Farm Group Activities

BEN T. GUNTER SPEAKS AT UNIVERSITY

Makes Address Before Institute Of Public Affairs On E. S. Va. Produce Exchange

University, Va., August 7 -- Benjamin T. Gunter, President and one of the organizers of the Eastern Shore of Virginia Produce Exchange, Onley, Va., was a speaker today at the round table at the Institute of Public Affairs. The Eastern Shore of Virginia Produce Exchange is recognized as being one of the most successful farmers' cooperative marketing organizations in the U. S., and his address was heard with much interest by those interested in cooperative marketing. His address was on "Farm Group Activities" and in it he gave his experiences with the Exchange.

Mr. Gunter accepted an invitation extended at the conclusion of his address to make a similar address at the University of South Carolina at an early date.

Mr. Gunter's address follows:

I have been asked to talk on "Farm Group Activities," and in connection therewith relate my experiences with the Eastern Shore of Virginia Produce Exchange.

The Eastern Shore of Virginia Produce Exchange was organized before the days of "co-operative marketing" organizations, at a time when the word "co-operative" had not become overworked. At this time, 1899, when the charter for this organization was secured and the by-laws to control its operations were adopted, there was no similar organization in this country, or certainly in the East; no star or chart to which the Committee of twelve, to whom was intrusted the task of drafting a plan of organization which we were hoping would relieve us in our distress, could look for guidance. Not a member of our Committee had had any experience in marketing. With main strength and awkwardness we essayed the task, and it is, indeed, remarkable that out of our labors came a plan which has been wonderfully successful and so acceptable that it has in thirty years of active operation needed but few changes to make it meet the requirements of a successful co-operative marketing organization, so I shall confine myself entirely to this particular group activity.

Congress has undertaken to provide for associations of this character. "An act to authorize association of producers of agricultural products," known as the Capper-Volstead Act, provides:

"That persons engaged in the production of agricultural products, as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in Associations, corporate or otherwise, with or without capital stock, in collectively processing, preparing for market, handling and marketing in interstate or foreign commerce, such products of persons so engaged. Such associations may have marketing agencies in common; and such associations and their members may take the necessary contracts and agreements to effect such purpose; Provided, however, That such Associations are operated for the mutual benefit of the members thereof, as such producers, and conform to one or both of the following requirements:

First: That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein; or

Second: That the association does not pay dividends on stock or membership capital in excess of eight per centum per annum. And is any case to the following:

Third: That the association shall not deal in the products of non-members to an amount greater in value than such as are handled by it for members."

"Co-operative" farmers associations are looked upon with favor both by Federal and State authorities. Those organizations of farmers that are regarded by the government as co-operative are not so likely to be regarded as violating trust laws and operating in restraint of trade as will other organizations not so organized. We know by experience that it is helpful, when under investigation, to be looked upon with favor.

So then farmers may organize under the Capper Volstead Act, and if their charter allows only one vote for each member, regardless of stock owned by him, or limits its dividends to 8% on capital stock, and provided further that the association does not market more produce for non-members than it does for members such an organization will be regarded as a "cooperative organization."

The Eastern Shore of Virginia Produce Exchange was chartered by the General Assembly of Virginia by an act approved January 26, 1900, and in this act it was stated that,

"The general objects and purposes of said corporations shall be the buying and selling of produce as agent of the producer, the consigning of produce as agent of the producer, inspecting all produce it may handle, owning and operating storage warehouses and packing house for produce, and generally all other lawful things customarily connected with the trade known as the produce business."

The capital stock of the company was to be not less than $5,000.00 nor more than $50,000.00. The membership was to be composed of three classes.

First: Stockholders. These own stock and enjoy all privileges.

Second: Tenants of stockholders. These live on lands of stockholders and have the right to market their produce through the organization.

Third: Shipping privilege members. One dollar will purchase a shipping privilege. Many negroes own shipping privilege certificates. These certificates entitle the holders to all rights of membership, including participation in the patronage dividend, except the right to vote in general or local division meetings.

The association confines its operations almost exclusively to marketing highly perishable crops, cabbage, strawberries, Irish and sweet potatoes grown in the two counties of the Eastern Shore of Virginia, Accomack and Northampton. It has a local division at each shipping point, 45 in all, and each local division elects a director, making in all 42 directors, agents and local board. It has a Department of Standards and Measures, and one or more inspectors for each division. All inspectors are nominated by the Manager of the Department of Standards and Measures, and elected by the Board of Directors.

Reason for the Organization

The organization was born of despair. For several years farming operations had been conducted at a loss. Young men were leaving farms. Landowners were moving from farms to villages. Produce was frequently left in the ground because the price of the commodity would not justify its being marketed. At that time only about six markets were open to us. Distribution generally was out of the question. All marketing conditions were chaotic. Postage stamps were sometimes used in payment for produce shipped, so small was the return.

A careful study of the situation convinced the Committee of twelve charged with the duty of recommending some plan for the bettering of marketing conditions that a number of changes must be made in our methods of marketing. Some of those changes, at the present time accepted as commonplace, were at that time new and radical. Some of these may be briefly enumerated as follows: A wide distribution of all our produce in all possible markets, thereby preventing an oversupply in any one market, with its consequent demoralization; to prevention of ruinous competition on the part of dealers at home who were selling or consigning all produce at a certain sum per package, regardless of price; intelligent salesmanship upon the part of an agent of the farmer, employed at a stipulated salary, whose duty it would be to market for the farmer at the best price obtainable. Daily communication with all the markets of this country, as well as Canada and Cuba, by telegraph and telephone; the building of a reputation for honesty and fair dealing with the trade, thereby expecting to command for all produce a preference, if not a premium; to take care of the small producer as well as the large producer, furnishing to each the same and ample facilities for marketing his produce; to selling all produce as far as possible f. o. b. loading points. However commonplace these changes in our methods of marketing may seem today, they were at that time regarded as questionable, not practical, the theories of dreamers. It was a task of no small proportions to undertake to educate our farmers up to the realization of the possible aid that might be rendered by these suggestions. Prejudices had to be overcome. Ignorance and suspicion on the part of many had to be dealt with. To undertake the task it was necessary to have capital. The shares were placed at $5.00 each. Those financially able to subscribe were doubtful and evasive. Others were willing to subscribe, but they did not have the money. We accepted as low as twenty-five cents per share, the remainder of the $5.00 to be paid at crop time. At no time was the maximum of $50,000.00 stock issued. Zealous stockholders borrowed money for the necessary funds with which to conduct the business. Our faith was strong. This had much to do with saving the day.

The first real test came when we said to the farmer: "You expect the trade to be honest with you, and you must be honest with the trade. You must give the purchaser a good merchantable product, packed in a fair sized and sightly package." At that time there was no legal standard package or barrel. Large barrels and small barrels were used.

Standardization

All of the above led inevitably to standardization of all produce received for sale. Such drastic measures as inspection of all goods at time of loading and proper classification of same had never been undertaken by anyone, at least, in this section of the country. The association adopted a brand known as the "Red Star," and the trade was given to understand and know that "Red Star" potatoes when sold as such must measure up to a certain size potato. In order to accomplish this, it was absolutely necessary to adopt a system of inspection that would insure proper grading. Neither money nor time was spared in accomplishing this result. A million dollars will not cover the entire amount spent by the reorganization in building up the reputation of the "Red Star." It is known and recognized for its superior quality in all the markets of this country and in Canada and Cuba. This policy enabled all produce, or practically all produce of members, to be sold f. o. b. loading point. This was an innovation in marketing, and a very desirable one.

To bring about these results it was necessary to educate the farmer. It soon became necessary for every marketing agency to establish a brand and adopt some system of inspection more or less rigid.

Investigation and study from time to time by the United States Department of Agriculture convinced it that not only was the system feasible, but that it was necessary. The Department gave careful consideration to the matter and its agents spent some time investigating our methods and our grades and adopted and promulgated two grades known as U. S. Grade No. 1 and U. S. Grade No. 2, these grades corresponding to the "Red Star" grade and the "Gear Wheel" grade, the first and second grades of our organization. And to aid in carrying out such a system, the United States Department Agriculture, in conjunction with the State, employ inspectors whose services can be secured by anyone desiring them. Their system, unlike ours, does not grade. It tells the owner of the car if the produce in the given car inspected measures up to U. S. Grade No. 1 or No. 2, as the case may be. The owner, if he so desires, ships or sells it regardless of the report of the inspector.

Some essentials to a successful cooperative marketing association

Capital

1. A working fund sufficiently large to care for the purchase of equipment of every description, supplies, to care for salaries of officers and employees, including a large number of inspectors, most of them are paid definite salaries and without commission and to make advance payment in goods. Farmers as a rule, particularly tenants, cannot wait until their produce has reached the markets and returns therefore made to the organization in the ordinary and usual course of trade. This, under the most approved methods, would consume too much time. The delay is too great. It frequently requires ten to twelve days to complete delivery. This money may come from the sale of capital stock. It is true at first no corporation with capital was regarded as truly cooperative. To be truly cooperative such organizations must be non-stock corporations. Many such organizations failed for lack of capital. Then it was realized that capital was absolutely essential and it was regarded as legitimate to have capital, but the dividends should be limited, and stock widely distributed with as few shares as possible to any one person. The only change made by the Eastern Shore of Virginia Produce Exchange to conform to the approved definition of a cooperative association was to amend its by-laws that there should be no dividend on capital stock in excess of 8% in the place of 10% as theretofore paid. After having created a surplus fund of approximately $200,000.00, it was further provided that all net earnings, after paying 8% dividend on stock, should be divided into two parts, one carried to the surplus fund, and the other returned to the grower in the proportion in which he had contributed to the entire fund. So well have the business methods of the Eastern Shore of Virginia Produce Exchange been recognized by bankers, that it has not suffered for credit. Its borrowings for a short period each year during the operating season exceed a million dollars.

Volume of Business Controlled

2. It is absolutely essential that the organization have control of as large volume of the commodity to be marketed as possible. Perhaps it is never possible to secure the entire crop grown, but the larger percentage controlled the more efficient will be the operations and the greater return to the members. How to secure control of the largest volume of the marketable commodity has been one of the difficult problems to be solved. When our organization undertook to solve this problem, it did not consider the contract theory. It was necessary, without contract, to fetter the farmer, for thus he regarded all limitations and restrictions, without binding him by written contract to market all produce grown by him through the organization. He was, without contract, to be transformed overnight, from a free lance in marketing, to an efficient packer. We concluded that to hold his allegiance we must show him a profit over and above his neighbor, who continued to market in the good old way his father had marketed. In other words, we expected to hold him by results. The wisdom of this policy we think has been demonstrated. If we cannot benefit him, there is no justification holding him. He should be free. Loyalty that comes from the binding force of a contract, without results to justify it, will not sustain the organizations. Perhaps a great majority of cooperative organizations rely upon the contract system.

Standardization

3. Standardization and grading and branding of all produce is essential to success. The importance of these cannot be overestimated. It begets confidence with the trade. It costs a great deal, but it pays. Perhaps enough has been said of the necessity of grading and branding to make it unnecessary to deal further with it here.

Pooling Prices

4. Prices for perishable commodities not [un]frequently change during the day. Prices are not the same on all markets on a given day. Sometimes the supply on a given day exceeds the demand, and part of the supply must be carried over, though loaded and ready for shipment, to another day when the price will be lower. What then must be done? Daily pooling under the circumstances seems to be the only fair way. Our practice then is to give every patron, whose produce is received, graded, loaded and ready for market on the same day the same price. It was early discovered that no other practice would be just as satisfactory, hence the practice adopted by us known as "pooling prices."

Proper Audits of All Accounts

5. Perhaps no one feature will insure as much confidence on the part of all patrons as a careful audit of all accounts. The Eastern Shore of Virginia Produce Exchange at the close of each marketing year, just prior to the annual stockholders' meeting, has all books and accounts at the General Office, audited by a certified public accountant. Though the volume of business each year runs up into the millions of dollars and the duties of the accounting department very exacting, no accountant, so far as I recall, during the entire time, certainly in the last twenty-five years, has ever detected an error of a penny. The books of all local agents who receive from the central or general office the returns of the individual shipper and disburse the same, are each year audited by the bookkeeping department of the General Office. Sometimes errors are detected, due to many things, but these errors are corrected and the shipper is thus insured that he has received every penny to which he is entitled for his produce. This one feature makes the landlord encourage his tenant to ship through this organization.

Management

6. You may have capital; you may have volume of business; you may have standardization; you may have pool prices; you may have the best business methods, still, to be successful and grow, you must have intelligence and efficient management. Without this, any organization, cooperative it may be, will soon pass out of existence. Your sales force must be alert and competent. Their task is a hard one. It calls for something more than a high order of intelligence. It demands real capacity to deal with all sort of characters, honest and otherwise, and sell them your product. Then, too, while the sales are being made, the distribution wide, the treasurer must not be overlooked. His task is a hard one. To use a homely expression, "The salesmen feed the cow, while the treasurer does the milking." You may feed, but you must have a good milker.

I have touched only the high spots in considering the essentials for a successful cooperative marketing organization or association. Its possibilities are great, but its difficulties are many. Its foes are many. For generations untold the farmer has been exploited. He has toiled long and incessantly. A sprightly young neighbor, of a covetous nature, not willing to toil, sets himself up as a marketer. He solicits his neighbor's produce. The neighbor, not so intelligent it may be, listens to his mellifluous words and propaganda, and turns over his produce to his would-be friend. The farmer's interest is not considered. His prejudices are appealed to. He is told what a big salary the manager is getting, or it may be the treasurer, or someone else, and he feels outraged and responds liberally with his produce to his supposed friend. He finds out his mistake too late. The poison has been inserted. He disliked the cooperative association. He blames all his ills on it. Not logical, we must admit, but nevertheless true. Again the farmer does not like to be controlled. He frets when told that his produce must measure up to a certain standard; that he must not harvest on a certain day. He has been accustomed to doing as he pleases. He is being deprived of his liberties. So the organization is beset with foes from within as well as without. Then, too, all of these foes, when there is a crop failure or overproduction of the particular crop harvested, and the net return to the farmer meager, combine and with all sorts of propaganda, some half true and unexplained, exceedingly dangerous, and some entirely false, made a determined assault on the cooperative association.

On one occasion a desperate attempt to do that was made on the Eastern Shore of Virginia Produce Exchange. Some who wished to become officers in the organization, some would be politicians aspiring to preferment, saw an excellent opportunity to make a drive against this particular organization. Their mightiest assault was made on the stock feature. They clamored for one vote, no matter how many shares the owner held. Friends became embittered. The attack failed in accomplishing its purpose, though for a few years the organization was weakened. The defeated assaulters went forth and organized a new association with one vote, no matter how many shares held. It was an "Exchange," and to all intent ans purposes an ideal organization. Its members endorsed notes to the extent of $60,000.00, and paid them out of their own pockets, and besides some got nothing for their produce, while others were only paid in part.

Despite the comments and assaults above referred to, there is still another class who damn it with faint praise, -- "It is not perfect, but it is the best we have got." They admit they want their tenants to use the organization, because they say they know it represents an honest return to them and insures their rent.

The Eastern Shore of Virginia Produce Exchange, it is true, was a pioneer in marketing as a cooperative association and lacked experience along this line, yet it has been wonderfully successful. The first year of its existence its total volume amounted to $_____ . From this comparatively small beginning, it grew annually until it reached its peak in 1920 when its volume amounted to $19,000,000.00 This was an unusual year, when prices for all produce were phenomenal. It has for the last few years marketed about 70% of the entire output of the two counties. In dollars the business in the last few years has totaled from $6,000,000.00 to $7,000,000.00