A $5,000,000 Truck Marketing Association
I RECKON that's the court house," said Professor Camp to me as we walked through the little town of Onley, in the eastern shore of Virginia, and came in sight of the handsomest building in the place. But it wasn't the court house at all. It was the home office of the "Eastern Shore of Virginia Produce Exchange," as a large sign across the front quickly informed us.
The building itself is pretty tangible proof that this idea of co-operative marketing is getting in the air, and not only getting in the air, but getting very substantially rooted in the good earth of everyday business. And the proof is even more convincing when I say that from this building this Eastern Shore Produce Exchange handles about $5,000,000 worth of business annually, shipping on an average more than one carload of potatoes for every hour in the year.
How the Exchange grew to such proportions is naturally the reader's next inquiry. And the answer is in part that, like Rome, it was not built in a day. "You seem to have had a rather easy history," I said to Secretary-Treasurer A. J. McMath as I began talking with him. But he was quick to reply that Jordan had been a hard road to travel for the Eastern Shore Exchange as well as for nearly all farmers' marketing organizations, and that it had in fact
come up through great tribulation. The organization was born out of the poverty and disappointments of these Eastern Shore Virginia farmers -- it is limited to Accomac and Northampton counties, in the Cape Charles peninsula north of Norfolk -- in 1899. As a result of several meetings held that year a committee of twelve framed recommendations for a marketing organization, and it was finally incorporated January 6, 1900. Shares were fixed at $5 each, and in order to make it easy to get members, any white grower was authorized to take stock by paying 25 cents down, the remaining $4.75 to be paid by the end of the year. By August $3,500 had been paid in, and the first season's volume of business proved, on the whole, pretty satisfactory.
"The system of marketing before the Exchange came was, in fact, just about as bad as it could well be," Mr. McMath remarked to us. "The local buyers who took the farmers' produce found it to their interest to force prices as low as possible. Ten cents a barrel was the usual commission allowed them by the employing houses, and the lower the price at which they bought, the more barrels they could buy and the quicker they could turn over the money, and the better pleased were employing officers."
To put in a nutshell, for every Exchange employee the farmers are now supporting, employed by them to get the best possible prices for them, the farmers were then supporting six to ten times as many local buyers, whose activities inevitably resulted in forcing the lowest possible prices on them.
The first big fact to consider about Eastern Shore Exchange methods is that it does not consign the farmers' products, leaving the commission merchant to report later what were the prices received, but fixes prices by wire before making shipment to the buyer; and the farmer knows the very next day how much per barrel his potatoes will fetch him.
Secondly, the Exchange with its 2,500 stockholders and 1,000 additional patrons, controls 75% of the potato crop
of the two big potato-producing counties of Accomac and Northampton, so that commission merchants can place orders with it, confident that they will be filled, and reasonably certain that the prices paid by them represent actual and stable market values.
Thirdly, the Exchange inspects every shipment, putting its registered "Red Star" trade mark on every shipment of No. 1 quality, so that buyers call for the "Red Star Brand" and are willing to pay a shade more for it.
The largest and most reputable produce houses North, East and West, therefore, had rather buy from the Exchange, even when other Eastern Shore agents wire them the same prices, (1) because they know that with its big business the Exchange will be surer to fill their orders, and (2) because the Exchange guarantees quality as represented.
In order to explain more readily the Exchange's method, let us describe a typical day's work in the shipping season. The first thing the officers do is to phone the Exchange's forty-three agents, the men employed to represent at forty-three shipping points scattered all over the two counties, and find out just how many cars will be offered for shipment. Oak Hall, say, will report three cars "Star brand," Tasley one or two unbranded, Onley five cars "Star," and so on and so on. Then the totals are footed up and it is "up to" the Exchange to sell them for the growers. By 8 or 9 o'clock telegrams report the prevailing New York prices -- and New York prices, of course, determine prices in a considerable area around New York. If New York prices are low, then the Exchange may wire its agents in Chicago, Pittsburg, Toronto and Scranton (a regularly employed agent of the Exchange is kept all the time in each of these places as well as in Boston), and the Exchange officials will also wire as many jobbers in other cities as the size of the day's business seems to require. Perhaps the telegram will read: "We offer you today one car Red
Star $2 barrel." Perhaps a number of orders will be wired back at this price, but some jobbers will reply: "Cannot pay $2 here, but will take two cars at one ninety." By 1 or 2 o'clock the Exchange officials have wired directions for shipping most of the cars, and they also know whether or not all the cars can be sold at the $2 rate. If all cannot be sold at this figure, some orders may be filled at $1.90, or perhaps some may have to be sold at $1.85, in markets where local conditions will not justify the higher price.
Nevertheless, it would be manifestly unfair to pay one farmer $1.85 and another $2, when both had brought to Exchange officials the same grade of potatoes and at the same time. Therefore, it is the custom of the Exchange to pool prices or to average them so that on each day's shipment all farmers will get the same price for the same grade of product. If, for example, five cars are sold at $1.90 and five at $1.70, the price paid both classes of shippers will be $1.80. Of course, some growers produce an extra fancy product, however, which commands superior prices, and in such cases they get a corresponding premium above the average paid for standard grades.
And the Exchange does a big business not only in number of barrels handled and in money turned over, as we have already indicated, but also in territory served. Let us take a look at the shipping books for July 15, 1913 -- a rather small day's business, it is true, but one which will illustrate the range of distribution. Three cars were sold to South Bend, Ind., six to Toronto, six to Providence, three to Boston, five to Detroit, twenty to Pittsburg, three to Worcester, two to Portland, five to Scranton, and one each to Allentown, Dayton, Hartford, Trenton, Newark, Rochester and Carbondale.
Frequently the Exchange's sales, in a single day, will reach a total of two hundred carloads, and the record day's sales, made last season, was about three hundred and twenty-five cars of Irish potatoes. With this volume of business the
geographical distribution is much wider; and in the sweet potato season the association sells from Portland, Me., to Tampa, Fla., and as far west as the cities of the Rocky Mountains.
Under the old system of selling, the Eastern Shore farmers were systematically fleeced (and we seem to have heard that farmers in unorganized sections are still systematically robbed) by dishonest commission merchants who report, "Market glutted since you started your shipment; prices all off," the commission merchant proceeding to make settlement accordingly; or perhaps the report will be, "Your shipment reached us in bad condition; will command only one-half or two-thirds regular market price." And in such cases, what redress has the small unorganized trucker? He cannot afford to make a trip to New York or Buffalo or Chicago, as the case may be, to see whether the report is correct or not. He must take what is offered.
But the unfaithful produce dealers have long since learned to play no such fantastic tricks before the Eastern Shore Exchange. In the first place, the Exchange has regularly employed representatives in a list of cities we have already give (and in sweet potato season a man in Kansas City and another in Cincinnati, and any of these agents will immediately investigate any trouble that is reported with any Eastern Shore shipment in his particular city. Or if trouble is reported in any city where the Eastern Shore has no agent, there is usually one of these agents near enough by to run over and get justice for the shippers if the matter cannot be arranged by wire. Of course, after fourteen years experience in the business Mr. McMath knows there are certain dealers whose word he cannot take. He also keeps a sharp eye for the financial standing of every man to whom a shipment is made -- as was indicated by the big copies of Dun and Bradstreet at his hand as we talked, each twice as big as an old Unabridged Dictionary -- and he told me that he didn't lose a dollar by selling to any financially unsound dealer last year.
Nor are the members of the Eastern Shore Exchange the only ones who benefited by its activities. "If local men beat down the price at some place where we are not strongly organized," Mr. McMath told me, "we may go there and buy for our protection. Here's a case in point: On one occasion when potatoes had been selling the day before for $2.50 a barrel, the local buyers put out word that the market had broken and that $1.75 was the best price to be had. We found it out, put our buyers there buying shipments at $2.50 and before night the price had advanced to $2.75!"
"What system have you for inspecting your products so as to keep up the reputation of the 'Red Star' brand?" was one of the next questions we fire at Mr. McMath.
"An inspector is employed at every shipping point," was his reply. "He is required to examine one package in every five, but if a shipper with a bad reputation should show up, the inspector might examine half of his offerings. Then, too, you must remember that every barrel which bears the Red Star brand of quality also has the grower's mark on it -- either his initials or some other mark of identification. For example, suppose a bad lot of potatoes should get by the inspector and complaint should come back to the Exchange. 'What were the initials on the barrel?' I would ask. Suppose the reply should be 'B.T.F.,' for example. Very well; I would call up the inspector at the point of shipment and tell him to be more careful about B.T.F. thereafter."
I then put this question: "But, suppose there should be continued complaints against B. T. F.; would you fire him from your membership?"
Mr. McMath's reply was characteristic: "Well, the first man we would fire," he answered, "would be the inspector himself! It's his job to keep poor stuff from getting in with first-class stuff."
But any unscrupulous grower has learned long since that it doesn't pay to try to pack off an inferior product on the inspector. If he does, he may wind up by having his whole
shipment go out unbranded, whereas with honest grading all the better part would get the advantage of "Red Star" quality prices. A chief inspector has general oversight of the local inspectors and does much to keep grading uniform and to remind inspectors that the Exchange, like England at Trafalgar, "expects every man to do his duty."
Finally, we come to a consideration of the business principles upon which the Exchange is conducted. The Exchange, in fact, is one of these enterprises operated partly upon capitalistic and partly upon co-operative lines -- a sort of institution of which we shall necessarily have thousands of examples while the co-operative idea is getting itself understood, and a greater or smaller number probably for the rest of the time. The ideas of "patronage dividends" and "one man, one vote," had not been much heard of in the South when the Exchange began business fifteen years ago; and it has been necessary, therefore, to graft some new ideas on it and yet not wholly destroy the present stock.
Up to four years ago all dividends had been paid on stock and there had also been trouble on account of some of the larger stock holders transferring their shares at opportune times for electing local agents, etc. Accordingly a rebellion arose -- a rank, bitter, riotous sort of rebellion such as nobody else can equal farmers for raising. The rebels wanted patronage dividends and the "one man, one vote" principle.
The final result was a sort of compromise. The bigger stockholders maintained that they bought stock with the understanding that they would have one vote for each share -- that was, in fact, a requirement of the Virginia law at the time -- and that all dividends would go to stock. So an arrangement was voted whereby a 10 per cent dividend is declared on stock, and of the remaining surplus one-half is divided up among all the shippers in proportion to the quantity of produce shipped -- as a patronage dividend -- and the other half is carried to the surplus or reserve fund of the Exchange.
But certainly 10 per cent is as much as any such concern should pay on stock, and as soon as the surplus becomes large enough to insure the Exchange against a season of bad years, not merely half but all profits above 10 percent on stock should go as patronage dividends.
It should be added, however, that the accumulation of a surplus fund soon raised the actual value of the Exchange's stock above its par value, and that the price was raised accordingly. At present, with a capital of $41,780 (par value), the association has $108,000 surplus, and stock is issued only at $15 per share; so that the nominal 10 percent dividend means only about 3 1/3 per cent on a new stockholder's money. Moreover, the amount required to pay this dividend (only a little over $4,000) is insignificant in comparison with the Exchange's present annual business of four or five million dollars.
The Exchange, of course, "does business on business principles," as a time-worn but necessary phrase puts it; has always been willing to pay good salaries to get efficient, capable men; and uses the most systematic and up-to-date methods of carrying on its business. We found the books remarkably simple and well kept; they are regularly audited by some of Virginia's best accountants, and any stockholder can take a look at them whenever he feels like it.
Moreover, while the idea of patronage dividends was not abroad in the land at the time the Exchange was organized, things were even then so arranged that the profits would be distributed with some rough approximation to equality. It has always been against the rules for any one man to own as much as one-tenth of the stock, and most of the 8,350 five-dollar shares (total capital stock, $41,750) are held in blocks of one to five. All told there are about 2,500 stockholders.
It should be remembered, however, that the Exchange handles business not only for these 2,500 stockholders, but also for about 1,000 non-members who have "shipping
privileges" in it. Any white man, at any time, can buy one share of stock at its cash value and become a member of the Exchange. White farmers who do not care to do this, or negroes who wish to use the Exchange, may nevertheless have their products handled by it by paying $1 apiece for a "shipping privilege" and agreeing to have all their produce handled by the Exchange. The last named requirement is imperative. No man can ship today through John Smith and tomorrow through the Exchange. If this were permitted the managers would never know what business to count on. The only exception to this rule is that if local buyers at any time offer unjustifiably high prices for a product in order to get trade away from the Exchange, its officials may direct the farmer to take them up. "These buyers can't keep it up long," is the argument, "and we are perfectly willing to give them plenty of rope to hang themselves."
Another significant advantage of co-operation was brought to light in the course of our investigation of the Onley Exchange. Year before last, just about ten days before its members would finish shipping their potatoes, it was discovered that the New Jersey potato growers just north of them were themselves about to start bumper shipments to Northern markets. With the Eastern Shore Exchange and the New Jersey growers both shipping heavily at once, prices would naturally have gone to pieces, probably selling low throughout the rest of the season. But the Exchange officials sent word to the New Jersey marketing societies, "Please hold off ten days till we can get through and it will be better for both of us." And so it worked out, whereas without organization the New Jersey growers and the Eastern Shore Virginia growers would simply have cut on another's throats, financially.
Of course, the Exchange doesn't satisfy everybody. I found one man who was very badly dissatisfied with it. But after he had expressed himself vigorously and picturesquely, swearing that some of the inspectors wouldn't know how to hitch up a plow horse, and that farmers should
do their own shipping and not have any confounded Exchange inspectors monkeying with their produce, I asked him how many barrels he shipped through the Exchange. And then it developed that he wasn't a farmer at all, but a sort of gentleman superintendent of the universe. Have you ever noticed that those who won't work and are failures themselves always take great pleasure in abusing those who do work and succeed? Nor have I yet had it explained to me why it matters much whether a potato inspector can hitch up a horse or not, provided he knows potato inspecting from A to Izzard.
"You know how it is," our grumbling citizen called to a farmer acquaintance who was listening to him. "What did you get for your potato crop last year?"
"Well, I didn't get but $18 last year for my Irish potatoes, as you know," was the reply, "but in trucking you will have a spell of tough luck every now and then. But I have studied my business enough to know that if I were to quit the Exchange I'd loose nine times out of ten."
The rest of my story can be quickly told. The general manager of the Exchange, co-laborer with Mr. McMath, is Mr. W. A. Burton, and the business of the company is conducted by these two men and a corps of young associates -- a more general supervision over its affairs being exercised by a board of thirty-three directors. One director and a local executive board is elected by each of the thirty-three local divisions of the Exchange.
All in all, the "Eastern Shore of Virginia Produce Exchange" is a great experiment in farmers' co-operative marketing, and while we might wish that it worked a little more fully on the basis of patronage dividends and "one man, one vote," we are reminded of Josh Billings's saying: "It ain't no use to argy ag'in a success!"
And the Eastern Shore of Virginia Produce Exchange is certainly a success!