Mutual Service – Chapter 5

COOPERATIVE MARKETING

Republican and Democratic Platforms Indorsed It

Cooperative marketing is now recognized as the solution of the perplexing problem of

the farmer. What to do for, or with, the farmer has held the attention of economists,

bankers and politicians for many years. Some of the farmers have solved the problem

for years, but the great mass are still clamoring for political aid and in 1928 the two leading

parties made declarations on the question.

The Republican party platform for 1928 says: “The right of the farmers to engage in collective

buying and cooperative selling as provided for by the Capper-Volstead Act of

1922 has been promulgated through the Department of Agriculture and the Department

of Justice, which have given most valuable aid and assistance to the heads of the farm

organizations.

“We promise every assistance in the reorganization of the marketing system on sounder

and more economical lines and where diversification is needed, Government financial

assistance during the period of transition.

“The Republican Party pledges itself to the enactment of legislation creating a Federal

Farm Board clothed with the necessary powers to promote the establishment of a farm

marketing system of farmer owned and controlled stabilization corporations or associations

to prevent and control surpluses through orderly distribution.

“We favor adequate tariff protection to such of our agricultural products as are affected

by foreign competition.

“We favor, without putting the Government into business, the establishment of a federal

system of organization for cooperative and orderly marketing of farm products.”

Herbert Hoover stated his position on this question in his acceptance speech in part as

follows:

“An outstanding proposal of the party program is the whole-hearted pledge to undertake

the reorganization of the marketing system upon sounder and more economical lines.

We have already contributed greatly to this purpose by the acts supporting farm cooperatives,

the establishment of intermediate credit banks, the regulation of stockyards,

public exchanges and the expansion of the Department of Agriculture. The platform

proposes to go much farther. It pledges the creation of 8. Federal Farm Board of representative

farmers to be clothed with authority and resources with which not only to still

further aid farmers’ cooperatives and pools and to assist generally in solution of farm

problems, but especially to build up with federal finance, farmer-owned and farmercontrolled

stabilization corporations which will protect the farmer from the depressions

and demoralization of seasonal gluts and periodical surpluses.

“The working out of agricultural relief constitutes the most important obligation of the

next administration. I stand pledged to these proposals. The object of our policies is to

establish for our farmers an income equal to those of other occupations; for the farmer’s

wife the same comforts in her home as women in other groups j for the farm boys and

girls the same opportunities in life as other boys and girls.”

The Democratic Party Platform for 1928 says:

“Farm relief must rest on the basis of an economic equality of agriculture with other industries.

To give this equality a remedy must be found which will include among other

things:

“(a) Credit aid by loans to cooperatives on at least as favorable a basis as the Government

aid to the merchant marine.

“(b) Creation of a Federal farm board to assist the farmer and stock raiser in the marketing

of their products as the Federal Reserve Board has done for the banker and business’

man.

“(c) Reduction through proper Government agencies of the spread between what the

farmer and stock raiser gets and the ultimate consumer pays, with consequent benefits

to both.

“(d) Consideration of the conditions of agriculture in the formation of Government financial

and tax measures.

“We pledge the party to foster and develop cooperative marketing associations through

appropriate Governmental aid.

“We recognize that experience has demonstrated that members of such associations

alone cannot successfully assume the full responsibility for a program that benefits all

producers alike. We pledge the party to an earnest endeavor to solve this problem of

the distribution of the cost of dealing with crop surpluses over the marketed units of the

crop whose producers are benefited by such assistance. The solution of this problem

will be a prime and immediate concern of a Democratic Administration.”

Alfred E. Smith stated in his acceptance speech his position on cooperative marketing

in part as follows:

“Cooperative co-ordinated marketing and warehousing of surplus farm products is essential

just as coordinated, cooperative control of the flow of capital was found necessary

to the regulation of our country’s finances. To accomplish financial stability, the

Federal Reserve System was called into being by a Democratic administration. The

question for agriculture is complex. Any plan devised must also be coordinated with the

other phases of our business institutions. Our platform declares for the development of

cooperative marketing and an earnest endeavor to solve the problem of the distribution

of the cost of dealing with crop surpluses over the marketed unit of the crop whose producers

are benefited by such assistance. Only the mechanics remain to be devised. I

propose to substitute action for inaction and friendliness for hostility. In my administration

of the government of my State, whenever I was confronted with a problem of this

character, I called into conference those best equipped on the particular subject in hand.

I shall follow that course with regard to agriculture. Farmers and farm leaders with such

constructive aid as will come from sound economics and fair-minded leaders of finance

and business must work out the detail. There are varying plans for the attainment of the

end which is to be accomplished. Such plans should be subjected at once to searching,

able and fair minded analysis, because the interests of all require that the solution shall

be economically sound.

“If I am elected, I shall immediately after election ask leaders of the type I have named,

irrespective of party, to enter upon this task. I shall join with them in the discharge of

their duties during the coming winter and present

to Congress immediately upon its convening the solution recommended by the body of

men best fitted to render this signal service to the nation. I shall support the activities of

this body until a satisfactory law is placed upon the statute books.”

It is pleasing to record the indorsements of cooperative marketing by the two dominant

parties after years of attempts at political fixing. These parties now recognize that the

farming solution is an economic one-not a political one. After many attempts politically,

that is by enacting laws to solve the farmer’s problem, they now admit that the farmers

must solve their own problem by marketing their products cooperatively with whatever

assistance the political parties can render them.

Cooperative marketing is not a political fixing, but an economic remedy. It is not by

votes of people who know nothing about the business, but it is an arrangement of economic

matters by the people in that business who do understand what is needed.

Cooperative marketing is the only way to stop the exploitation of the many by the middle

men. It can not be done by force. The government has tried to repress predatory individuals

and organizations unsuccessfully. Cooperation eliminates those parasites by

substituting service in place of exploitation, and the result is economic justice.

Cooperative marketing is not only good for the farmer; it is equally good for other producers.

Not only that, cooperation is good for consumers as well as producers. Every

line of effort would benefit by cooperation. There are countries which have fully demonstrated

this.

Cooperative marketing of farm products now extends into forty-six of the forty-eight

states of the Union. In some of the states marketing cooperatively is the dominant

method in some lines. In several states the chief crops are marketed through cooperative

channels.

There are now marketed cooperatively over one billion dollars worth of farm products

per annum in the United States. Seventy-five per cent of dried fruit and citrus fruit, as

well as tobacco, is being marketed cooperatively.

Cooperative marketing is the application of business methods to farm products. It is the

substitution of merchandizing for the dumping process of former days. The result is improved

prices to the farmer, the lowering of the cost of marketing and distribution, and

benefits the consumer with a higher quality product.

In June of 1929, Congress passed the Farm Relief Law. It provided for a Federal Farm

Board, with wide authority and ample funds to enable agriculture to attain an equal opportunity

in our economic system with other industries.

President Hoover appointed the Federal Farm Board, which included Charles C. Teague

of California. Congress has appropriated $500,000 as a revolving fund to be used to

mitigate the farmers’ problems. It is not believed to be a complete solution.

President Hoover stated in his message to the extra session of Congress that the farming

problem must be taken out of politics; that the farmer must handle the situation. He

said:

“No governmental agency should engage in the buying and selling or price-fixing of

products, for such courses can lead only to bureaucracy and domination. Government

funds should not be loaned or facilities duplicated where other services of credit and facilities

are available at reasonable rates. No activities should be set in motion that will

result in increasing the surplus production, as such will defeat any plans of relief.

“The most progressive movement in all agriculture has been the upbuilding of the

farmer’s own marketing organizations, which now embrace nearly two million farmers in

membership and annually distribute nearly $2,500,000,- 000 worth of food products.

These organizations have acquired experience in virtually every branch of their industry

and furnish a substantial basis upon which to build further organization.

“Not all these marketing organizations are of the same type, but the test of them is

whether or not they are farmer owned or farmer controlled. In order to strengthen and

not to undermine them, all proposals for governmental assistance should originate with

such organizations and be the result of their application. Moreover, by such bases of

organization the Government will be removed from engaging in the business of agriculture.

“The difficulties of agriculture cannot be cured in a day; they cannot all be cured by legislation;

they cannot be cured by the Federal Government alone. But farmers and their

organizations can be assisted to overcome these inequalities.”

On May 1, 1930, President Hoover addressed the Convention of the United States

Chamber of Commerce at Washington, D. C. In this speech on normalcy he spoke thus

of cooperation:

“I do believe that our experience shows that we can produce helpful and wholesome effects

in our economic system by voluntary cooperation through the great associations,

representatives of business, industry, labor and agriculture, both nationally and locally.

“And it is my view that in this field of cooperative action outside of government lies the

hope of intelligent information and wise planning. The government can be helpful in

emergency, it can be helpful to secure and spread information.”

What Is Cooperative Marketing!

It is my intention in this chapter to give a brief explanation of the purposes, methods and

forms of organization of cooperative marketing associations. The facts are drawn from

the

experience of successful American enterprises of recent years. No attempt is made to

give a complete or detailed history of these associations but rather to bring out clearly

their chief features as they have been developed in actual practice.

The primary purpose of cooperative marketing associations is to improve the conditions

of agriculture through the regulation of crop movement and the stabilization of prices.

Their business is the merchandizing of the products of their members. They substitute

for the old method under which producers dumped their product immediately after harvest,

at any price they could get, an orderly and even movement of the product, regulated

as nearly as possible to market demand, in order that fair prices may be obtained.

In the end this will destroy speculation in farm products so ruinous to producers and

consumers alike. Cooperation and speculation ‘part company forever to the good of all

except the speculator. More economical methods of selling are studied and broader

markets are sought and developed with the object at expanding business, preventing

waste and increasing returns to members. Perishable crops such as fresh fruit are merchandized

mainly through routing; non-perishables such as cotton, wool, wheat, etc.,

through storage and financing. Scientific merchandising is thus seen to be the very

heart of all successful cooperative marketing enterprises.

Organization is effected primarily at the point of consumption and secondarily at the

point of production. They seek to market the commodity as a whole instead of by locality.

This means ultimately national organization to cover the entire shipping limit for

non-perishabIes and metropolitan organization for such products as milk. Organization

to handle the commodity as a whole makes it possible for producers to become masters

of their own industry.

Cooperative marketing associations are based upon binding legal contracts by the

terms of which growers pledge their products for a fixed period of years. These contracts

prevent disruption of associations through the designs of their enemies, allow

permanent business relationships and the acquisition of necessary factilities for processing

and storage, provide sound methods of financing, and in many ways stabilize the

operation of the associations.

Products are pooled according to grade, size, and other physical characteristics. Some

commodities are pooled for the season, others for a part of the season, and still others

by shipments as is found best in each case. Pooling equalizes returns among growers

fairly: i. e. in exact proportion to amount and quality furnished by each.

Pooling is the foundation of sound cooperative marketing since it passes the control of

the commodity from thousands of independent producers to one central organized unit.

By providing standards of quality for products proper differentiations can be made in distributing

returns from sales. This also allows suitable premiums to be paid for superiorquality

product, and corresponding penalties for inferior-quality product. Without complete

pooling successful merchandizing is impossible and pooling requires accurate and

fair grading. Pooling and grading are thus soon to be inseparable.

Cooperative marketing associations are managed by experts who are trained by experience

in handling particular products. These experts are specialists in the real sense of

the word. Many of them are regarded as the ablest men in their respective industries.

The “dirt farmer” is precluded from management in merchandizing. He is a trained specialist

in production but not in marketing. His interests are best served by the employment

of marketing experts.

Cooperative marketing associations operate on the non-capital, non-profit basis. They

do not buy products outright from producers, but handle these products for their members

and pay them the proceeds less the cost of handling. Financing is usually done by

other means than capital stock; various methods are followed, the most common of

which is bank loans on warehouse receipts.

These associations are organizations of producers only and their policies and procedures

are formulated and controlled by their members. Cooperative marketing is a business

of, by and for farmers, and has for its sole purpose the marketing of their products.

Complete unity of purpose is secured by keeping the organization free from nonproducers

and on the non-profit basis. Every member is usually equal to every other

member in voice and vote. Control is vested solely in a grower president and a grower

board of directors who are themselves members and all matters of policy are decided

by them. Directors are ordlnarily selected annually by districts small enough to secure

adequate representation to all.

They are operated as seml-public organizations. Complete advice concerning all activities

of cooperative associations together with readable financial statements are furnished

regularly to growers. All business operations are conducted openly. Meetings of

boards of directors and annual conventions are open to all members and to the public.

Cooperative associations have no secrets either from their members or from the public

at large. Their purpose is service solely. Many cooperative associations have one or

more public directors named by the Governor of a state or the head of an agricultural

college.

Most of the large cooperative marketing enterprises in the United States have been organized

on the non-stock, non-profit basis. The number that operate on the stock plan

and for profit is very small.

The non-stock, non-profit plan may be assumed to have decided advantages for cooperative

use over the usual corporate form of capital stock and operation for profit. Experience

has amply demonstrated the correctness of this assumption and it may be taken

for granted, as a result of this practical experience, that the non-stock, non-profit plan of

organization is a prerequisite of the most successful cooperative marketing.

The history of operation without profit dates back to the earliest cooperatives known-the

cheese rings of Switzerland. These primitive associations sold the product of their

members and paid them the proceeds after deducting the cost of handling. They made

no profit for the organization as such and none for the members except that due to the

better price secured for the cheese by virtue of ability in selling. This non-profit principle

was adhered to by all the early cooperatives without much divergence until 1850. Then

the success of the original Rochdale Society caused its plan to be copied by many marketing

associations. The majority of farmers’ marketing enterprises organized in the

United States during the latter half of the past century purchased outright the product of

their members and afterward sold it. Profits and losses were distributed according to

stock owned and not according to products marketed. Gradually this plan was modified

to include the principle established by the Rochdale Society of paying only interest on

capital stock and distributing profits above that on patronage. However, this modification

was not generally adopted until about 1915.

In so doing farmers turned back to the original non-profit plan of the Swiss pioneers and

have since greatly amplified and perfected this plan as the needs of the larger cooperatives

required. It is recognized as fundamental in the non-profit plan that marketing associations

must have no interest or purpose at variance with the intterest and purpose

of their members: they must work for their members and not against them, and the form

of organization must not be permitted to interfere with the highest and fullest development

of the cooperative movement.

Organization without capital stock came almost at the same time as the establishment

of the non-profit principle. The earliest cooperatives were unincorporated. Later it

seemed necessary to have operating capital, hut incorporated stock associations found

it desirable to limit the shares owned by one person, and to fix the value of shares to as

small a figure as possible. It was not always possible even with these restrictions to retain

cooperative principles. After this what was known as the “mutual plan” of organization

was adopted, especially among the early creameries. As an illustration: Suppose a

group of farmers owning 500 cows wanted a creamery costing $2,500. Each farmer put

in $5 per cow and the creamery was built. In some cases it was held as joint-property. In

other cases a stock company was formed in which each man owned a $1 share and the

title was vested in this company. The advantage of this plan lay in the security of farmer

ownership and control, of adding no interest charges and dividend payments to the cost

of operation, and in the majority of cases it resulted in the pooling of products. About

thirty years ago it was learned that these aS80- elations could be incorporated under

laws permitting non-stock, non-profit corporations. which had been passed for the

benefit of noncommercial societies such as lodges. This proved a great advantage to

the farmer organizations. In 1907 the various states began enacting laws providing

specially for non-stock, nonprofit cooperative associations of agriculturists, and now almost

all of the states have such legislation. Under these laws the non-stock cooperative

association enjoys certain privileges not granted to the stock cooperative association.

Both the Clayton and the Capper-Volstead Acts give non-stock associations of agriculturists

and horticulturists immunity from unfair application of the Sherman anti-trust law.

This distinction in the federal statutes is founded on the fact that the first and indispensable

need of a cooperative association is not money but marketable products. This exemption

from the application of the anti-trust laws does not result in the formation of a

“trust” as that term is commonly understood. The complete independence in production

retained by members of cooperative associations in itself prevents the forming of any

arbitrary monopoly. Anti-trust prosecution put the Sun-Maid Raisin Growers to tremendous

disadvantage which could have been avoided if that body had been organized on

the non-stock basis.

The second advantage of the non-stock plan is that it makes sure the absolute control

of marketing associations by producers. The usual relationship existing between nonstock

association and producer is the same as exists between organization and individual

in a church or lodge, namely: that of membership, No outsider can get membership,

and members ceasing to be producers automatically lose their membership. This feature

shuts out bankers, politicians, lawyers and others from voice and vote in an organization

unless they are also growers of the product of the organization. The nonstock

plan also prevents concentration of ownership in the hands of a few growers or even

non-growers as has happened frequently in stock organizations. In non-stock associations

each member has an equal vote in almost all cases. The Hood River Apple Growers’

Association is a notable exception to this rule. Equal voting power by members is a

guarantee that no small clique can obtain control and that the rights of all groups in an

organization will get proper consideration that it brings about complete identity of Interest

between the association and the members. The chief purpose of a cooperative association

is to market the products of its members and pay them the proceeds less the

cost of selling and administration, and this is precisely the service that members want.

On the other hand. in a stock organization, the stockholders want the highest possible

return on their investment, in many cases more than a reasonable rate of interest. To a

certain degree this can be prevented by requiring every grower to own stock, but holdings

of voting stock can seldom be kept in reasonable proportion to business done with

the association. Either the grower interest or the capital interest always becomes dominant

in an organization-there can be no compromise. But under the non-stock plan the

grower interest always has complete control and the cooperative ideal of “service to

grower-nonprofit to stockholder” is maintained.

The forementioned three advantages inherent in the non-stock plan of organization,

namely: producer control, complete identity of interest between association and member,

and legal privilege under federal anti-trust statutes, make plain why this plan is the

most favored plan among American cooperatives.

Objection to cooperative marketing has been made on the grounds that it raises the

price of products to the consumer; therefore benefiting the farmer at the expense of the

consumer. If this were true it would only be putting the farming business on the level of

all other business making profits out of consumers-and it is surely time for the farmer to

get hie share of the profit system that prevails. But cooperative marketing has had no

such result. The actual result has been that the farmer got a higher price and the consumer

paid no more. This was due to eliminating the middleman and speculator. In

some cases farmers have received twice as much and consumers paid no more than

before. I will cite the case of the Nut Growers’ Associations in California. From 1900 to

1910 almonds retailed in the United States at an average price of 35 cents per pound.

Growers received 8 cents per pound, or 23 per cent of the retail price. From 1910 to

1920 almonds still retailed. around the as-cent per pound price, but growers got 15

cents per pound, or 43 per cent of the retail price. During the first ten-year period growers

marketed their almonds individually, their efforts at cooperation not amounting to

much. But beginning with the 1911 crop the bulk of American almonds was handled by

one cooperative association. Returns to growers were thus practically doubled and

prices to consumers remained stationary. The California Walnut Growers’ Association

has also doubled its members’ share of the dollar spent by the consumer. Other instances

of similar results could be cited but this will suffice.

Cooperative marketing is not complete cooperation for the farmer since he is a consumer

as well as a producer and is exploited in the goods he is forced to buy at the

price set by the seller. This condition has been in large measure overcome by those

farmers who belong to consumers’ cooperative organizations. Considerable progress

has been made along this line in Europe and no doubt the next step taken by American

farmers will be along the same line. In my opinion the chief hope of relief from the present

terrible situation lies in doing so.

True cooperative enterprises among either producers or consumers are essentially

democratic in principle and operation. In this respect they differ completely from ordinary

business institutions which are controlled by one man or a small group of men and

are entirely undemocratic. The principle of democratic control prevails in all properly organized

cooperative associations while this principle is rarely observed in corporate organizations

and is net an essential feature of them. That the democratic principle is

closely associated with cooperation can be seen in the definition of cooperation. Cooperation

means working together for mutual advantage. If the principle of democracy is

violated by allowing control to fall into the hands of a few this mutual relationship can

not fail to suffer because the interest of the few will become the standard by which all

policies will be decided upon and put into operation to the injury of the many.

Experience has taught farm cooperators that democratic control which is necessary to

the best results can be secured through the employment of certain modifications of the

ordinary corporate form of organization. The most important of these modifications are:

limitation of membership to growers only. use of the “one man-one vote” principle, and

government by directors elected from districts small enough to secure the representation

of every grower.

There cannot be a complete mutual service without cooperation of the consumers, That

subject will be treated in the next chapter, which will show how a general cooperative

plan works in many countries of the world. On the subject of complete cooperation for

farmers, and how to harmonize conflicting interests and overcome exploitation as consumers,

it seems best to quote that great American authority, Doctor Warbasse. In his

book, “Cooperative Democracy,” he says:

“In the exchange between producers and consumers there is an element which is inimical

to the interests of both. This element, for convenience, is called the middleman; but

it appears in many forms. The middleman is a complex thing. Merchants, speculators,

exchanges, packing houses, refrigerating companies, grain elevators, railroads, and

banks are some of the organizations which stand between producer and consumer and

take all the tribute that can be squeezed from each. These constitute the middleman.

Both producers and consumers are contending against this common factor.

“Through agricultural producers’ associations better prices have accrued to the producer,

but the saving usually has not been at the expense of the consumer, but of the

middleman.

“It is, perhaps, better for the farmers to organize their distributive consumers’ business,

stores, etc., separate from their produce-selling societies. The Danish farmers have

found that this is the best method. Thus we find in Denmark the same farmer belonging

to a produce selling society, milk-testing society, a cattle breeding society, and a consumers’

distributing society which conducts a store. All of these are separate organizations.

“The farmer, like the industrial worker, owes it to himself to organize as a consumer. The

farmer who spends as much as he receives is as much of a consumer as he is a producer.

If he has been organized as a producer he has had the first lessons in cooperative

organization. A farmers’ marketing organization is even a better school for preparation

for consumers’ cooperation than is the trade union.

“Many farmers’ organizations have opened stores where their products may be sold directly

to the consumer. In those societies, in which not only farmers but any consumers

may join in the ownership of the stores, the agricultural producers’ movement assumes

a larger social significance.

“The farmer often finds that the same organization that serves him in selling his produce

cooperatively can be used to buy cooperatively. Thus the managers, who sell the produce

for the farmers’ exchange, buy fertilizer, feed, seeds, salt, and harvesting machinery.

“The next step naturally follows: they buy other necessities, Coal, sugar, coffee, clothing,

dry goods, and hardware are bought cooperatively. These latter goods require a

store. And there is the consumers’ society, grown out of the farmers’ organization. ‘The

store grows and adds new departments, and the society has all of the possibilities of

growth and development which any consumers’ society possesses. Such a farmers’ organization

is a complete unit because the machinery for getting better rewards for his

toil is closely combined with that for getting more with the rewards. The farmer consumers’

society is in the strategic position to develop a cooperative wholesale j it has

learned organization on a large scale early in its experience. It can sell also commodities

at wholesale which its members produce. In many countries are cooperative wholesales

which have thus grown from farmers’ cooperative societies.

“Many farmers’ societies sell commodities to their consumer members at the current

market retail price, and buy from their producing members at the current price which the

middleman would pay. These latter commodities they sell at Wholesale and make a

profit, Surplus-savings, or ‘profits,’ are distributed to members upon the basis of patronage.

The consuming purchaser and the producing seller both get savings returns on the

amount he has bought from the society. and the other on the amount he has sold to the

society.”

A complete cooperation for farmers will mean a greater combination. This is the trend in

all industries and the farmer must conform or go bankrupt as millions have done in recent

years. The farmers must buy and sell together. They must own some things in

common, like threshing machines, tractors, creameries, elevators, etc. Especially is this

sort of thing necessary to the little farmer who cannot own these things individually. This

has already been done in some sections of our country. There are numerous cases

where the line-fences have been removed and the great tractors plow for miles across

small farms owned by different individuals.

The indorsement of cooperative marketing by the two great political parties in 1928 will

center attention on the real solution of the farmers’ problem. A great opportunity has

been provided for those farmers who are not aware of the great advantage of cooperation.

There is no complaint from those farmers who use cooperative marketing. It comes from

those who have depended on politics or providence to take care of them.