 1886, p. £. :  James C. Bonbright, The Valuation of Property, New York, McGraw-Hill, 1937, vol. 1, p. lj.5ff. 5 per unit, multiplied by the number of units included i n the com modity to be valued. Fisher defines price as the quotient of two quantities exchanged for each other and further states: Having obtained the price of any kind of wealth, we may compute the value of any given quantity of that wealth without supposing that particular quantity to be exchanged. The value of a given quantity of wealth i s found by mul tiplying the quantity by the price. In other 1 words, the value of a certain amount of one kind of wealth i s the quantity of some other kind for which i t would be exchanged, i f the whole amount were exchanged at the price set upon i t . H This definition of value i s the one accepted by s t a t i s t i c  ians who attempt to find the value of the nation's wealth, or the value of the wheat supply. However, to use the value of any given commodity off the market as determined by the current sale prices of similar commodities on the market to represent the true value of the commodity would be misleading; i t i s rather an Imputed value. In economics, objects have value i n accordance with their capacity to perform services. In relation to property, then, i t may be assumed to have value i n accordance to i t s capacity to perform services for the people who use i t through ownership. An object of wealth such as property has the capability of giv ing different advantages to different owners. If this i s accep ted then i t i s not accurate to speak of the value of property i n general but rather of i t s value to a specific person or group of persons. H Irving Fisher, The Nature of Capital and Income, New York, MacMillan, 1 9 1 2 , p. 1 3 . 6 "Property Value The c l a s s i c a l economists are p r i m a r i l y responsible f o r the i d e n t i f i c a t i o n of value with market p r i c e . This may r e f l e c t the associations they had and the conditions under which they were acquainted with value, such as the stock exchange i n Ricardo's case. I t Is necessary to recognize, however, that two rather d i s t i n c t concepts of property value have arisen, one r e f e r r i n g to the sale or market value and the other r e f e r r i n g to the value to a s p e c i f i c person or group of persons. I f the value of property i s to be interpreted to mean the price at which the property i n question can be sold 1on the market there are many questions which must be asked i n r e l a t i o n to the 12 market conditions. One of the f i r s t important considerations i s the time invol-' ved i n the negotiation of the sal e . The market conditions under which the concept of market value xras established was probably one i n which trade took place r a p i d l y such as with grains and stocks with no s i g n i f i c a n t loss of time between the o f f e r for sale and the completion of the transaction. Such conditions are not t y p i c a l of property transactions. Under usual conditions a property w i l l bring the owner a higher p r i c e on the market x^hen he experiences a time lapse betxraen the o f f e r for sale and i t s completion than i f he i s required by circumstances to s e l l the property immediately. Value has been defined e a r l i e r as the power to command a price, not as a power to command a pri c e only afte r an Interval of time has passed since the owner's decision 1 2 James C. Bonbright, The Valuation of Property (N.Y. 1937) v o l . 1, p. lj.9ff. 7 to s e l l and the c o n c l u s i o n o f the s a l e . By t h i s d e f i n i t i o n b o t h the c o n d i t i o n s o f p r o p e r t y s a l e r e f l e c t market v a l u e . Another c o n s i d e r a t i o n i s the exact time o f d e l i v e r y and pay ment o f the p r o p e r t y . A p r o p e r t y s o l d on c r e d i t x ^ t h a mortgage to the vendor may r e a l i z e a much h i g h e r p r i c e t h a n the same prop e r t y s o l d f o r cash w i t h i n a few days. Both o f these s a l e s p r i c e s may be used as market values under the d e f i n i t i o n which i d e n t i f  i e s v a l u e w i t h power i n exchange. Other c o n s i d e r a t i o n s i n r e l a t i o n to market c o n d i t i o n s are whether the p r i c e i n the market i s that a t which the owner o f the p r o p e r t y would r e p l a c e i t or the p r i c e a t which he would s e l l i t . A l s o , the pr e s s u r e s the buyer and s e l l e r may b r i n g upon each other i n t h e i r b a r g a i n i n g process are important. The market value o f p r o p e r t y may or may not i n c l u d e s e l l i n g commissions and other expenses. In view o f the v a r i o u s q u a l i f i c a t i o n s t h a t must be p l a c e d on any fo r m a l d e f i n i t i o n o f market v a l u e , the one used i n c l a r  i f y i n g p r o p e r t y market value must be rea s o n a b l y f l e x i b l e . As a r e s u l t the c o n d i t i o n s o f the s a l e are l e f t to be s e l e c t e d i n accordance w i t h the purpose f o r which the v a l u a t i o n i s to be made. The b a s i s o f market value l i e s i n i t s r e f e r e n c e to exchange a b i l i t y . I t i s assumed t h a t there i s an ownership t r a n s f e r and value i s r e l a t e d to the p r i c e a t which the r e a l or assumed t r a n s  f e r takes p l a c e . T h i s f e a t u r e o f market value c o n s i d e r a b l y r e s t r i c t s I t s useage i n the v a l u a t i o n o f p r o p e r t y . Many types o f marketable p r o p e r t i e s would have a ve r y small market v a l u e because o f the s p e c i a l a d a p t a b i l i t y and d e s i r a b i l i t y to the p r e s e n t own e r s . T h i s i s not to say, however, t h a t the value o f ; p r o p e r t y to a 8 particular owner is necessarily a f a i r basis for i t s valuation. In certain cases, such as for taxation, the market value may be the fairer basis because It can be argued that the value for tax purposes should not exceed the price that the owner could rea l  ize for his property. Once the intended usage of value has been established the problem of how to estimate i t arises. Marshall's writings i l l u s  trated the three basic methods of estimating value which are i n use today: replacement cost, market comparison and capitalization of i n c o m e . H e states ". . • the aggregate "site value" of any piece of building land i s that which i t would have i f cleared of buildings and sold i n a free market. The "annual site value". . . is the income which that price would yield at a current rate of interest". He also says". . . the capitalized value of any plot of land is the actuarial "discounted" value of a l l net incomes which i t i s li k e l y to afford. . . "-^ Marshall also recognized the problem of over improvement and under improvement of land and the d i f f i c u l t y of segregating joint returns to land and buildings. Fisher expanded on the views of Marshall that the value of durable goods i s represented by the present worth of future ret urns. ^  He also discussed the discounting process and i t s place in the income theory of value.^ This has since become one of the main techniques in modern appraisal. Marshall, op.cit., Book V,Chapters V, XI, XV, Appendix H. Marshall, Principles of Economics. Chapter XI. ^ Fisher, op.cit., p. l88ff. 1 6 Ibid., Chapter XIII. 9 Another significant contribution of economic theory from the "neo-classical" economists has been the principle of sub stitution. As applied to property i t states that "when property is replaceable, consumers wi l l offer no more on the market than the cost of replacing the property Itself, or a comparable sub stitute. If replacement costs are below market prices, produc ers w i l l be induced by prospective profits to construct build ings for sale. These tendencies w i l l bring market prices i n line with new construction costs. "-L7 This principle has formed the basis for the valuation of improvements under present appraising methods. Paul E. Wendt, Real Estate Appraisal, Hew York, Henry Holt and Company, 19£6, p. 50' 10 CHAPTER II THE GENERAL THEORY OP ASSESSMENT AND VALUATION Weimer states that at the present time there are two impor tant approaches to the study of economic problems: (1) the ins titutional - hist o r i c a l , and (2) the theoretical or policy form ing. 1 The f i r s t approach aids i n understanding how the present economic system evolved with particular emphasis being placed on those gradual historical changes which have brought economic i n  stitutions to their present stage of development. The second or theoretical approach i s concerned with a study of the economic system for the purpose of determining the principles which explain i t s operation. In order to understand value i t i s necessary to follow both approaches. We need to understand the institutional framework within which the value of a commodity or a property i s to be determined. Of even greater importance, however, i s an understanding of the economic forces which determine value or changes i n value at a given time. If value is considered as a ratio of exchange be tween goods and services, price and value may be considered as synonymous, except i n cases where circumstances cause goods to be sold for greater or lesser amounts than would be established under conditions which approximated a perfectly competitive situation. In order to understand the forces xtfhich affect value and price i t is necessary to divide the value problem into several areas. Arthur M. Weimer, "History of Value Theory for the Apprai ser", Appraisal Journal, Amer. Inst, of R/S Appraisers,Jan.1953, vol. XXI, No. 1, p. 19. 11 I n the f i r s t area, goods can be c l a s s e d a c c o r d i n g to whe ther they are used up r a p i d l y or s l o w l y . In the second area, the f o r c e s which a f f e c t value are o f v a r y i n g importance depending on the p e r i o d o f time which i s under c o n s i d e r a t i o n . T h i r d , value must be c o n s i d e r e d with r e s p e c t to the o b j e c t i v e o f the commun i t y or the s o c i a l system. There i s no wide v a r i a t i o n between market p r i c e s and v a l u e s i n the case o f goods which are consumed f a i r l y r a p i d l y . Por goods of g r e a t e r d u r a b i l i t y the value problem i s much more co m p l i c a t e d since i t i s n e c e s s a r y to r e f l e c t f u t u r e probable r e t u r n s i n p r e  sent value or p r i c e through the p r o c e s s o f c a p i t a l i z a t i o n . That i s to say, i t i s necessary to determine the amount which w i l l be d e r i v e d from the p r o p e r t y under c o n s i d e r a t i o n throughout the p e r i o d o f I t s p r o d u c t i v e l i f e . When c o n s i d e r i n g the problem o f value w i t h r e s p e c t to d i f  f e r e n t p e r i o d s o f time, i t i s a l s o necessary to note t h a t v a r  i o u s f o r c e s must be g i v e n g r e a t e r or l e s s e r weight. In a r e l a t i v e l y s h o r t p e r i o d , such as a year or l e s s , de mand f o r c e s are o f much g r e a t e r importance than the f o r c e s o f supply s i n c e f o r most goods l i k e p r o p e r t y i t i s i m p o s s i b l e to a l t e r m a t e r i a l l y the q u a n t i t y a v a i l a b l e d u r i n g such a s h o r t time. Thus an a n a l y s i s o f demand f a c t o r s i s o f prime importance i n p o i n t i n g to the d i r e c t i o n o f changes i n p r i c e s , r e n t s and v a l u e s i n the s h o r t r u n . However, when l o n g e r - r u n p e r i o d s o f time are c o n s i d e r e d , supply f a c t o r s such as c o s t o f p r o d u c t i o n have r e l a t i v e l y g r e a t  er weight. Over a p e r i o d o f s e v e r a l y e a r s , supply f a c t o r s can ad j u s t to market changes. Given a s u f f i c i e n t l y l o n g p e r i o d o f time, 12 p r i c e " w i l l t e n d t o e q u a l t h e c o s t o f p r o d u c i n g a c o m m o d i t y . I t m u s t b e n o t e d , h o w e v e r , t h a t c o s t s a f f e c t p r i c e a n d v a l u e o n l y t o t h e e x t e n t t h a t t h e y a f f e c t r e l a t i v e s u p p l y . P o r v e r y l o n g p e r i o d s o f t i m e , a d e c a d e o r m o r e , i t i s n e c  e s s a r y t o g i v e w e i g h t t o i n s t i t u t i o n a l a n d o t h e r f a c t o r s . T h e s e i n c l u d e t h e l e g a l f r a m e w o r k o f o u r e c o n o m i c s y s t e m , c h a n g e s i n k n o w l e d g e a n d t e c h n o l o g y , c h a n g e s i n t h e t a s t e s a n d w a n t s o f p e o p l e , t h e d e v e l o p m e n t o f n e w p r o d u c t s , c h a n g e s i n t h e n u m b e r a n d c o m p o s i t i o n o f t h e p o p u l a t i o n a n d c h a n g e s I n t h e p r o p e r t y c o n c e p t . I n a d d i t i o n t o c o n s i d e r i n g t h e v a l u e p r o b l e m a c c o r d i n g t o t h e t y p e o f c o m m o d i t y a n d t h e p e r i o d o f t i m e i n v o l v e d , t h e s t a n  d a r d s a n d o b j e c t i v e s o f t h e e c o n o m i c c o m m u n i t y m u s t b e k e p t i n m i n d . The c o n c e p t s o f v a l u e a r e o f n e c e s s i t y r e l a t e d t o t h e o b  j e c t i v e s w h i c h a c o m m u n i t y s e t s f o r i t s e l f a n d a t c e r t a i n s t a g e s , some t h i n g s a s s u m e g r e a t e r v a l u e t h a n a t o t h e r s t a g e s . A p p r a i s a l T h e o r y T h e d e v e l o p m e n t o f t h e p r e s e n t a p p r a i s a l t h e o r y u s e d I n N o r t h A m e r i c a h a s b e e n l e d b y H u r d , M e r t z k e a n d B a b c o c k . H u r d was m a i n l y c o n c e r n e d w i t h e s t a b l i s h i n g m a r k e t s a l e s a s t h e c e n t r a l c o n c e p t a n d t h e m a i n e v i d e n c e o f v a l u e . He a c c e p t e d , i n t h e o r y , t h e c a p i t a l i z a t i o n o f i n c o m e m e t h o d o f o b t a i n i n g v a l u e b u t r e a l  i z e d t h e r e w e r e some p r a c t i c a l d i f f i c u l t i e s i n c a l c u l a t i n g v a l u e s b y t h i s m e t h o d . He e x t a b l i s h e d t h e p r o c e d u r e u s e d t o d a y f o r c a l  c u l a t i n g t h e r e s i d u a l r e t u r n t o l a n d a n d c a p i t a l i z i n g t h e s e r e t u r n s t o o b t a i n l a n d v a l u e . ^ ^ R i c h a r d M . H u r d , P r i n c i p l e s o f C i t y L a n d V a l u e s , 3rd e d . , New Y o r k , R e c o r d a n d G u i d e , 1911, p . 122ff. 13 Mertzke, by making use o f F i s h e r ' s t h e o r i e s , adapted the i d e a o f "normal v a l u e " , t h a t i s , value d e r i v e d by l o n g - r u n tend e n c i e s . He f e l t t h a t the three b a s i c approaches to value were e q u i v a l e n t and adapted t h i s i d e a to a p p r a i s a l theory. 3 Babcock developed the i d e a t h a t v a l u e r e p r e s e n t s the p r e  sent worth o f f u t u r e r e t u r n s from p r o p e r t y . He r e j e c t e d market p r i c e s as evidence o f value and advocated the c a p i t a l i z a t i o n o f income method as the s o l e r e l i a b l e method o f o b t a i n i n g value.^- As a r e s u l t o f the work o f Mertzke, Schmutz, May e t a l , the three approaches to v a l u e , replacement c o s t , market p r i c e s and c a p i t a l i z e d income, have been c o n s i d e r e d e q u i v a l e n t a t l e a s t i n theory. The use o f the t h r e e approaches has l e d to the use o f c o r r  e l a t i o n techniques because o f the d i s s a t i s f a c t i o n w i t h averages. This allows the s e l e c t i o n o f one o f the three approaches as the most s i g n i f i c a n t f o r a p a r t i c u l a r a p p r a i s a l problem. T h i s has not always l e d to a d e s i r a b l e end. Wendt p o i n t s out t h a t because i t i s f e l t t h a t the three approaches should y i e l d v e r y s i m i l a r v a lue estimates there i s a tendency to use c o r r e l a t i o n on adjus te d data i n order to o b t a i n c l o s e r agreement w i t h a p r e f e r r e d method or value e s t i m a t e . T h i s "compression o f d i f f e r e n c e s " f o r  ces the equivalence o f the three approaches and may f r e q u e n t l y give a m i s l e a d i n g appearance of accuracy to an a p p r a i s a l estimate. ^  3 Arthur J . Mertzke, Real E s t a t e A p p r a i s i n g . Chicago, N a t i o n a l A s s o c i a t i o n o f Real E s t a t e Boards, 1 9 2 7 . ^ F r e d e r i c k M. Babcock, The V a l u a t i o n o f Real E s t a t e , New York, McGraw-Hill, 1 9 3 2 . Wendt, o p . c i t . , p. 71• Ik Purpose and Function of Appraisal The main purpose of an appraisal is to estimate the value of goods. The classical purpose i s stated by Marenghi that "app ra i s a l has for i t s fundamental object the study of the processes of valuation of those economic goods for which the market does not express a price in explicit form."^ Medici feels that this definition includes only those goods that do not enter into mar ket transactions or only to a limited extent.7 He says that this is unrealistic because the appraiser may be asked to determine the money value of goods such as grain, which, although they have a regular market quotation, w i l l not be available u n t i l a future date. He states that the main object of an appraisal i s to pro vide a method which the appraiser can use in order to express judgement on the value of any goods. An appraisal of a property is made for several reasons, the nature of which determines the approach or procedure that w i l l be involved and as a result several types of appraisal have been developed. The principal types are loan, purchase and sale, con demnation and tax assessment. These types of appraisal are basic a l l y similar and the differences that do exist are mainly due to the emphasis placed on a particular factor In accordance with the desired end. The main feature of a loan appraisal i s the emphasis on the long-range future prospects. The money lender is much concerned, ^ E. Marenghi, Lezioni di Estimo, Milano, Libreria Edit- rice Politecnica, 1925, p. 21. 7 Giuseppe Medici, Principles of Appraisal. Ames, Iowa State College Press, 1953, P« lq-ff. 15 before making a loan committal, with the probability of complete repayment. If the lender knows l i t t l e or nothing about the man agerial a b i l i t y of the borrower, i t i s necessary for him to guard against this imperfect knowledge by careful consideration of the productivity of the farm, the general outlook of prices for the products produced, and the potential sale value of the farm. The appraiser's problem of estimating future farm product i v i t y would be considerably simplified i f the same farmer was to continue to operate the farm throughout the period of the loan. Since i t i s possible, especially during long-term loans, that a new owner or manager may take over the operation of the farm, the appraiser must rely on the productivity of the typical oper ator i n any given area. This may provide an overvaluation or undervaluation of any particular farm. Lending agencies are particularly concerned about the risk from price declines. When farm prices decline they tend to do so more as the distance from the consuming center increases because of the fixed nature of freight and other handling charges. The depression period provided lenders with an extremely clear record of the results of price declines. The number of foreclosures that occurred at that time may be attributed In part to faulty appraisals. This, coupled with adverse natural and economic con ditions, placed both the borrower and lender i n much d i f f i c u l t y . As a result of this experience more caution has been taken i n loan appraisals. 16 The most prevalent mistake made i n loan appraisals has been the overvaluation of poor lands. When periods of low prices occur the owners of these lands are unable to meet the payments to which they have committed themselves. Upon closer observation i t is often found that loans should not have been made on these properties or at least to a much lesser extent. Purchase and sale appraisals are made as an aid to prospec tive buyers or sellers of farm land. The choice of value i n d i  cators and different points of emphasis w i l l usually result i n different appraised values depending upon whether the farm is being appraised for purchase or for sale. An appraisal made for a prospective buyer w i l l emphasize farm productivity because i t is i n this that the buyer is prim ar i l y interested. This entails a study of the crop and l i v e  stock income pos s i b i l i t i e s of the farm as well as a detailed inventory of the land and buildings. The proximity to markets, schools and other non-income features w i l l be of importance. An appraisal for sale purposes, on the other hand, w i l l emphasize the most favourable of the income and non-income features of the farm and may tend to overlook undesirable char acteristics. Another type of appraisal which i s more specialized and restricted in use than the others is that of condemnation. It i s used for the valuation of farm lands to be purchased for govern mental projects such as roads, airports or military purposes. A condemnation appraisal usually uses market value as i t s base but in order to do justice to the seller who i s often forced to 17 relinquish the property, a value somewhat above the existing market value may be used. In the appraisal for tax assessments the assessor is main ly concerned with the achievement of uniformity i n property values. This i s a necessity i f the distribution of the tax load is to be equal among a l l property owners. The assessor, unlike the valuers for other purposes, is faced with the task of mass appraisals and legal deadlines. These place continual pressure on the assessor and he may not have the time to study economic trends as they may affect his area. It is this method of appraising that i s the main concern of this thesis. 18 CHAPTER III METHODS OP ASSESSMENT IN OTHER COUNTRIES The land tax, as i t was determined i n the western countries "before the industrial revolution and as i t is s t i l l i n force i n a great part of the primary producing areas of the world, is a general tax on land with the base being both i t s capital value and i t s income. As they system of taxation evolves, the taxation of the capital value of the land is differentiated from the taxation of land income. The former i s subject to property taxation and the latter to income taxation. In theory, the objective of land taxation has been to tax the actual Income from the land; i n practice, i t has been extre mely d i f f i c u l t to realize this goal. The d i f f i c u l t i e s of cost ; accounting for agricultural enterprises as compared with indus t r i a l enterprises are many. Cost, profit or loss estimations are d i f f i c u l t to arrive at with the same precision as for an industrial enterprise. Not withstanding the development of com mercial farming It is often carried on as a way of l i f e rather than as a business enterprise. In most parts of the world the farmer's family and the farm are so closely integrated that i t is almost impossible to distinguish the household income and expenses of the farmer from those of the farm. Also, where house hold consumption i s high one cannot use the volume of produce available at the marketing stage as a reliable measure of farm output. As a result land income has been assessed presumptively in most countries. 1 9 I n I n d i a a n d P a k i s t a n , t h e a s s e s s m e n t o f l a n d i s b a s e d u p o n t h e v a l u e o f t h e p r o d u c e o f t h e l a n d . T h i s may be e i t h e r t h e g r o s s o r n e t p r o d u c e d e p e n d i n g u p o n t h e s y s t e m s u s e d i n r e s p e c t  i v e s t a t e s o r p r o v i n c e s . I f g r o s s p r o d u c e i s u s e d , a n a d j u s t m e n t i n t h e f o r m o f p e r c e n t a g e s o f g r o s s o u t p u t i s made i n o r d e r t o a r r i v e a t n e t o u t p u t . The c o s t o f t r a n s p o r t i n g a n d h a n d l i n g o f t h e c r o p i s d e d u c t e d f r o m p r e v a i l i n g p r i c e s when t h e c r o p v a l u e i s c a l c u l a t e d . The r e m a i n d e r i s t h e t a x a b l e n e t p r o d u c e . I n some o t h e r c o u n t r i e s r e n t i s u s e d as t h e b a s i s o f a s s e  s s m e n t . T h i s m e t h o d i s w i d e l y u s e d i n t h e L a t i n A m e r i c a n and M i d d l e E a s t e r n c o u n t r i e s . The n e t r e n t a l income a c c r u i n g t o l a n d o w n e r s i s s u b j e c t t o t a x a n d i n t h e case o f o w n e r - c u l t i v a  t o r s t h e r e n t i s i m p u t e d p r e s u m p t i v e l y t h r o u g h c o m p a r i s o n w i t h s i m i l a r p r o p e r t i e s . I n p r a c t i c e t h e r e n t w h i c h i s t a k e n a s t h e t a x base may be e i t h e r t h e n e t a n n u a l v a l u e o f the l a n d a f t e r t h e d e d u c t i o n o f t h e p r o d u c e r ' s f a i r s h a r e o r t h e a c t u a l r e n t r e c e i v e d b y t h e l a n d o w n e r The a s s e s s m e n t o f l a n d I n Communist C h i n a i s made o n a p r o  g r e s s i v e s c a l e b a s e d o n " n o r m a l a n n u a l y i e l d " . T h i s i s T O r k e d o u t a c c o r d i n g t o the n a t u r a l c o n d i t i o n s o f c u l t i v a t i o n s u c h as t h e q u a l i t y o f t h e s o i l , w e a t h e r , i r r i g a t i o n , manpower, animal p o w e r , number o f h a r v e s t s and o t h e r s , f o r a n o r m a l s e a s o n f o r t h e l a n d i n q u e s t i o n . 2 1 P a p e r s a n d p r o c e e d i n g s o f t h e C o n f e r e n c e o n A g r i c u l t u r a l T a x a t i o n a n d Economic D e v e l o p m e n t , e d i t e d b y H . P . W a l d , C a m b r i d g e , M a s s . , 195*1*.. Chao K u o - C h i i n , " C u r r e n t A g r a r i a n R e f o r m P o l i c i e s i n Com m u n i s t C h i n a " , The A n n a l s o f t h e A m e r i c a n Academy o f P o l i t i c a l  a n d S o c i a l S c i e n c e s , P h i l a d e l p h i a , 1951» P« 1 I 4 . 2 0 The tax rates range from three percent when annual total income per capita of a peasant household i s 15>0 catties (approx imately 1^0 pounds) of grain to I4.2 percent when the annual total income per capita reaches 3^+11 pounds of grain or more. The minimum tax base of 1 5 0 pounds may be lowered to 1 2 0 pounds i f i n any one year less than ninety percent of the farming pop ulace pay tax. Taxes must not exceed eighty percent of income. Another feature of the system i s that i f income i n excess of the normal annual yield i s obtained through more intensive cultivation or improvements in management no extra tax is levied. If the harves f a l l s short of the normal annual yiel d due to the t i l l e r ' s negligence no tax deduction i s made; but i f yiel d i s decreased by natural phenomena partial or total tax exemption may be granted. Tax exemption is made for three to five years on newly claimed land. Three alternative methods of calculating taxable income are used. Por income from rented land, a hundred pounds of grain are calculated as eighty; from rented-out land, one hundred pounds are calculated as one hundred and twenty and for self-cultivated land one hundred pounds are calculated as one hundred. The tax burdens on the various rural classes are approximately as follows: on landlords f i f t y percent, r i c h peasants twenty to twenty-five percent, middle-class fifteen percent and the poor eight percent. Agricultural tax in the form of public grain formed 3 7 . 2 percent of the total state revenue of Communist China i n 195>0.3 In Italy the most important method of property valuation i s 3 Ibid., p. 1 1 6 . 21 that of income capitalization. It i s stated by Medici that "tra dition and theory had long agreed that a rational appraisal judge ment could be only expressed through the capitalization of i n  come. Moreover they had agreed in distinguishing a synthetic appraisal method, based upon the synthetic appraisal of the prob able market value of the goods to be appraised, from an analy t i c a l method, more correctly known as the capitalization of i n  come. . . . "^ He..recognizes the use of market prices as value indicators but states that such prices to be valid require dis t r i c t s within which the farms are uniform i n physical character i s t i c s . This condition i s rarely found i n h i l l y and mountainous areas which predominate .in Italy-' Areboe's method of appraisal has been widely used i n Ger many for many years.^ His method presupposes the availability of large quantities of data consisting, i n part, of the a l l possible market prices. Uniform d i s t r i c t s , each representing one type of farming are used as models to establish basic values. The farms within a given d i s t r i c t for which sale prices are available are analyzed f i r s t apart from the buildings, equipment and stock. To do this the value of such improvements are deduct ed from the market value of the farm. The bare farm i s then divided into lots according to the kind of crops produced, and a ^ S. Medici, Principles of Appraisal, Ames, Iowa State College Press, 1953, P« 69. ^ Ibid.. p. I67. 6 Ibid., p. 16J+. 22 value i s assigned to each. This value is calculated from the sale prices of farms having only one kind of crop i n production. The farms i n a given d i s t r i c t are classified according to woil characteristics, size of farms and economic conditions such as markest. It i s from this classification that average prices are obtained for each class. A farm to be valued w i l l have a class assigned to each crop section into which i t has been divided, and since each class has a predetermined value the total value of the farm is calculated. To this value is added the value of buildings, equipment and stock. Any necessary addi tions or deductions for individual characteristics of the farm are made to the f i n a l value. The American system of property valuation uses three dis tinct approaches i n calculating value and then by correlating the three resultant values a single f i n a l value is obtained. The approaches u t i l i z e data obtained on sales, income and costs of given properties. This system has been adopted i n Canada and for most property valuations at least one of these approaches is used and where adequate data are available a l l three are used. The details of the system w i l l be expanded in a later section. This system of the three approaches to value has had l i t t l e acceptance i n European theory or practice, British appraisers rely heavily on the income capitalization method although the other approaches have been used to a lesser extent. 23 CHAPTER IV METHODS OP VALUATION IN CANADA The valuation methods presently i n use in Canada were de veloped at the same time as those in the United States. As a result the principles behind the methods and their applications are similar i n both countries. The process that has been estab lished i n the use of these methods i s carried out i n a systemat ic order. It commences with an identification of the problem. This includes a description of the property and the purpose of' the appraisal. The next step i s a preliminary survey to deter mine the relative importance of each of the valuation approaches and the availability of data for each. The data to be collected for the f i n a l analysis w i l l be governed by the results of the preliminary survey. When the data have been collected the next step i s the anal ysis. This can generally be done by three methods: the sales method, the cost method and the income method. In farm valuation, the sales and income methods are used because land does not lend i t s e l f to a cost valuation. The place of the cost approach is in farm building appraisal. One of the methods that can be used i n the analysis, then, i s the sales method, sometimes called the comparative or market data methods. It i s based on the proper selection of a representative sample of property sale values which, when they are analyzed, will reflect the existing market value of similar properties that are not i n the market. The merit of the sales method depends upon i t s compliance 2k with four main assumptions.^ The f i r s t is that a market exists for property at a l l times. The second i s that persons entering the market do so voluntarily. The third i s that a l l persons i n the market are f u l l y Informed as to the prevailing market condi tions. The fourth assumption is that market bids are based on estimates of the future use of the property. It is very rare i n practice, however, that these conditions w i l l be found together in the same real estate market. In areas where the land use and s o i l types are relatively uniform, the sales method provides an inexpensive and effective means of establishing land values. The method is easily under stood and accepted by the public and the courts and i t i s one &>r which the basic data are easily collected i f they are available. The sales method is accurate i n reflecting market value, however, only to the extent that the above assumptions are f u l  f i l l e d . The most important of these i s that the market Is relatively active. This is necessary i n order to provide the method with sufficiently comprehensive s t a t i s t i c a l data to make the distinctions i n value that are required i n farm valuation between the various s o i l types as well as between the land use characteristics. In order to have such distinctions reflected by an analysis of sales, there must be enough sales available having these various conditions of soil and land use in order to show the relative importance of each i n the property market. The proper Interpretation and selection of representative G.C. E l l i o t , "Theoretical Considerations on Rural Appraisal", Journal of the Appraisal Institute of Canada. December l§lj.B, p. 106. 2 £ market sales is important. Individual land sales differ widely in the nature of the properties, i n the circumstances and terms of the sale and in the nature of the buyers and sellers them selves. Pew sales are entirely free from specific circumstances that may be unknown to the assessor. The variations in physical and economic factors among properties are complex and there i s danger of error in trying to relate a limited sale sample to a wide area of dissimilarly productive acreages. The second method of analysis involves the use of the net income of the farm. It is based on the theory that the net i n  come when capitalized at an acceptable rate of interest results in an amount of capitalized earnings representative of the Hsvel of value which can be supported by the income from that farm. Theoretically, the value of a property results from the capitalization of i t s entire money stream both tangible and i n  tangible. It i s only the stream of tangible and measurable i n  come, however, which lends i t s e l f to the capitalization process. The intangible satisfactions of a location, home site and others are included here and escape capitalization. It has been sugges ted, in view of this, that this method arrives at only part of the value namely that which is measured i n money terms. It has been contended, however, that over a period of time a given level of values can be supported only by the money earning power of the property. The long time average level of values must, there fore, closely approximate the amount of the capitalized long-run money earning power. There are two procedures in use for determining the probable 26 net earnings. One procedure measures the total net income of the property by estimating the gross income and subtracting a l l the cash and non-cash expenses. The other procedure considers net income from the standpoint of a landlord's share. The landlord is assumed to have a certain capital investment i n the farm that he leases and his share of the returns, then, represents the return on his investment. From this share of returns is subtrac ted the landlord's expenses such as taxes, insurance, deprecia tion, repairs, et cetera, and the resultant figure is the es timated net income to the landlord. This i s comparable to the net income figure obtained by the f i r s t procedure. The two procedures have advantages and disadvantages. The f i r s t which seeks to capitalize the entire net income has the disadvantage of requiring a much greater number of estimates. A l l the specific items of income and expense for the property must be estimated as accurately as possible. One way to avoid misleading calculations is to have access to data on farm income and expenses for a large sample of farms i n the area under con sideration. Another way is to obtain reliable estimates of norm ally expected expenses for typical farm operations within the area. In spite of the disadvantage mentioned this procedure does arrive at an estimated figure for the total income and the level of value from i t s capitalization i s based on a l l income rather than only a selected part of that income. The procedure u t i l i z i n g the landlord's share of the income has the advantage of having a market rate which represents net income. It is easier to estimate the landlord's net income, but 27 there is doubt as to whether the capitalization of this figure results i n a correct level of value. The assumption i n the use of the landlord's share as the net income of land is that the rate of return to the landlord from his investment i n land and buildings i s equal to the rate of return to the whole investment in farming. The competitive bidding of tenants for farms is presumed to result in a land lord's share return comparable to the rate of return which a l l farmers get. Also, i t is presumed that,since the landlord can either rent the farm or farm i t himself, farmers would not rent farms when the rate of return from farming i s greater than the rate of return from renting. Conversely, i t i s assumed that farmers would cease farming and rent their farms when the return from renting becomes greater. These assumptions do not accurately reflect the landlord- tenant situation i n practice. In Western Canada, at least, most renting is done on a crop share basis. The share rental assumes that i t is possible to obtain the f a i r share of the crop to the landlord and tenant by taking the usual share of the d i s t r i c t . The share of the crop going to the landlord should vary closely with the productivity of the land but, i n practice, such share is determined largely by custom. It i s doubtful i f adequate recognition of the differences in grades of land i s accounted for in the usual crop share leases. The predominance of one- third share in some areas continuing year after year would appear to suggest that there is no close relationship between the landlord's rate of return and the return to the whole farming 28 investment. The capitalization of the total net earnings despite i t s disadvantages of requiring a larger number of estimates and more d i f f i c u l t procedure would seem to give a closer approximation. It Is more representative of farming as a whole especially i n areas where tenancy i s of minor importance; i t is based upon an estimate of the entire income and i t i s more sensitive to local conditions of s o i l , climate, et cetera, a l l of which have a direct bearing on farming returns. 29 CHAPTER V A BASIS POR ASSESSMENT OP ORCHARD LAND Property assessment i s a major problem in every country which uses land as a basis for taxation. The objective of assess ment is to provide an equitable base to which tax rate levies may be applied. Assessment i s a special form of value appraising which is an attempt to approximate market value at a given time or over a period of time. Assessment for taxation purposes however, is less concerned with absolute value than with a r e l  ative scale of property values which wi l l best serve as a base for taxation. A method of assessment often used i s the market value or sales method. The reason that this method has been widely used is probably because the assessors in the various districts do not have the time necessary to study and".prepare schedules of values based on the productivity of the land. Also, the basic data for the required analysis are not usually readily available. It is often necessary for someone other than the local assessor to collect and analyze the necessary data and provide i t to him i n a usable form whenever changes i n assessment are necessary. As a result, the method used w i l l usually be the one for which the basic data are most easily obtained. In the Okanagan valley of British Columbia the sales method has dominated the assessment of orchard lands. The method has not been used, however, without i t s inherent weaknesses being evident. The growth and development of an orchard i s a long-term undertaking as i t takes at least fifteen years from the time of planting to bring the trees i^el! into production and another fifteen to twenty years w i l l elapse before the productive l i f e is ended. In view of this characteristic.. of "orchard production, sales information tends to be somex^ hat unreliable because buyers and sellers lack the necessary information about the market. Furthermore, the sales tend to be clustered among the farms of small acreages. While the values derived from an analysis of these sales would probably approximate the market value with re spect to the small farms, i t could be quite misleading to apply such values to larger farms, since there i s considerable evid ence that many of the small farms are being purchased for purposes other than to provide a source of income The sales method, although i t has been the main one used in orchard assessment, has not been used i n past assessments i n the sense that the method implies. The average sale value for an acre of orchard was determined by an analysis of the available sales i n a given d i s t r i c t . This value was the arbitrarily d i v i  ded into the parts which were thought to make up this value. One-third of this value was thought to be contributed by trees and the other two-thirds by the other factors such as s o i l and topography. The one-third portion of. the sale value figure con tributed by trees was deducted from the total figure to arrive at the indicated sale value for bare land only. This, then, removed the influence of trees from the orchard valuation. The reason for doing this was that the Taxation Act states that trees are not taxable and therefore i t was f e l t that they should not enter into the valuation. Yet, i t is conceded by the above calculations that they do have an influence on value. The point in question is not whether the trees can be taxed 31 but whether they can be assessed along with the land on which they are standing. The assessor does not determine what shall be taxed nor the rate of taxation, his sole function i s to est ablish a value to be used as a basis for taxation. The position of f r u i t trees is similar to that of farm buildings which are assessed but not taxed under the Taxation Act. The orchards i n the Okanagan are not homogeneous within themselves with respect to age, variety and kind of f r u i t pro duced. Each orchard usually has several kinds of fr u i t (e. g. apples, pears, cherries etc.) as well as different varieties of each kind of f r u i t . Also, there i s usually a wide range of tree ages within the orchard. Since this heterogeneity exists, the value of an orchard cannot be accurately determined by the qual ity of the land alone but must also include the composition of the orchard i n respect to the age, variety and kind of trees grown. The assessment of land and trees together on orchard prop erties should lead to a more accurate reflection of value. One might strongly question the use of an arbitrary percentage to represent the contribution of trees to total land value. This contribution would be most d i f f i c u l t to estimate accurately, but even more important, the contribution would not be uniform on each acre of any given farm l e t alone for a complete d i s t r i c t due to the heterogeneity of an orchard acre. To try to draw a distinction between land and trees i n the composition of orchard value would assume a degree of precision not found i n assessment procedures. 3 2 The inclusion of trees i n the orchard land values would immediately raise the property assessments. This should not cause concern, however, because as long as the assessments are uniform the tax burden w i l l be no greater than before. The m i l l rate of taxation w i l l be correspondingly lower under these circumstances. An assessment method for orchards including both land and trees would provide more equitable valuations than those obtain ed by the sales method. The small number of orchard sales available i s not sufficient to reflect the price differences paid for orchards that have bearing or non-bearing trees. Obvious value differences do exist because of the difference i n earning power of each. Also, there are differences in earning power between different kinds of f r u i t trees and different varieties as well as between different ages of trees. If the available sales were sufficient in number they would undoubtedly show sensitiv i t y to these factors. Since this Is not the case, however, i t is proposed that a method of orchard assessment be established which i s related to the earning power of the orchard. Since i t appears that the problems facing assessors arise from the procedures used i n the determination of the assessed value of land, any improvement must be directed at those proced ures. This i s the main consideration here. The role of farm buildings i s omitted and attention i s paid solely to the deter mination of the value of orchards alone. An effective improvement i n the method of assessment must possess certain characteristics: 33 1 . In accordance with the Taxation Act a l l taxable prop erty i n British Columbia must be valued and assessed at i t s actual value.^ This means that where two parcels of land d i f f  er in quality there must be a corresponding difference in the assessed or actual value. It i s undoubtedly the sincere desire of the assessment off i c i a l s to f u l f i l l t h i s characteristic but even though an assessor might succeed in establishing the proper relationship between the individual farms within his d i s t r i c t , he has d i f f i c u l t y i n assigning values to the properties that w i l l be i n line with the values assigned in other d i s t r i c t s . The designers of the prop erty tax system apparently were aware of these d i f f i c u l t i e s and established tax equalization boards whose duties were, among other things, to review assessed values within and between dis tr i c t s in the Province. The results that such a board can ob tain are necessarily limited, however, i n that i t cannot deter mine the difference i n value of two neighboring farms without taking over the duties of the local assessor. Any improved.method must possess an administratively feas ible means of making adjustments in assessed values to account for material changes in economic conditions. The time and exp ense involved in determining the appropriate actual value for a l l properties within a d i s t r i c t w i l l not permit complete revis ion of assessments very frequently. It must be possible, there fore, to use the values determined under an assessment method Revised Statutes of British Columbia, 1 9 5 " 0 , Chapter 7 2 , Section !{.. 32+ long enough to justify the necessary revision expenditures with out a decline in the validity of the assessments. Since the act ual values, i f they have been properly determined, may also be considered to be the proper relative values, i t appears that a general change i n economic conditions or an equalization adjust ment may be accounted for by making a necessary percentage adjustment. 2. An improvement i n one phase of property tax administra tion must not be made at the expense of another. The cost of making an improvement i n the method of determining the assessed value must not be so great that i t offsets any advantage derived from the improvement. Any plan proposed should be of such a nature that i t i s administratively feasible. 3. Any improved method of assessment should not be so comp licated that i t cannot be readily understood by the landowner. It is quite l i k e l y that the adoption of a new method of real estate assessment would lead to the taxes on some land being lowered, on some they w i l l remain the same, and on the rest the taxes w i l l be increased. This would be essentially the reason for the change in method. The farmers i n the f i r s t two categories w i l l say l i t t l e but the ones who have experienced the tax increase w i l l immediately want to knoxtf why. If the method used meets the characteristics mentioned before and has been accurately admin istered, and i f the logic behind the change can be understood by the landowner there should be few serious objections to such increases. 35 The Determination of Actual Value The f i r s t requirement prescribed that, i n accordance with the Taxation Act, a l l property in British Columbia subject to taxation must be assessed at i t s actual value. The question that arises is what i s actual value. The Act states that "in determining the actual value, the Assessor may give considera tion to present use, location, original cost, cost of replace ment, revenue or rental value, and the price that such land and improvements might reasonably be expected to bring i f offered for sale i n the open market by a solvent owner and any other circumstances affecting value." The way that the actual value of farm property may be determined by the assessor i s not well defined. The sense in which actual value i s used in the present work may also be termed productivity value. The principle under which the term is used here is that i f a man wishes to invest a sum of money wisely i n property, he i s willing to be satisfied with an average or normal annual net return equivalent to a reasonable rate of interest on this sum of money. Normal annual net return is determined by taking into consideration normally expected costs and receipts over a specified period of years. On this basis, the actual value of a parcel of land is the sum equival ent to the normal annual net return from that land, capitalized at the prevailing rate of interest on investments of sirdlar risks. In general, actual value is dependent upon two factors: (1) normal annual net return, ( 2 ) prevailing interest rate on investments of similar risks. The determination of normal 36 annual net return i s , i n turn, dependent upon three factors: (1) y i e l d or production. (2) prices received for fruit. (3)cost of production. In the analysis done in this work a l l factors are consid ered on a "per tree" basis. It was f e l t that this was the most accurate way to describe the actual financial structure of or chards. The absence of basic data necessitated the establish ment of a schedule of expected normal costs of production. This schedule was constructed for a twenty-acre orchard which, while i t does not represent a large or small orchard, is considered by people i n the industry to be an economic unit. The costs that are contained i n the schedule represent those that would be normally expected under typical namagement practices for the area. Also, because of limited yield data only two varieties of one kind of f r u i t are considered. These are the Mcintosh and Red Delicious apple varieties. As the yie l d data becomes avai lable the analysis can easily be extended to include other varieties. In order to consider other types of f r u i t i t w i l l be necess ary to construct cost of production schedules for each type sep arately and obtain the necessary y i e l d data. There i s also a significant variation In yields and costs of production between different districts i n the Okanagan Valley. These, too, w i l l have to be given attention i n the extension of the analysis. The level of investment w i l l vary between farms of different size. In small farms factors such as custom work become a more impor tant item of expense whereas large farms are more self sufficient 37 with respect to machinery. These things would have to be studied to find out i f there i s a significant difference in overall costs of production between farms of various sizes. The assessment of orchards presents problems that are consid erably different than those encountered i n other types of farm ing. In the case of a new orchard or newly planted tree, i t s value i s small because i t has no income. As i t increases in age i t receives increasing amounts of inputs i n the form of labour and materials but i t s t i l l yields no income. In this phase i t experiences a negative net income. As the tree reaches a cer tain age, i t starts to bear f r u i t and during this period net: income w i l l change from negative to positive at an increasing rate. During the f i n a l stage net income increases at a decreas ing rate u n t i l eventually i t becomes zero again at which time the tree i s replaced. The problem i n the assessment of an orch ard i s to determine i t s value at any point i n i t s l i f e cycle. The value of the orchard w i l l be based upon the anticipated net i n  come over the remaining l i f e of the orchard. Since an orchard i s composed of trees of varying ages i t i s necessary to discount the anticipated net incomes of a l l the trees back to the date of assessment. This i s the method that Is used i n the present analy sis to establish a basis for orchard assessment. The data used corresponds to that of owner-operator orchards. Determination of Yields The f i r s t determinant of net income to be considered i s the yield of apples per tree. The yi e l d not only influences the level of net return but also causes much of the difference i n 38 net returns between orchards. One of the important factors affecting apple yields i s the variety that is grown. Different varities have different patterns, hence, i t i s necessary to make a distinction between varieties i n order to measure the income of an orchard.;-:'. Another important determinant of yield is the age of the tree. In order to determine the yiel d pattern throughout the l i f e of a tree i t i s necessary to establish a yield curve, that i s , a schedule of normally expected annual yields. This curve shows the expected yields for each age of the tree and i s re quired to estimate the expected income at any given time. Ideally age intervals of one year would provide the most complete est imate of a tree's productivity. It i s d i f f i c u l t , however, to obtain tree ages more accurately than at five year intervals because of the lack of records kept by the orchardist and the lack of any rapid f i e l d measurement of age. As a result tree ages have been divided into eight groups containing five years, each. (Figures 1 and 2 ) . Physical characteristics such as the type of s o i l , the per cent of slope, the degree of erosion and the incidence of winter injury from frost also influence yield. Tree fruits are less dependent upon distinctions between s o i l types and more depend ent upon a favourable climate than most other crops. They are able to produce satisfactorily on shallow, gravelly soils which might be regarded as poor or non-arable for crops which have a more limited root system. 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I - - . - 1 J : : -- - - - - Z — 1 • - - - -- 1 r i 1 1 1 —1 \ 0 4- I D - i - 4 — „ i. 1 T ree- i i -A . )e- •»-hY.e.o.r s 0 u F I c T i afi 1 1f GE Siimme r an d xaer 1 en s:t .0 Economics Di vision. J Canada .Deo ar.1 mentJ _0f A aticu. H it e 1 1 1 1 T I I | | J •> • a i: 4 - Ok, j \ . | j a ct: - - -- Comm e.r_ci Orchards icia Vfl 1 e - -- - • • ' 1 i 1 1 i i | | i 1 1 1 ! J-. 4 .11, IT •1 - 4 - -- i 1 1 4 1. 4 4- 1 1 . 1 -i . - . . . - - 4 I 11 tut: L i - -L i - 4 - 4 .411.. i { . ! - 4 - - 4--. u li-! clearly defined i f the same soils were used i n the production of f i e l d crops and vegetables. Certain s o i l types do, however, pro duce one tree fr u i t crop better than they do another. Each s o i l type i n the Okanagan Valley has been rated according to i t s suit a b i l i t y for the production of a l l tree f r u i t s . Over forty s o i l types of the four major s o i l zones have been assigned individual productivity ratings on this basis. The most productive s o i l types have received a rating of 1 0 0 and less,-productive s o i l types are rated as a percentage of this maximum figure. The pro ductivity ratings for the soils of the Summerland area are given i n Table 1 . The effect of the percent of slope upon the productivity of the s o i l is well known. The difference i n moisture absorption on slopes is due mainly to the more rapid run-off. The Okanagan Valley is typical of the rough mountainous topography generally found in British Columbia. Changes i n elevation are often rapid and this leads to the frequent occurence of slopes approaching or exceeding the maximum for agricultural use. Slope i s a factor i n the cost of farm operation and since so i l types may cover a vari ety of slopes a reduction i n the productivity ratings of soils according to the precent of slope i s necessary. (Table 2). The degree of.erosion also influences s o i l productivity and, hence, yields especially in areas of adverse topography. Extensive erosion may cause patches of unproductive land to appear in some orchards where the trees are smaller or are not able to grow at a l l . The type of s o i l influences the rate of erosion and in the Okanagan Valley where irrigation i s required throughout most of of the growing season i t has been recommended that cover crops TABLE 1 SOIL PRODUCTIVITY RATINGS FOR THE SUMMERLAND AREA OF THE OKANAGAN VALLEY OF BRITISH COLUMBIA S o i l Type Apples Pears Plums Prunes C h e r r i e s Peaches A p r i c o t s P e n t i c t o n 1 0 0 1 0 0 1 0 0 1 0 0 90 90 90 S i l t Loam Skaha G r a v e l l y Sandy Loam 5 5 50 4 5 4 5 4 0 6 5 4 5 ( k e t t l e phase) Osoyoos Sandy Loam 80 80 80 80 8 5 9 5 80 ( t e r r a c e phase) Osoyoos Loamy Sand 5 0 3 0 3 0 3 0 6 5 6 5 5 0 ( k e t t l e phase) Rutland G r a v e l l y Sandy Loam 6 5 4 0 4 0 4 0 6 5 4 5 4 5 ( t e r r a c e phase) N i s c o n o l i t h 6 0 7 0 6 0 6 0 5 0 70 7 0 S i l t Loam N i s c o n o l i t h 6 0 70 6 0 6 0 5 0 7 0 7 0 Sandy Loam Rubble 7 5 7 0 7 5 7 5 8 5 7 5 6 5 SOURCE: B r i t i s h Columbia Department of A g r i c u l t u r e , Proceedings of the Reclamation  Committee, Kelowna, 1 9 5 2 , B r i e f no. 1 5 . 1*3 TABLE 2 ADJUSTMENTS TO SOIL PRODUCTIVITY RATINGS POR TOPOGRAPHY Per Cent Slope Per Cent Deduction 0 - 1 0 N i l 1 1 - 1 5 5 16 - 20 15 21 - 25 30 26 - 30 50 over 31 80 Source: British Columbia Department of Agriculture, Proce:e.dings  of the Reclamation Committee, Kelowna, 1952 ,Brief no. l b . be planted on certain s o i l types to retard both erosion and run off. In orchards where s o i l erosion i s present i t has been rec ommended that adjustments be made to the productivity rating of the soils i n accordance with the degree of erosion. (Table 3 ) . Another physical characteristic that can greatly influence fruit tree yields i s winter injury. The occurrence of this type of injury, generally, is not frequent, however, when i t does occur i t can have a marked effect on yield and i n severe cases many trees may be k i l l e d . Injury i s usually a result of extremely low temperatures or other abnormal temperature effects and is confin ed for the most part to certain l o c a l i t i e s . A micro-climatic factor which reduces the severity of winter injury i s the moder ating effect of lakes near tree f r u i t growing areas. In such areas the frost-free period i s extended thus benefiting the f r u i t varieties which experience late dormancy or early blossoming. T A B L E 3 . A D J U S T M E N T S TO S O I L P R O D U C T I V I T Y R A T I N G S POR E R O S I O N C o n d i t i o n P e r c e n t D e d u c t i o n ( a ) No e r o s i o n N i l ( b ) S l i g h t E r o s i o n : m o r e t h a n 10% a n d u p t o 25$ o f h o r i z o n A , h a s b e e n r e m o v e d . 10 ( c ) M o d e r a t e E r o s i o n : m o r e t h a n 25$ a n d u p t o 50% o f h o r i z o n A , h a s b e e n r e m o v e d . 25 ( d ) S e v e r e E r o s i o n : m o r e t h a n $0% a n d u p t o 75$ o f h o r i z o n A , h a s b e e n r e m o v e d . I n p l a c e s $0 h o r i z o n B , o r h o r i z o n B - D a r e e x p o s e d . ( e ) E x c e s s i v e E r o s i o n : m o r e t h a n 75$ of h o r i z o n A , h a s b e e n r e m o v e d . H o r i z o n B , a n d p a t c h e s o f h o r i z o n Bp a r e e x p o s e d a n d h o r i z o n B - D 80-100 h a s b e e n p a r t l y r e m o v e d . S o u r c e : B r i t i s h C o l u m b i a D e p a r t m e n t o f A g r i c u l t u r e , P r o c e e d i n g s  o f t h e R e c l a m a t i o n C o m m i t t e e . K e l o w n a , 1 9 5 2 , B r i e f n o . 16. I n some c a s e s t h e l a k e s may f r e e z e o v e r t h e r e b y m u l l i f y i n g a n y p r o t e c t i v e i n f l u e n c e . I t i s a l s o s i g n i f i c a n t t h a t t r i b u t a r y a i r s t r e a m v a l l e y s e n t e r i n g t h e m a i n v a l l e y p o u r c o l d i n t o t h e v a l l e y b o t t o m . T h i s a d v e r s e l y a f f e c t s o r c h a r d s t h a t a r e l o c a t e d i n t h e m a i n v a l l e y a t t h e m o u t h s o f t h e s e t r i b u t a r i e s a n d w i n t e r i n j u r y i s o f h i g h e r i n c i d e n c e i n t h e s e a r e a s . I n g e n e r a l , m o s t t r e e f r u i t v a r i e t i e s h a v e " h a r d e n e d o f f " s u f f i c i e n t l y t o w i t h s t a n d t h e s e c o n d i t i o n s i n m o d e r a t i o n d u r i n g t h e w i n t e r m o n t h s . The m o s t s u s c e p t i b l e p e r i o d i s i n t h e e a r l y s p r i n g w h e n t h e b l o s s o m s h a v e s t a r t e d t o a p p e a r . B l o s s o m f r o s t s w h i l e n o t u s u a l l y i n j u r  i o u s t o t h e t r e e s t h e m s e l v e s c a n c a u s e t h e l o s s o f a l l o r p a r t o f t h e c r o p f o r t h e c o m i n g y e a r . I n v i e w o f t h i s s i t u a t i o n i t - il-5 has been recommended that there be a reduction i n the product i v i t y ratings for orchards located i n areas which are subject to blossom frost. The amount of the reduction i s based upon the expected frequency of such frosts during the blossom period.;:..::' (Table l\) • These s o i l productivity ratings and the various adjustments that can be made to them for the conditions mentioned could be extremely useful i n the application of basic land values to ind ividual orchards. It would be through the use of these ratings that inter-farm differences i n production conditions would be reflected i n the assessed values. TABLE l|. ADJUSTMENTS TO SOIL PRODUCTIVITY RATINGS POR BLOSSOM FROST Occurrence Per Cent Deduction Every year 10 Every second year 8 Every third year 6 Every fourth year l± Every f i f t h year 2 Source: British Columbia Department of Agriculture, Proceedings  of the Reclamation Committee, Kelowna, 1 9 5 2 ,Brief no.16. p Wilcox states that there also can be a marked reduction i n in tree yields due to biennial bearing. This is of more * J.C. Wilcox, "Some factors Affecting Apple Yields in the Okanagan Valley", Scientific Agriculture, Ottawa,December, 19l4l-,p205» Importance among some v a r i e t i e s than o t h e r s . He p o i n t s out th a t been to some extent t h i s f e a t u r e has reduced i n importance i n r e c e n t years by the p r a c t i c e o f spray t h i n n i n g . D e t e r m i n a t i o n o f P r i c e s Each v a r i e t y o f apples o b t a i n s i t s ovm p r i c e i n the market. This p r i c e may be determined by the time o f the season t h a t the v a r i e t y reaches the market but u s u a l l y i t i s i n f l u e n c e d more by the consumer's p r e f e r e n c e f o r a c e r t a i n v a r i e t y . The d i f f e r e n c e i n p r i c e s between v a r i e t i e s r e c e i v e d by the o r c h a r d i s t remains f a i r l y constant i n the s h o r t - r u n , however, the gradual change i n consumer's t a s t e s as new v a r i e t i e s are developed tends to s h i f t the r e l a t i v e p r i c e s over a lon g e r p e r i o d . Por many years the Mcintosh v a r i e t y had r e c e i v e d one o f the h i g h e s t p r i c e s i n the apple market, but durin g the p a s t ten years i t has been d i s p l a c  ed by s e v e r a l other v a r i e t i e s o f which Red D e l i c i o u s i s one. A major f a c t o r c o n t r i b u t i n g , to t h i s , however, has been the extrem- l y l a r g e volume o f Mcintosh b e i n g produced. This i s p r e s e n t l y causing low r e t u r n s f o r t h i s v a r i e t y . In order to o b t a i n a normal or average p r i c e per box f o r each v a r i e t y i t i s necessary to study the h i s t o r i c a l p r i c e p a t  t e r n s . Considerable v a r i a b i l i t y was observed between i n d i v i d  u a l years due to f l u c t u a t i o n s i n the s i z e o f the crop. I n ge n e r a l , however, i t was not d i f f i c u l t to e s t a b l i s h a t r e n d i n p r i c e s . To c a l c u l a t e an average o v e r a l l p r i c e f o r each v a r i e t y i t was necessary to weight the p r i c e s p a i d to the grower from a l l sources. Since each v a r i e t y r e c e i v e s s e v e r a l grade p r i c e s as well as a manufactured price the weights for these prices were determined by the respective volumes of each produced by the whole industry. The collection of the prices received by the growers is greatly f a c i l i t a t e d by the fact that a l l f r u i t is sold through a central selling agency. This means that a l l growers throughout the Okanagan Valley receive the same price for each grade of apples that they produce. The weighted overall average price for each variety was calculated for each year from 19^ 4-2 to 1957. In order to reflect the recent changes In relative prices of different varieties a ten-year moving average price was chosen instead of an average price for the whole period. (Appendix, Table 6). The tree yields as indicated by the yield curve for each variety were converted from a loose box to a packed box basis by multiplying the former figures by 0.70 since i t i s on this basis that the price was determined. The expected gross income was then cal culated by applying the average price to the yiel d in packed boxes for each of the age groups. (Appendix, Table 7). Determination of Cost of Production Although production costs are seldom the same for any two orchardists the influence of the individual operator upon costs must not be considered i f differences In net income are to be based essentially upon differences attributable to the trees and s o i l . Instead, typical production practices which are f o l l  owed by the average operator must be used so that the outstand ing operator w i l l not be penalized for his managerial a b i l i t i e s and so that the inefficient operator who lacks i n i t i a t i v e and foresight w i l l not be subsidized. The cost of production figures used in this analysis are based upon the estimates of people i n the industry and checked against data obtained by the Economics Division, Canada Depart ment of Agriculture (Appendix, Table 8). They represent the normally expected costs of operating a twenty acre all-apple orchard under average management. The fact that many orchards contain several kinds of f r u i t does not significantly affect the cost of apple production. In general, other kinds of f r u i t would merely shift a portion of the total production costs to a different part of the growing season. The main factor causing differences i n the costs of produc tion of apples is the age of the trees. The difference in costs between varieties of apples i s mainly associated with yiel d d i f f  erences. This can be readily determined by the shape of the respective y i e l d curves. In order to examine the age increment in the cost of production of a tree as i t moves from one age group to another i t was necessary to obtain data on each expense item for each of these groups throughout the lifetime of the tree. In the f i r s t age group, (1-5 years), data were obtained for each year i n order to show certain changes that take place during that period with respect to costs and income. The costs are higher during the f i r s t year because the young trees have to be set out and require extra attention at this time. These costs decline as the tree grows older but are k9 replaced by the increase i n other costs such as pruning and spraying. When the trees start to yield the income rises and for the Red Delicious apple variety the annual income equals the costs when the trees reach fourteen years of age at the given level of prices and costs. Above this break-even point, a positive net income i s realized which continues to increase un t i l the trees reach maximum production at about twenty-seven years of age. After this point, a decline i n yield and net income takes place. (Figure 3)« \ For the Mcintosh variety the cost curve i s slightly higher than for the Red Delicious. The reason for this is that the higher yield of Mcintosh trees increases the cost per tree of handling the f r u i t . The present level of prices for Mcintosh apples i s not sufficient to cover the costs of production at any age of the tree. (Figure 1}.). The low prices for this variety i s undoubtedly a result of over-production i n the face of increasingly restricted markets. At the time when the pres ently producing trees were planted the price-cost relationship was quite favorable. Since World War I I , however, the demand has slackened but the supply has remained high because of the long-term productivity of trees. Nothing can be done to curb production short of pulling the trees out, once they have started to produce. The result, then, is extremely low prices which does not allow the orchard!st to break-even when a l l costs are considered. £ 2 Capitalization of Met Income The expected net income i s calculated by subtracting the total cost per tree from the gross revenue per tree (Appendix Table 9 ) . The maximum net income is reached in the age group 26-30 years for Red Delicious. For Mcintosh this age group provides the lowest negative net revenue. Since the value of an orchard is to be based on the antic ipated net income over the l i f e of the tree, i t i s this figure for each age that is discounted back to the present date. How ever, before this can be done the rate of capitalization to be used for this purpose must be established. Some objections have been raised concerning the use of the capitalization method because of the d i f f i c u l t i e s involved i n establishing the rate. While this is true, i t i s not an argu ment against the use of the capitalization method which i s sound in principle, being based upon the productivity of the asset. There are several methods by which the capitalization rate may be determined. One of the most common ways is analpgous to the sales analysis method of calculating value. It involves determining the net income from properties that have been sold and dividing the net income by the selling price or offering price. This method is subject to the limitations of the sales analysis method of valuation, the most important of which i s the dif f i c u l t y of obtaining a sufficient volume of sales. Another method of establishing the capitalization rate i s to use the market rate for competitive investments. The principle on which this method rests is that real estate can be expected 5 3 to attract capital at a similar rate of return to that which can be obtained by capital i n other investments of similar risks. A third method involves the summation of different rates which have been weighted according to their relative importance to the property in question. This could be the combination of f i r s t and second mortgage rates and a rate of return on the re maining equity weighted by the percentage of the total invest ment that each constitutes. The sum of the products thereby calculated would provide an overall rate for the property. In the valuation of farm property, assessors have often adopted a capitalization rate equal to the f i r s t mortgage inter est rate on this type of property. The main criticism of accept ing the mortgage interest rate i s that i t represents a return to an investment with less risk than that represented by the equity capital invested i n the farm property. It would be reasonable to think that If the f i r s t mortgage rate was 5 per cent and the sec ond mortgage rate was 6 per cent then the return on the equity of the owner would be at least 7 or 8 per cent. On this basis It might be thought that the capitalization rate should always be higher than the mortgage interest rate because of the difference in risks involved between owning the mortgage and owning the whole farm. It has been shown, however, that the rate of return on land has often been below the mortgage interest rate.3 This relationship probably stems from a generally held belief that -> M.M. Regan, P.A. Clarenbach, and A.R. Johnson. "The Farm Real Estate Situation", U.S.D.A. Circular no. 721, W^b^-l^, p. 20. land w i l l become relatively scarce as population grows and that land ownership is a useful hedge against inflation as well as a source of security in depression. The capitalization rate tends to be lower when the conven iences offered by the farm are important. These include the availability of business centres, markets and communications and the desirability of the property as a homesite. Another factor that would tend to lower the rate is the moderate size of the farms which makes them accessible to a f a i r l y large number of purchasers x*ho are interested i n places to l i v e . There seems to be as much, i f not more, in favour of using a capital ization rate which is lower than the existing mortgage rate as there is In favour of using one which i s higher. M u r r a y 3 states that there is a tendency toward equilibrium between the mortgage interest rate and the return from land i n  vestment. If the interest rate goes up in any area, investors and potential land owners prefer to invest i n mortgages rather than i n farms. This causes a decline in the demand for land which i n turn causes the price to f a l l and the rate of return to rise. If the interest rate goes down in any area, certain inves tors take their money out of mortgages and buy land. This tends to raise the price of land and lower the rate of return. Calculation of Present Values In order to obtain the present value of an asset i t i s necessary to discount the anticipated net income back to date. . . _____ J William G. Murray, Farm Appraisal, Ames, Iowa State College Press, 3 r d ed., 19514-, p. 55 The p r i n c i p l e b e h i n d t h i s p r o c e d u r e i s t h a t t h e p r e s e n t v a l u e o f a n a s s e t i s d e p e n d e n t u p o n t h e f u t u r e e a r n i n g p o w e r w h i c h , b e c a u s e i t e x t e n d s i n t o t h e f u t u r e , i s w o r t h l e s s t h a n i t w o u l d b e i f i t w e r e p r e s e n t l y a v a i l a b l e . T h e r e f o r e , i t i s n e c e s s a r y t o d i s c o u n t t h e f u t u r e a n n u a l e a r n i n g s o f a l l t h e t r e e s t o a r r i v e a t t h e v a l u e o f t h e o r c h a r d a t t h e p r e s e n t t i m e . The b a s i c e q u a t i o n u s e d i n c a l c u l a t i n g p r e s e n t v a l u e i s (1) V=-^- w h e r e "R" r e f e r s t o t h e a n n u a l n e t i n c o m e a n d " r " r e  f e r s t o t h e m a r k e t i n t e r e s t r a t e . T h i s e q u a t i o n a s s u m e s a c o n  s t a n t r a t e o f i n c o m e o v e r a n i n d e f i n i t e p e r i o d o f t i m e a n d m u s t b e m o d i f i e d t o t a k e i n t o a c c o u n t s h o r t e r t i m e p e r i o d s o r c h a n g  i n g l e v e l s o f n e t i n c o m e . P o r e x a m p l e t h e b a s i c e q u a t i o n may b e e x p a n d e d t o g i v e (2)v=-^- |l — ^^r^n ) : e q u a t i o n p r o  v i d e s f o r t h e t e r m i n a t i o n o f i n c o m e s b u t a s s u m e s t h a t t h e a n n  u a l n e t i n c o m e s a r e t h e same f o r e a c h y e a r . I n o r d e r t o p r o v i d e f o r v a r i a t i o n s i n c o s t s a n d r e v e n u e s f o r e a c h y e a r a s w e l l a s t h e t e r m i n a t i o n o f t h e s e f a c t o r s I t i s n e c e s s a r y t o e x p a n d t h e e q u a t i o n f u r t h e r i n t o (3) V = l-K * (l+r)aMT+rp^ 0-rr)" w h e r e "R^" r e f e r s t o t h e g r o s s r e v e n u e s a t t h e e n d o f e a c h y e a r a n d " C " r e f e r s t o t h e c o s t o f p r o d u c t i o n a t t h e b e g i n n i n g o f t h e y e a r . ; The p r e s e n t v a l u e s w h i c h w e r e o b t a i n e d a s a r e s u l t o f t h e a p p l i c a t i o n o f t h i s e q u a t i o n a r e s h o w n i n T a b l e 5 a n d F i g u r e $ . T h e s e v a l u e s a r e b a s e d o n t h e a v e r a g e l i f e o f a t r e e b e i n g f o r t y y e a r s . The p r e s e n t v a l u e s r e a c h a m a x i m u m d u r i n g t h e 16-20 y e a r s 56 age group. This i s earlier than the age at which the maximum net income is realized; this illustrates the fact that a tree i s most valuable not at the age when i t s net income is the highest but rather at the age when i t s most productive years are just ahead of i t . The present values assume the continuation of typical management practices throughout the productive l i f e of the tree and, as a result, these values w i l l not equal market value i f general economic conditions cause buyers and sellers to foresee inflationary or deflationary tendencies in the years ahead. The present value per tree at one year of age i s shown on Table 5 to be a negative figure. This has resulted from the high level of costs incurred during the non-bearing period of the tree's l i f e . This is not to say, however, that the orchard is of no value when the trees are at this age. The value of a tree at this age is more dependent upon the cost of producing i t than i t is at an age when i t becomes productive because then it s income producing a b i l i t y i s the main determinant of value. The value of a young tree should be at least equal to, i f not greater than, the cost of producing i t because the orchardist expects to recover the production costs during some future per- worth lod. The trees which are already growing may be something more than their cost of replacement. The value of orchard land before the trees are planted or when the trees are ready to be replaced must be based upon the anticipated income from the land when i t i s used for orchard or some other competing use. This would involve calculating the 57 TABLE 5 CALCULATION OP PRESENT VALUES POR RED DELICIOUS APPLE TREES BY AGES Age of Net Income Present Value Present Value Trees Per Tree Per Tree Per Acre^ Years $ $ $ 1 -3.50 -2.10 2 • -3.20 1.50 70 3 -3.50 I1..90 21^0 k -3.90 9.00 _£0 5 -k'k-0 13.70 660 6-10 -3.50 31+.50 1660 11-15 -O.ij.0 55.8o 2680 16-20 J4.I4.O 68.80 3300 21-25 6.70 65.50 31^ 0 26-30 7.00 55.30 2650 31-35 6.60 lj.0.10 1920 36-Ij.O 6.20 111.. 30 690 I4.8 trees per acre. 59 average annual net income that would be expected from alterna tive uses and assuming that this average income approximates the expected future income, the value of the site can be ob tained by the use of Equation (2). This would perhaps repre sent a ceiling of value i f the future trends of incomes and costs appear to be uncertain. v In the case of Mcintosh trees which received a negative net income throughout their l i f e span i n the above analysis, i t i s not possible to calculate their present values. This means that at the existing price for Mcintosh apples the trees themselves have no value and that the only value of such an orchard l i e s in the basic site value of the land as determined by the aver age annual net income from alternative uses discounted to date. The orchard conditions under which the basic data were est ablished apply part of the Summerland d i s t r i c t of the Okanagan Valley. The predominant s o i l type was Penticton s i l t loam with slightly undulating topography (less than 10 per ce.nt slope) and there was no significant erosion. This area was not considered to be subject to blossom frost with any regularity. These condi tions are perhaps the best for orchard production and the values obtained from the analysis would represent the maximum for the area. This area was selected only because i t provided the nec essary basic data for the analysis. The application of these values to other areas in the d i s t r i c t would lead to lower values as a result of the existence of less favourable production conditions. The conditions under which the basic data are ob tained need not be ideal however; as long as they are uniform 60 the n e c e s s a r y c o n t r o l can be o b t a i n e d . In order to o b t a i n the a c t u a l values o f i n d i v i d u a l orchards i t w i l l be necessary to o b t a i n a complete i n v e n t o r y o f the t r e e s i n each o r c h a r d w i t h r e s p e c t to the k i n d o f f r u i t , v a r i e t y and age. The p r e s e n t values as c a l c u l a t e d by E q u a t i o n (3) would be a p p l i e d to the number o f t r e e s i n each age group i n the o r c h a r d . The sum o f the v a l u e s thereby o b t a i n e d would g i v e the t o t a l i n v e n t o r y value o f the o r c h a r d . T h i s i n v e n t o r y value would then be a d j u s t e d f o r the p h y s i c a l c h a r a c t e r i s t i c s o f s o i l , s l o p e , e r o s i o n and blossom f r o s t . I t i s q u i t e probable, e s p e c i a l l y i n the l a r g e r orchards, that the i n v e n t o r y value would have to be d i v i d e d i n t o p a r t s to accommodate more than one s o i l type, d i f f  erent degrees o f slope and e r o s i o n and the presence o f f r o s t p o ckets. Another f a c t o r which might r e q u i r e c o n s i d e r a t i o n i n the p h y s i c a l adjustments to value i s the problem o f a i r d r a i n  age over an o r c h a r d . T h i s i s c l o s e l y a s s o c i a t e d w i t h f r o s t dama ge and a f u r t h e r allowance f o r i t c o u l d be g i v e n i n the f r o s t adjustment. The I n f l u e n c e o f non-income f a c t o r s on the b a s i c value o f the o r c h a r d i s not e a s i l y determined. C e r t a i n f a c t o r s such as the convenience o f markets, schools and the type of roads and other s e r v i c e s are g e n e r a l l y not important i n the Okanagan V a l l e y because they are u s u a l l y adequately a v a i l a b l e i n a l l areas. In the case o f markets, the farmer's r e s p o n s i b i l i t i e s end when h i s f r u i t I s d e l i v e r e d to the n e a r e s t packing house which i s u s u a l l y w i t h i n a few m i l e s o f h i s farm. The o r c h a r d v a l u e s c a l c u l a t e d by t h i s method should not 61 r e q u i r e r e v i s i o n more o f t e n than once every f i v e y e a r s . The movement o f p r i c e s and c o s t s should be r e l a t i v e l y slow i n mak in g s i g n i f i c a n t changes and should not be a source o f d i s p a r i t y i n v a l u e s . The most important f a c t o r r e q u i r i n g re-adjustment w i l l be the i n v e n t o r y o f the t r e e s because o f the changes i n value which accompany changes i n t r e e ages. Since the age groups are at f i v e year i n t e r v a l s , however, a r e v i s i o n o f the i n v e n t o r y once i n f i v e years would be adequate to keep the values up to date. The t a s k o f i n v e n t o r y r e v i s i o n would be g r e a t l y a s s i s t e d by the f a c t t h a t the H o r t i c u l t u r e Branch o f the Department o f A g r i  c u l t u r e undertakes a complete t r e e census i n a l l d i s t r i c t s i n the Okanagan every f i v e y e a r s . Instead o f d u p l i c a t i n g the e f f o r t s o f t h i s Department by unde r t a k i n g i t s own t r e e census f o r assessment purposes, i t would seem f e a s i b l e t h a t t h i s I n f o r m a t i o n c o u l d be made a v a i l a b l e to the Department o f Finance and the a s s e s s o r s for the purposes o f i n v e n t o r y r e v i s i o n . In the case o f i n d i v i d u a l o r  chards which experienced marked changes i n i n v e n t o r y due to severe f r o s t damage or complete r e - p l a n t i n g , a second i n s p e c t i o n c o u l d be made by the a s s e s s o r . In most cases, however, the o v e r a l l changes would merely i n v o l v e those a s s o c i a t e d w i t h an i n c r e a s e i n the ages o f the t r e e s as w e l l as a few a d d i t i o n s and deductions f o r replacements. The p h y s i c a l f a c t o r adjustments to the o r c h a r d v a l u e s would not have to be r e a s s e s s e d f o r each subsequent i n v e n t o r y r e v i s i o n because they are f a i r l y premanent i n nature. The o n l y one t h a t might need r e v i s i o n i s the allowance f o r e r o s i o n , otherwise, the s o i l types, topography, and f r o s t zones would remain constant once they had been e s t a b l i s h e d f o r each or c h a r d . 62 A P P E N D I X V a r i e t y TABLE 6 SUMMARY OF WEIGHTED AVERAGE PRICES PAID TO GROWERS BY YEARS FOR APPLES PER PACKED BOX, OKANAGAN VALLEY, B.C. 1 9 4 2 1 9 4 3 1 9 4 4 1 9 4 5 1 9 4 6 1 9 4 7 1 9 4 8 1 9 4 9 1 9 5 0 1 9 5 1 1 9 5 2 1953 1954 1955 1956 1957 19572 Golden D e l i c i o u s Sparton Red D e l i c i o u s Included i n "Common D e l i c i o u s " 0.700 1 . 3 4 3 1.668 1.664 1.606 I . 3 6 9 2 . 1 2 4 1.762 1 . 4 0 4 5 Included i n " A l l Others" Included i n "Common D e l i c i o u s " Winesap 1 . 0 2 6 1 . 7 4 6 1 . 4 4 2 1 . 7 3 7 1 . 7 1 0 1 . 6 8 6 1 . 5 8 3 1 . 1 8 7 Newtown 1.088 1 . 7 0 8 1 . 3 8 1 1 . 7 7 4 1 . 6 9 7 1 . 6 3 9 1 . 5 3 7 1 . 1 1 3 Common 0 . 9 1 6 1 . 5 3 3 1 . 2 7 2 I . 6 1 6 1 . 5 1 8 1 . 5 1 1 I . 6 5 2 0 . 9 8 8 D e l i c i o u s Red Rom.es Included i n " A l l Others" Mcintosh 0 . 7 3 5 1 . 2 9 6 0 . 9 7 3 1 . 3 1 4 1.160 1 . 2 2 2 1 . 2 6 0 O . 6 6 7 Stayman 0 . 8 3 0 1 . 4 7 0 1 . 1 3 0 1 . 4 1 4 1 . 3 6 0 1.282 1 . 4 1 9 0.831 Jonathan 0 . 7 3 5 1 . 4 3 4 1 . 1 1 0 1.441 1 . 2 9 5 1 , 2 6 9 I . I 6 5 0.549 Cookers 3 0 . 5 1 3 1 . 0 0 1 0 . 8 3 3 1 . 1 3 5 0 . 8 7 5 0 . 8 1 3 O . 8 5 8 0 . 2 6 2 A l l O t h e r s O . 5 6 4 1.158 0 . 8 6 4 1 . 1 6 5 0 . 9 8 4 0 . 9 2 8 0 . 9 7 2 0 . 3 8 0 A l l A p p l e s O . 8 4 6 1 . 5 0 2 1 . 1 8 7 1 . 5 4 6 1 . 7 9 2 1 . 4 2 7 1 . 4 3 3 0 . 9 2 2 SOURCE: B r i t i s h Columbia Tree F r u i t s L i m i t e d , Kelowna. IWeighted by volume of s a l e s ,Ten year moving average •'Includes Wealthy, Duchess, Yellow Transparent, and Rob Roy 0 . 6 7 1 1 . 2 3 4 1.301 1 . 6 5 4 1 . 0 2 6 1 . 5 4 9 0 . 9 2 1 1 . 4 1 1 0 . 5 3 2 0.497 0.716 0.544 0 . 4 4 6 0.284 0.825 1 . 3 6 2 1 . 1 2 4 1 . 9 1 1 2 . 0 2 4 I . 8 6 5 1 . 6 9 7 1 . 4 7 9 1 . 2 6 1 0.833 1.281 1 . 4 5 2 1.458 0.987 1.058 1.143 0.859 1.145 0.682 1.236 1 . 2 4 5 1 . 2 3 3 1 . 3 2 0 0.801 0.838 0.748 1.363 1.208 1 . 0 3 1 1.187 0.718 0 . 8 4 1 0 . 5 2 5 1 . 2 9 4 1.065 1.431 1.958 1.473 1.2898 1.936 1.603 2.704 1.415 1.7848 1.498 1.054 2.012 1 . 2 2 5 1.4696 1.192 1.094 1.640 0.878 1.2526 1.309 1.108 1 . 9 5 6 0.811 1.2760 1.241 0.881 1.557 0.802 1.0566 0.906 0.578 1.270 0.674 0.9175 1.057 0.581 1 . 4 4 2 0 . 5 1 0 1 . 0 2 0 6 0 . 5 5 6 0.350 0.954 0.379 0.6875 1.200 1.132 0.928 1.166 0.8816 0.479 0.198 0.767 0.271 0.4940 1.144 0.874 1 . 6 2 6 0.885 1.1602 v a r i e t i e s ON TABLE 7 Age of Tree i n Years 1 2 3 4 5 6 - 1 0 1 1 - 1 $ 1 6 - 2 0 2 1 - 2 5 2 6 - 3 0 3 1 - 3 5 3 6 - 4 0 EXPECTED NORMAL REVENUE PER TREE FOR APPLES BY AGE GROUPS AND VARIETY Mcintosh Red D e l i c i o u s Y i e l d i n Y i e l d i n Revenue Per Y i e l d i n Y i e l d i n Revenue Per Loose Boxes Packed Boxes Tree i n Loose Boxes Packed Boxes Tree i n D o l l a r s Per Tree Per Tree D o l l a r s at Per Tree Per Tree at #1.7848 $0.9175 Per Box Per Box 1 . 7 2 . 2 4 . 0 8 . 0 1 3 . 0 1 5 . 6 1 6 . 0 1 5 . 6 1 4 . 9 1.2 1.5 2.8 5.6 9.1 10.9 11.2 10.9 10.4 1 . 1 0 1.40 2 . 6 0 5 . 1 0 8 . 3 0 1 0 . 0 0 1 0 . 3 0 1 0 . 0 0 9 . 5 0 1 . 9 6 . 0 1 1 . 0 1 3 . 6 1 3 . 9 1 3 . 5 1 3 . 0 1 . 3 4 . 2 7 . 7 9 . 5 9 . 7 9 . 4 9 . 1 2.30 7 . 5 0 13.70 17.00 17.30 16.80 16.20 TABLE 8 COST OF APPLE PRODUCTION PER ACRE IN DOLLARS BY AGE OF TREES FOR THE SUMMERLAND TREE FRUIT AREA OF THE OKANAGAN VALLEY TRee'Age Pruning Spraying Thinning P i c k i n g C u l t i v a t i n g I r r i g a t i n g F e r t i l i z i n g Propping Hauling Repairs to i n Years M. R.D. M. R.D. and Mowing M. R.D. M . R.D. Machinery and Equipment 1 - 10 - - - 15 3 0 4 - - - 15 2 2 15 - - - 15 3o 4 - - - 15 3 4 20 - - - 15 35 4 - - - 15 4 6 30 11 - 15 35 4 - 3 - 15 5 8 40 - 14 - 15 40 6 - 4 - 15 6 - 1 0 12 50 25 25 1 2 15 40 8 4 7 3 20 1 1 - 1 5 20 78 50 50 37 15 40 10 6 13 10 25 1 6 - 2 0 25 78 70 81 69 15 4 0 10 8 21 18 25 2 1 - 2 5 3 0 78 90 9 6 8 5 15 40 1 2 8 26 23 25 26-30 30 78 9 0 1 0 0 8 7 15 4 0 1 2 8 27 23 25 3 1 - 3 5 3 0 78 90 95 8 4 15 40 12 8 2 6 23 35 3 6 - 4 0 25 78 90 93 81 15 4 0 1 2 8 25 22 25 ^ • A l l o p e rations i n c l u d e labour, m a t e r i a l s , and machine op e r a t i n g c o s t s j labour c o s t i s set at 11 . 0 0 per hour. TABLE 8 (CONTINUED) Tree Age Land Taxes D e p r e c i a t i o n on I n t e r e s t ^ o n M i s c e l l a n e o u s T o t a l Expenses Per. Acre T o t a l Expenses Per Tree i n Years Machinery and Machinery and Mcintosh Red D e l i c i o u s Mcintosh Red D e l i c i o u s Equipment @ 1 0 $ Equipment @6% 1 1 0 3 0 2 7 28 169 1 6 9 3 . 5 0 3 . 5 0 2 1 0 3 0 2 7 4 1 5 2 1 5 2 3 . 2 0 3 . 2 0 3 1 0 3 5 2 7 4 1 6 9 1 6 9 3 . 5 0 3 . 5 0 4 1 0 4 0 2 7 4 2 0 0 . 186 4 . 2 0 3 . 9 0 5 1 0 4 5 2 7 5 2 2 9 2 1 1 4.80 4.40 6 - 1 0 1 0 4 5 2 7 5 2 8 3 2 7 6 5 . 9 0 5.80 1 1 - 1 5 1 0 4 5 2 7 5 3 9 4 3 7 8 8 . 2 0 7 . 9 0 1 6 - 2 0 1 0 4 5 2 7 5 4 6 0 4 4 5 9 . 6 0 9.30 2 1 - 2 5 1 0 4 5 2 7 5 5 0 7 4 9 3 1 0 . 6 0 1 0 . 3 0 2 6 - 3 0 1 0 4 5 2 7 5 5 1 2 4 9 5 1 0 . 7 0 1 0 . 3 0 3 1 - 3 5 1 0 4 5 2 7 5 5 0 6 4 9 2 1 0 . 5 0 1 0 . 2 0 3 6 - 4 0 1 0 4 5 2 7 5 4 9 8 4 8 2 1 0 . 4 0 1 0 . 0 0 Investment i n machinery and equipment f o r a twenty acre orchard i s set at # 9 , 0 0 0 . Includes the cost of p l a n t i n g and e x t r a care f o r young t r e e s j the cost of c l e a r i n g the l a n d (or the removal of o l d orchard) f o r p l a n t i n g at $ 1 4 per acre spread over the l i f e of the t r e e s j and smal l purchases. 67: In reference to Table 8, the following spraying program was set up. 1. DDT. Pour sprays @ 12 lbs per spray @$0.33per ^ $16 2. Mites. One spray k 3. Aphis. Two sprays of malathion 16 k- Kelthane. One spray 12 5- Dormant. One spray lime-sulfur 8 6. Fungicides for scab and mildew, one spray 10 7. Labour. Ten sprays at \\$ minutes per spray @ $1.2^ an hour 9 8. Machinery operating costs 3 Total Cost per Acre 78 The rate of application of a high-nitrogen f e r t i l i z e r is as follows: Age of Tree Founds Per Acre 1-5 100 6-10 200 11-15 250 16-20 250 21-LtO 300 The cost of apple picking used was $0.13 per box. The cost of hauling used was $0,035 per box. These rates were obtained from growers i n the Okanagan. 0) 68 G <D 0 0 > U o O O O o O o o o O O O 0) E H CM 0 UN -* O N O CM « • • • • • • • • • • 0 • SH Cn cn on -4" cn o -4 sO vO 0 1 I 1 I 1 1 1 P H s CO -p o CO © •rH o 0) O o SH o O O o o O o o o O O o •H E H CM ir\ ON -4- to o cn cn cn CM o H H © SH cn ON, cn cn o o o o o O To t Pe  rH rH H O N W -=* E H a> © Pi G 0 CD > 0 © SH o o O o o o o E H cn U N o cn C O CM 1 i i i 1 • • • • • • • ca U CM I N - cn N O N O CO CD H H H rH H w O P H I=> CO u S P H H S 3 > O m « « o CD CO E H fx) G CO W CJ3 a> u O o o o O O o o O O O O 3 << > E H U N CM U N H <r cn H cn -4 U N O N &H 1>H P-5 SH cn cn cn cn cn cn cn rH o O o o O PQ CD 1 i 1 i i i i i i 1 1 i P P-i S 3 W d> o Cxq S M P 3 E H EH . - l a? - P xi cn CD O PH [0 O © l- l O o Si o o o o o o o o o O O o < p E H U N CM U N CM to O N CM N O N O U N -4 G rH frl cj SH cn cn cn -4" ~t UN. CO O N o o O o O P CO H H H rH O PH E H CD G CD 0 > 0 SH O o o o o O O O O E H H -4- N O H cn o cn o u-\ to SH CO 0 O P H SH CM UN to O H O 0 0 rH 0 SH bO EH CM cn o UN O UN O UN o H H CM CM cn cn -4 1 1 1 1 i i i N O rH NO H NO rH vO rH H CM CM cn cn 169 BIBLIOGRAPHY Babcock, P.M. The Valuation of Real Estate. New York, McGraw- H i l l , 1932. Bonbright, J.C. The Valuation of Property. New York, McGraw- H i l l , 1937, v o l . 1 . British Columbia, Department of Agriculture. Proceedings of the  Reclamation Committee. Kelowna, 1952, Brief Nos. 15 - 18. British Columbia, Revised Statutes. Victoria, Queen's Printer, 1950. Curry, CP. "Capitalization Rates". The Appraisal Journal, vol. 7 (July -1939). E l l i o t , G.C. "Theoretical Considerations on Rural Appraisal". Journal of the Appraisal Institute of Canada, vol. 8 (December 19*1-8). Pisher, D.V. Interview with the writer. December, 1958. Fisher, I. The Nature of Capital and Income. New York, MacMillan, 1912. Heady, E.O. Economics of Agricultural Production and Resource Use. New York, Prentice - Hall, 1952. Kurd, R.M. Principles of City Land Values. New York, The Record and Guide, 1911. Jevons, W.S. The Theory of P o l i t i c a l Economy. Second ed., London, MacMillan, 1879. Knight, F.H. "Value Theory for Economists". American Economic  Review, vol. ij.6 no. 1 (March 1956).. Kuo-chiin, Chao. "Current Agrarian Reform Policies i n Communist China". The Annals of the American Academy of P o l i t i c a l  and Social Science, Philadelphia, 1951» Marenghi, E. Lezioni di Estimo. Milano, Libreria Editrice Politecnia, 1925. Marshall, A. Principles of Economics. Eigth ed., London, MacMillan, 1925". Medici, G. Principles of Appraisal. Ames, Iowa State College Press, 1953. 70 Mertzke, A.J. Real Estate Appraising. Chicago, National Assoc iation of Real Estate Boards, 1 9 2 7 . M i l l , J.S. Principles of P o l i t i c a l Economy, ed. Asley, New York, Longmans^ Greene and Co., 1926. Morehouse, E.W. "Land Valuation". Encyclopaedia of the Social  Sciences, vol. 9 ( 1 9 5 * 0 ) pp. - 1 3 7 - 1 3 8 . Murray, W. G. Farm Appraisal. Ames, Iowa State College Press, third ed., 1 9 5*4- Ricardo, D. Principles of P o l i t i c a l Economy and Taxation. London, MacMillan, 1 9 0 8 . Smith, A. The Wealth of Nations ( 1 7 7 6 ) . London, Methuen, 1 9 0 J + . Taussig, F.W. Principles of Economics. 3 r d ed. New York, Harper, vol. 1 9 2 2 . Wald, H.P., ed. Papers and Proceedings of the Conference on Agricultural Taxation and Economic Development. Cambridge, Mass. 1 9 5 * 4 - . Walker, F.A. P o l i t i c a l Economy. New York, Crofts, 1 8 8 6 . Wendt, P.E. Real Estate Appraisal. New York, Henry Holt and Co. 1 9 5 6 . Wilcox, J.C. Interview with the writer. August 1 9 5 8 . Woodworth, H.C. and Potter, G.F. "Studies i n the Economics of Apple Orcharding". New Hampshire Agricultural Experimental  Station Bulletin .No. 3 2 3 , 1 9*4 - 0 . 

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