The Chicago produce market

Front matter

iO 1

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Preface

This series of books owes its existence to the generosity of Messrs. Hart, Schaffner & Marx, of Chicago, who have shown a special interest in trying to draw the attention of American youth to the study of economic and commercial subjects. For this purpose they have delegated to the un¬ dersigned committee the task of selecting or approving of topics, making announcements, and awarding prizes an¬ nually for those who wish to compete.

For the year ending June 1, 1915, there were offered: —

In Class A, which included any American without restric¬ tion, a first prize of $1000, and a second prize of $500.

In Class B, which included any who were at the time undergraduates of an American college, a first prize of $300, and a second prize of $200.

Any essay submitted in Class B, if deemed of sufficient merit, could receive a prize in Class A.

The present volume, submitted in Class A, received hon¬ orable mention in that class.

J. Laurence Laughlin, Chairman, University of Chicago.

J. B. Clark,

Columbia University.

Henry C. Adams,

Edwin F. Gay,

Harvard University.

Theodore E. Burton,

New York City.

PREFACE

This study was originally undertaken in the political economy seminar of Professor J. Laurence Laughlin at the University of Chicago in the year 1914-15. Subsequently the author undertook the revision of the manuscript under the direction of Assistant Professor Melvin T. Copeland, of the Harvard Graduate School of Business Administra¬ tion.

Since so much time has elapsed before the publication of the book, it has sometimes been difficult to take account fully of the changes which have taken place in the market and to preserve a unity of viewpoint. The purpose, how¬ ever, has been to tell the story so as to accord with the conditions in the winter and spring of 1917, although a few footnotes added in the course of proof-reading take account of later developments. The Food Administration has now, of course, injected a new factor into the situa¬ tion. But if the writer has been successful in his intention of getting the analysis down to fundamental principles, the general argument should be as true in war-time and afterwards as it was before.

I am particularly gratified that the chapters dealing with the wholesale market were carefully checked just before going to press by Mr. M. W. Lorch, a man who, as sales manager of a large wholesale produce company, and former Chicago manager of the principal trade paper, is peculiarly fitted to pass upon the correctness of the statements here printed.

E. G. N.

Contents

I. Introduction .

II. The Wholesale Market — Location and Equip¬ ment .

III. The Wholesale Market — Personnel and Or¬

Chapter I

Since the Industrial Revolution — roughly a century and a half ago — a large measure of attention has been devoted to the technique of extractive and manufacturing industries. We of America have bent every energy toward the rapid exploitation of vast new resources, and have de¬ veloped to our utmost every mechanical device for making human labor go as far as possible in that process. The elaboration of transportation facilities has been demanded as a means of getting our consumers in touch with the cheapest sources of supply and of enabling our producers to deliver their product at far-away industrial centers of consumption. But as early as 1880 we perceived that our resources of new land, though vast, were not illimitable. Since then we have resorted to irrigation, drainage, and dry-farming in order to add to the area available for agri¬ cultural production. Likewise, researches in chemistry, biology, and other sciences have taught us how to till and fertilize, how to select and breed so as to make more effi¬ cient use of the resources already scratched over by ex¬ tensive methods. Also, in the later stages of this devel¬ opment, there has come an enlarging appreciation of the economic phases of the problem and an effort to augment returns by a better organization of the factors of pro¬ duction.

Not least among the services rendered by this economic analysis of our agricultural industry has been the directing of more careful study to those parts of the process which have to do with the marketing of the product. Whereas the agricultural scientist was prone to measure results in terms of weight or bulk on the farm, the agricultural economist is concerned with cash results in the market. The technical process ends with harvest, but the economic process of agricultural production cannot be regarded as complete until the goods are put into the hands of the con¬ sumer. To achieve efficiency merely in growing a crop is not enough. Economies so laboriously brought about in the early part of the process may be entirely swallowed up by wasteful methods of marketing. Our eyes have at length been opened to see that the mechanism of the mar¬ ket needs to be as carefully designed and as skillfully operated as any other part of our producing machinery.

Toward this enlightenment two great forces have operated — the producer’s zeal for more profits and the consumer’s desire for cheaper goods. For nearly a decade the city dweller has been observing with growing con¬ sternation a persistent and, at times, a rapid rise in the cost of living, an advance which has been more pro¬ nounced in the case of agricultural products as a class than in the prices of most other commodities.1 In the face of the many protests against high prices which have thus been raised, the farmer, however, has stubbornly main¬ tained that his profits are but small and that not infre¬ quently he finds that he has produced his crop at an actual

1 Such at least seems to be the popular impression. Statistical evi¬ dence is hardly adequate to prove the point so far as retail prices are concerned. Bulletin 200 of the United States Bureau of Labor Statistics shows the following movement of wholesale prices of several different classes of commodities: — •

Farm products .

Food, etc . .

Cloths and clothing .

Fuel and lighting .

Lumber and building materials .

Drugs and chemicals . .

House furnishing goods . .

. 118

Metals and metal products .

. 118 loss. Figures of indubitable authority 1 have been mar¬ shaled to prove the point, showing returns of a dollar a day for the farmer’s labor and three and one-half per cent on his invested capital. From this point it was but a short step to an arraignment of the men by whom and the sys¬ tem under which farm products are handled after they leave the farm. There arose talk of “the farmer’s 35- cent dollar” and “the billion-dollar waste in marketing.” Whatever the exaggerations of these picturesque forms of the complaint, they unquestionably served to stimulate careful examination of our marketing system with a view to ascertaining its adequacy to meet present needs and the possibility of devising a better marketing equipment for the future.

The consumer’s point of view was vigorously put for¬ ward by the Massachusetts Commission on the Cost of Living (1910) in the following passage: —

Manifestly the most wasteful part of our economic system is that concerned with distribution. In production we are far ahead of any previous period in the world’s history. Our agri¬ culture has hitherto supplied the needs of a rapidly growing population, even if now it must be developed more intensively.

. . . But in distribution, in getting the product to the consumer, we make no progress, unless it be in the one particular of trans¬ portation. On the other hand, there is enormous waste of effort.

. . . Every investigation of the high retail price of agricultural produce — meats, cereals, dairy, vegetable, or fruit products — has shown an enormous gap between the price received by the first producer and that paid by the ultimate consumer, an ever-widening gap, for which a complicated system of distribut¬ ing middlemen is largely responsible.2

The sentiment of the producer — discouraged by the low returns, high marketing costs, or failure to find a

1 See Bulletin 295, Cornell Experiment Station, Bulletins 41 and 341, United States Department of Agriculture, Farmers’ Bulletin 746, etc.

2 Report of the Massachusetts Commission on the Cost of Living (1910), pp. 315-16.

market outlet for his goods — is not less critical. What use, he asks, is there in producing goods in greater and greater abundance if there is no adequate system for dis¬ tributing them to consumers?

During the past year the trade has been well aware of the fact that many industries are long on production and short on distribution. The economic distribution of farm products is to-day the world’s greatest problem, and the war, while it has brought its hardships, has clearly emphasized the importance of distribution as a factor in American agriculture and promises to give the farmer the cooperation of the Government and of busi¬ ness men in the solution of their marketing problems. For years the Department of Agriculture has been dumping tons of litera¬ ture on the farmer, telling him how to produce, while the farmer has been dumping tons of products in the nation’s garbage can for want of a market. . . .

The experience of the past year, in fact of several years, has proven conclusively that the matter of overproduction is now a serious one in the apple deal, the orange deal, the cantaloupe, potatoes, and other products. In many commodities the signs of the times point to heavy overproduction, but with the proper method of distribution and development of out-of-the-way mar¬ kets, at least a portion of the problem will have been solved.1

Marketing the nation’s food supplies is therefore one of the greatest problems before the country to-day, and unlike many other big issues, it has not been given the careful study and con¬ sideration that has been given to the tariff, coinage, or education.

To-day apple growers in the Northwest, with an eight-thousandcar crop in prospect, face a mighty serious marketing problem. Years have been spent in developing their orchards and thousands of dollars are represented in that industry. What will they do to make a fair profit on their fruit? Down in California orangegrowers are holding meetings because they are dissatisfied with their low returns this winter. The future of the California citrus industry hinges on what they can do to solve the marketing prob¬ lem. Grapefruit-growers in Florida, Cuba, Isle of Pines, Nassau, and Porto Rico realize more than ever before that they must re¬ ceive better net prices or their trees will not be revenue producers. The cantaloupe men, the potato men, the onion men, in fact pro-

1 The Chicago Packer, February 27,1915.

ducers of every farm product more than at any time in years realize the importance of this very marketing problem. . . .

Prohibition, the tariff, coinage, international relations are all important to the Government, but the real problem before the people is that of successfully marketing the nation’s food sup¬ plies.1

To the thoughtful observer the present situation should be full of much hope. It is a fact well illustrated in the history of reform movements that the moment of loudest complaint does not mark the time at which conditions have sunk to their worst estate. The period of active discussion, the uncovering of abuses to the light of day, indicate that awakening has already come and encourage us to believe that remedies are at hand. Not infrequently, however, the honest apostle of reform is carried away in the rush of his own jeremiad and paints his picture blacker than the truth. Continued “muck-raking” breeds in the public mind a morose conviction that whatever is is wrong. Such impressions need to be checked over, thoroughly and honestly, against carefully investigated facts. After the fiery exhorter has done his service in arousing us to the fact that we have a problem, then comes the task of the serious student in examining and analyzing the precise nature and extent of that problem in order that remedial measures may be fitted accurately to the character of the need and that, on the one hand, we may not begin a frenzied demolition of what is already sound and work¬ able, when small but important adjustments in the several parts of the system would put it in a state of serviceable operation, nor, on the other hand, continue old abuses or inefficiencies when we really know a better way.

In the matter of our marketing arrangements the period of awakening has already come. We are well aware that these arrangements are not wholly adequate to the rising standard of efficiency which our expanding industrial life 1 The Chicago Produce News, May 8, 1915.

demands to-day or will demand to-morrow. In the process of arousing public sentiment on this important issue much that is true and illuminating and helpful has been said. But likewise there has been not a little bandying of gar¬ bled facts and misleading figures, intemperate criticism, and utopian fancy. Some of those who are most outspoken in their complaint display surprising ignorance of the real nature of the marketing process, and of the functions per¬ formed or the character of the services actually rendered by the various members of the existing system. The slow and careful process of scientific study of the market prob¬ lem is now demanded. This must rest upon an adequate analysis of the task to be performed, full and accurate knowledge of present systems and their complicated work¬ ings, and an appreciation of how and why they have come into their present situation. Only by such a prepara¬ tion shall we qualify ourselves to estimate deficiencies and plan improvements.

This is a large task and must needs be divided among many workers. The United States Department of Agri¬ culture has of late been turning out a succession of market studies, and independent investigators are adding their contributions in increasing numbers.1 Naturally the first of these were rather broad treatments of the general sub¬ ject of the marketing of farm products. Later efforts turn toward more detailed study of some particular phase of the larger problem. The present study is undertaken as a modest venture in this latter field of marketing investiga¬ tion, limiting itself both in size of market area and range of commodities discussed. It aims, by the careful examina¬ tion of a selected problem of limited scope, to derive some understanding of the principles involved and of the part

1 Since this essay was written (1914-15), The Marketing of Farm Prod¬ ucts, by Weld (Macmillan) ; Agricultural Commerce , by Huebner (Appleton); and Marketing Perishable Farm Products, by Adams (Columbia University Studies), have appeared.

played by a particular market mechanism in determin¬ ing the prices of certain agricultural products. Many of the Government studies have been limited to a single commodity or class of commodities, but in only a very few cases has the basis of division of the field been geographi¬ cal, save as local specialization in the given line of produc¬ tion made it so.

And yet the market city is perhaps the most significant unit of organization for the trade in food supplies. Prob¬ ably, too, Chicago is the city which furnishes the best illus¬ tration of the present state of organization of our trade in agricultural products. As the center of the converging lines along which the produce of the farmer moves to market, Chicago stands preeminent among American cities. As the distributing center toward which a great industrial popu¬ lation look for their food supplies, it occupies an equally conspicuous position. It affords a most instructive illus¬ tration of the achievements and defects of present-day methods of handling our mighty traffic in the products of the farm.

For the South — with its autumn turkeys, winter vege¬ tables and citrus fruits, early spring eggs, and early summer peaches and melons — Chicago stands as the natural gateway to many other cities and towns of the North, as well as the home of three million ultimate con¬ sumers of those products. Not less is it the gateway to the South, through which a great volume of the products of the North are distributed — late fruits and vegetables to prolong the Southern “season,” and, during the winter, hardy fruits and vegetables, apples, and cranberries. From the mid- West (besides live stock and cereals), dairy prod¬ ucts, eggs, and poultry are drawn to Chicago’s depot, and the surplus over her own needs sent East to other con¬ suming centers or to points of export. From producing and importing points in the East she draws supplies — bananas, lemons, grapes, cheese, cabbage, and other fruits and vegetables, — for her own use and for re-sale to other markets farther west. In turn she helps to supply the Eastern markets with every choice product of the Western country — Minnesota butter, Iowa eggs, Colorado canta¬ loupes, California fruits and winter vegetables, Northwest apples, and countless other products.

Such complex marketing arrangements are demanded by the differentiated and geographically specialized eco¬ nomic life of to-day. It has been found that industrial efficiency can be secured only by concentrating population in great commercial cities and in manufacturing regions near sources of power or raw material. On the other hand, the farmer can produce the largest output of food and other agricultural products, can lower their cost, and improve their quality only by being free to carry on production wherever he finds soil and climate best suited to each par¬ ticular crop. If industrial America is to find it possible to take men from rural pursuits and gather them into town centers in order to secure greater efficiency in manufactur¬ ing or a richer social life, while, at the same time, agricul¬ turists are to be enabled to distribute their efforts over the earth in response to the call of natural advantages for production, then there must be a system of provi¬ sioning the city, a method of marketing the surpluses of commercialized farming, which is swift, efficient, and eco¬ nomical.

Recognizing these conditions, the present study will undertake to examine the manner in which the Chicago produce market is performing its part of this important function. Chicago is pleased to style herself “The Great Central Market.” Such a position, however, involves certain heavy responsibilities. What sort of a great central market for perishable food products has been developed here? What functions does it perform, and how? How does it operate to determine the precise circumstances under which a particular supply and demand are brought together in Chicago, and what effect do these facts have upon the prices which Chicagoans pay for their purchases?

So far as the choice of products to be studied is con¬ cerned, the author has simply followed the existing or¬ ganization of the market. A study of the whole food situa¬ tion of Chicago divides naturally into several smaller parts, any one of which may be selected for a separate study. Thus, the grain trade is organized in a highly specialized market which centers in the Board of Trade at the foot of La Salle Street. Live-stock trading has its special mechan¬ ism and personnel, with headquarters at the Stockyards. The milk trade is organized separately from other interests. The province of the study here undertaken is the “prod¬ uce” market of South Water Street and elsewhere, and it concerns the business of marketing those current sup¬ plies of more or less perishable agricultural products which move somewhat directly from producer to consumer, with practically no process of manufacture intervening. As the organization of the market has come to define it, “produce” includes fresh fruit and vegetables, poultry and eggs, butter and cheese. Of course no rigorous definition can draw an impassable line between the various markets for food products. Thus, the packers handle some poultry and recently have touched the butter-and-egg business, while certain milk concerns have also invaded this latter field. On the other side, produce dealers handle a large amount of veal and some other meat products. There are also odd lines besides the list we have mentioned, such as evaporated fruits, nuts, dry beans, some hides and pelts, fish, feathers, and frogs’ legs.

As for this group of commodities, then, the produce mer¬ chants of Chicago undertake the task of feeding a city of upwards of three million people. 1 According to their own statement, this involves transactions “of approximately three hundred million dollars a year, and in doing this ■" 1 Including adjacent suburbs not included within the city limits.

business they handle the second largest tonnage in Chi¬ cago.” Of course, a considerable amount of this is business which simply passes through their hands en route to other markets, but even that traffic has its indirect effect upon local conditions. The city statistician estimates Chicago’s annual consumption of butter, cheese, poultry, eggs, fruit, and vegetables at $115,776,180. 1

It is certainly a pertinent question to ask just how this great demand is brought in touch with the sources of food supply all over the country and even in foreign lands. If some supplies actually go to waste while we are able and willing to pay a price greater than the cost of bringing such goods to market, we are justified in charging the marketing system with that social loss. Even if it appears that the present cost of marketing is above the market value of the goods, we should not feel that we are an¬ swered, but must push our query one step farther back and inquire whether commercial inventiveness or better construction of our market machine may not lower this cost of handling, so that fewer goods shall be wasted and fewer wants shall go unsatisfied.

It is a favorite defense of the produce dealers to assert that their business is controlled absolutely by laws of supply and demand, and, therefore, if we are not satisfied with the result, we should get the City Council to “repeal the law of supply and demand,” rather than frame ordi¬ nances to control the commission merchant, or the cold-storage system, or to create a municipal market. Certainly we may admit, to a considerable extent, their claim as to the free operation of competitive demand and supply. Where great streams of goods converge upon a single market and a great concourse of buyers is brought together to bid and haggle and buy, the immediate price-making process is clearly that of mutual competition and an equi¬ librium of supply and demand. But to admit this does not

} Preliminary Report of the Municipal Markets Commission, p. 15.

estop us from our present inquiry. To urge it is to beg the very question which is the really vital issue for Chicago’s consuming public and for the absent producers of farm products.

For though the local supply and demand are made to strike a balance in price, the question still remains as to why it is that that particular supply and demand come together. The fact is that it is the market itself which determines whether shippers shall find it convenient and profitable to ship their goods to Chicago; it is the market which, by its alertness, finds neglected sources of supply or more direct, safe, and economical means of bringing goods to the city. Likewise, it is the market which, by reason of its quarters or its manners, attracts buyers or repels them, reaches all the demand or only part, edu¬ cates taste, alters habits of consumption, creates and di¬ rects demand. Even if the market be passive in the work¬ ing-out of the particular supply and demand into prices, it is a highly active force in determining precisely what supply and what demand shall be brought together in the city of Chicago.

While it is important to have a machine working well, it is possibly even more important to make sure that it is the best machine we can get. A scythe may be ever so sharp, excellently tempered, and handled by the most expert workman, but it is inevitably far inferior to a mod¬ ern horse-mower as a means of cutting grass. On the other hand, not every dream of an optimistic inventor proves to surpass the tried and known equipment already in use. It is necessary to be as critical of alluring new proposals as of our present facilities. And so we ask: Is this produce market rendering the best service at the lowest cost, or does it need a broader outlook, better equipment, and a different type of organization?

Both the farmer and the housewife say that it does. It is not strange that the irritation of consumers against any one who may be suspected of responsibility for any part of the rising prices of food products should be somewhat pointedly directed at the dealers in farm produce. The grocer is so close to the consumer that a measure of friend¬ ship often protects him from attack. Besides this, his un¬ stinted services and modest profits are patent. The pro¬ ducers, likewise, offer no fair target, being too far away, too numerous, and too little organized. But the commis¬ sion man is protected neither by distance nor by friendship; he is at once impersonalized and accessible. For the same reasons he is exposed to the missiles of the grower, who cannot fight a whole world of consumers, but who finds in the produce dealer — a shrewd city fellow reputed to be making enormous profits from speculation in the farmer’s wares — a shining point for his attack. We are all prone to retain a good deal of the mediaeval philoso¬ phy which gives all the credit of wealth-creation to the man who performs the technical process of production and calls the merchant a parasite. This is natural enough in the farmer who has sweated through planting time and harvest.

But under all these circumstances it is well to remember that a man is innocent till proved guilty, and also that we should aim to get back of the man and the personal attitude to the system of which he is a part and to the fundamental economic principles which underlie it. The present writer holds no brief for the Chicago produce market as it exists to-day, nor is he either a volunteer or conscript in the army enlisted to fight the high cost of living by slaughtering the middleman. It may be true that “these dealers in perish¬ able food products serve the retailer in an economic and sanitary manner,” in fact, “could hardly supply the pub¬ lic better or at a lesser cost.” Such is their claim, made in their public New Year’s (1915) announcement in the Chicago papers. Or it may be true that “these markets, as now conducted, are entirely inadequate, insanitary, and extremely wasteful,” as the Municipal Market Commission says. Either statement needs more than mere reiteration to establish its validity. In the pages which follow an attempt will be made, not alone to show how the produce market is organized and how it works, but likewise to dis¬ cuss some general principles by which that performance may properly be judged.

Chapter II The Wholesale Market — Location And Equipment

The wholesale marketing of produce in Chicago centers about one great market-place near the heart of the city, — South Water Street, — though the Randolph Street market, a short distance away, has grown to considerable size and importance in recent years. The few outlying markets are relatively insignificant.

The present location of the Chicago produce market is to be explained in the light of its historical development rather than on any logical economic grounds. In the early days of the city the general business center was on the north side of the river, in the region east of the point where the two branches unite. Water traffic was then relatively more important than now, and the thriving trade in lum¬ ber, grain, furs, and other pioneer products very naturally found its most advantageous location along the water front of the main stream of the Chicago River. It was about the time of the Civil War that the business life of the city, needing more room, and shut in by the residence district on the north, migrated toward the south and began its expansion over the district which is the heart of present-day Chicago. As banks, newspapers, hotels, and wholesale and retail houses abandoned those streets which lay next to the river on both north and south, the section was left in the hands of the produce dealers, whose business grew and flourished with the enlargement of the city as a consuming center and with the expansion of the railroad system.1

1 Cook, By-Gone Days in Chicago, p. 183 ff. The Board of Trade oc¬ cupied quarters on South Water Street until they erected their Chamber of Commerce building on Washington Street (1865).

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South Water Street is a short east-and-west street, which lies between the downtown business district (“the Loop”) on the south and the Chicago River on the north. The portion used for produce-market purposes is a scant half-mile in length — from State Street west to the turn of the river. Since the re-numbering of the city a few years ago, this has become officially West South Water Street, but, in common usage, little or no attention is paid to this dis¬ tinction. In fact, to those most concerned it is — and prob¬ ably will always remain — simply “the Street.” Gener¬ ally speaking, fruit and vegetable dealers are located in the eastern part of the district, while the western end con¬ tains the establishments which specialize in meat, poultry, and dairy products. Likewise, the initiated observe a dis¬ tinction between the north and the south sides of the street, the latter being known as the “busy side.” It has the obvious advantages in summer of being the shady side, and stores on this side of the street run back to an alley, which is convenient for handling goods, whereas those on the other side, besides being quite shallow in depth, back up to the Chicago River, from which no goods are received. Both sides of the street are lined with low brick stores,1 none of them new 2 and many of them dating back to the days just following the great fire of ’71. The ground-floor of these buildings is used for storage and salesroom pur¬ poses. There is commonly a cashier’s booth at one side of the street floor, but the general offices are frequently lo¬ cated on the second floor. The basement and the remain¬ ing upper stories are used for storage purposes, repacking