The history of cumulative voting and minority representation in Illinois, 1870-1919

Front matter

iiiiii m

EXCHANGE DEC 12 ■ "

IN THE SOCIAL SCIENCES

Introduction

The peraianence of horticultural industries depends primarily upon the successful marketing of the products. Many individual horticultural enterprises have failed, not because of inability of the operators to produce the crops, but for lack of efficient marketing facilities. When individual efforts at marketing have failed, growers have been obliged either to give up their horticultural pursuits or to co-operate with their fellows in the marketing of their products. The greater the distance of the grower from his market, the more helpless he has been as an individual in attempting to solve his marketing problems. It is not surprising, therefore, that California growers have been leaders in the development of ^o-operative marketing organizations in America.

A study of the conditions which led to the formation of cooperative marketing organizations in California, and of the accomplishments of these organizations should indicate the relative advantages of co-operative, as compared with other methods of marketing. Furthermore, the experiences of these organizations in the progress of their development illustrate certain principles which appear to be fundamental to the success of co-operative marketing enterprises. A detailed consideration of these principles as exemplified by the experiences of California marketing organizations will constitute the major portion of the present paper.

Three methods of marketing California horticultural products may be noted: (1) outright sale to speculative buyers, (2) consignment upon a commission basis, and (3) sale through a growers' co-operative marketing organization. Each of these methods has characterized certain periods in the marketing of the various California products. In the early eighties of the last century, California fruit was usually purchased outright from the growers by speculative buyers who shipped it to a few of the larger markets. California fruit in the eastern markets was then looked upon as a luxury to be indulged in only by the wealthy, and the

10 INTRODUCTION [10

limited shipments were sold at exorbitant prices. During this period, the buyers paid good prices to the growers, and at the same time made large profits for themselves. Within a few years, however, with increased production, the markets seemed to be easily oversupplied, and the former buyers refused to purchase frait from the growers, but were Avilling to handle it upon a commission basis, in addition to a fixed charge for packing. This arrangement relieved the shipper of all risk and insured him a profit, but placed the grower at the mercy of an uncertain market, and finally resulted in such low returns that the entire fruit industry of the state was threatened with ruin. The crisis was reached during the financial panic of 1893. For a few years previous to that date, efforts had been made by growers to devise some better method of marketing their products; and in a few places small local assoeiations had been organized. A special impetus was given to the formation of fruit growers' co-operative marketing organizations in 1893, particularly among orange growers in the southern part of the state. The various local organizations of orange growers became affiliated, and in 1895 a central organization, known as the Southern California Fruit Exchange, was incorporated. This organization has been in continuous activity since that date (though in 1905 the name was changed to California Fruit Growers Exchange), and furnishes the facilities by means of which a large part of California's citrus fruit crop is marketed.

Besides the citrus fruit growers, producers of deciduous fresh fruits, raisins, dried peaches, walnuts, almonds, apples, berries, and cantaloupes, have formed marketing organizations which are at the present time in active operation. Some of the organizations are general in character, attempting to serve the needs of the given industry throughout the state; others have confined their activities to a given producing region without regard to the same product in other localities.

The following organizations of growers are concerned in the marketing of California horticultural products :

INTRODUCTION

California Co-operative Marketing Organizations

Years

Percentage

Headquarters

Product ir

lOp-

of Crop

eration

Handled

Los Angeles

Citrus fruits

Sacramento

Deciduous

fresh fruits

Fresno

Raisins

80+

Los Angeles

Walnuts

San Francisco

Almonds

Frfisao

Dried peaches

Sebastopol

Berries

Sebastopol

Applea

Turloek

Cantaloupes,

etc.

Name General organizations : California Fruit Gro\ Exchanire

California Associated Raisin Co.

California Walnut Growers Association

California Almond Growers Exchange

California Peach Growers Locality organizations:

Sebastopol Berry Growers, Incorporated

Sebastopol Apple Growers ' Union

Turloek Merchants and Growers, Inc.

In addition to the above, the following have filed articles of incorporation, and are in process of organization: California Prune and Apricot Growers, Inc., California Associated Olive Growers, Inc., and Watsonville Apple Distributors.^ Mention should also be made of the California Avocado Association and the Coachella Valley Date Growers Association, organizations which are looking after the welfare of their respective industries, the products of which are not yet of sufficient volume to warrant any attempts at co-operative marketing.

1 This study was completed in March, 1917. Other organizations handling California horticultural products have been formed since that time.

Chapter I

A study of the accomplishments of the organizations enumerated in the tabular statement on page 11, and of some of their predecessors in the same industries, indicates that growers' cooperative marketing organizations handling California horticultural products are capable of :

1. Reducing the cost of marketing.

2. Improving the distribution of the product.

3. Increasing the demand for the product.

4. Standardizing the product.

5. Protecting the individual grower.

HOW MARKETING COSTS HAVE BEEN REDUCED

In this discussion, "cost of marketing" is assumed to mean the difference between the price paid by the jobber in the consuming region and that received by the gi'ower for a given product. It includes packing-house charges, transportation, and brokerage, commission or other form of compensation for doing the selling. In the early period when the fruit was handled principally by speculative buyers who purchased it outright from the growers, tliis cost of marketing included a large profit to the dealer. When market conditions changed so that large profits were no longer assured, the same firms continued to operate as packers and shippers, charging the growers a fixed amount for packing and a commission for selling. This was the method in operation at the time the orange growers decided to organize for the purpose of doing their own marketing.

One of the most tangible results secured by the orange growers upon assuming their o^\^l packing and selling was a marked reduction in the cost of packing as compared with the charge exacted for that ser\dce by the firms who had previously handled the crop and who continued to handle it for growers outside the organization. Reports of various associations of growers at the end of the first season's operations following the general movement toward organization in 1893, gave definite evidence on this point. At the annual meeting of the Riverside Heights Orange Growers Association, October 2, 1894, the officers reported that "the total expense per box for packing the fruit . . . was 29 cents. ' ' ^ The report of F. INI. Douglass, Secretary of the Duarte-Monrovia Citrus Association, July 17, 1894, stated that, ' ' The charge to the growers for packing the fruit and loading on car was but 24 cents per box. Though the price was small, it proved sufficient to cover the expense. ' ' ^ The previous season, one of the largest commercial packers had charged growers 40 cents a box for the packing.^ In an address at a meeting of the Southern California Pomological Society, at Pomona, November 16, 1894, T. H. B. Chamblin, in reviewing the first year's operation of the Exchange system,* stated that, "Previous to the advent of the Exchange system, it cost from 35 to 50 cents per box to pick, pack, and haul to the railway. The average was about from 40 to 45 cents. During the past year it has not cost much over 28 cents per box. ' '

Fully as favorable results were attained the next season. According to the Ontario Becord,^ "Mr. Adams [Manager of the Ontario Fruit Association] states that this year [1895] the expense of packing, miscellaneous expenses and salaries [i.e. cost of operating the local packing-house] amounted in round numbers to 28 cents per box. . . "When the old commission system was the only selling medium, the grower paid from 35 to 60 cents for packing alone." The costs of packing in some of the Riverside associations for the 1894-95 crop Avere as follows: Riverside Heights Association, 25.68 cents per box ; Brocton Square Association, 26.20 cents per box ; Navel Orange Co., 24-|- eents.'^ The same item stated that, "The average cost throughout

1 Biverside Pi-ess and Korticulturist, Oct. 6, 1894, p. 2.

2 California Cultivator, Aug., 1894, p. 229.

3 Biverside Press and Horticulturist, Sept. 23, 1893, p. 2.

4 Bural Calif ornian, Dec, 1894, pp. 635-636.

5 As quoted in Biverside Press and Horticulturist, Aug. 31, 1895, p. 1.

6 Biverside Press and Horticulturist, Sept. 28, 1895, p. 2.

the valley has probably not gone above 27 cents, as against 35 paid to outside packers the same season." At the close of that shipping season, Fred L. Alles, in an article entitled, ' ' California Fruit Exchanges vs. The Commission System,"^ stated that, **In no one thing has the exchange system sho^vn its value more positively than in the cost of packing and marketing the fniit. It has reduced the cost of packing from the old commission system average of 43 cents per box to a present rate of 28 cents, a saving to the growers of nearly $200,000 on packing alone."

In October, 1900,^^ the stockholders of the Riverside Heights Association "were most enthusiastic over the splendid showing made the past year . . . and the average cost per box for packing Avas 2714 cents — lower than any other association by 11/2 cents."

In a circular issued by the California Fruit Growers Exchange, December 20, 1911, B. A. AVoodford, General Manager, said : " A brief review or comparison of conditions as they exist just prior to the formation of the Exchange and as they exist to-day is interesting. Then, the cost of packing a box of oranges and putting it upon the car was between 40 and 50 cents. Now, the same service, better done, costs on the average 30 cents."

In a public address the same year,^ Mr. "Woodford said: "The cost of packing as compared wnth seventeen years ago has been reduced to all growers more than 10 cents per box, a saving of $2,000,000 annually on the present output."

The low cost of packing as conducted by the associations which constitute the California Fruit Growers Exchange, was due mainly to two factors: (1) The elimination of the profits formerly accruing under a system of commercial packing, since all operations are conducted upon a strictly co-operative basis at actual cost; and (2) the purchase of box material and other packing-house supplies in enormous quantities for the entire Exchange system and their distribution to the various associations at actual cost.

Some local co-operative associations of raisin growers which had been organized in the vicinity of Fresno about the time the

7 Calif orni-a Cultivator, Nov., 1895, pp. 381-383.

8 Biverside Daily Press, Oct. 3, 1900, p. 5.

9 Proceedings Thirty-ninth State Fruit Groicers' Convention, p. 89.

orange growers were organizing in the southern part of the state, likewise secured marked savings in packing expense. The report of W. F. Forsey, Secretary of the Producers' Raisin Packing Company, showed that in two years this co-operative company had "saved enough in packing, as compared with the prices charged by commission packers, to build and equip their packing-house and pay for the land" on which it stood. In one year they had saved $6500 in packing 150 carloads of raisins. They "packed 15,410 boxes Layers No. 1 of twenty pounds each at an average cost per box of 19i^ cents. The price charged by the commission packers is [was] 321/2 cents for doing exactly the same work. . . They packed 41,362 fifty pound cases at an average cost of 16x^xr cents per case, and the price charged by the commission packer is [was] 25 cents. ' ' ^°

In the orange growers' organizations, not only the cost of packing, but also the cost of selling was materially reduced when the growers took their business into their own hands. The customary commission charge seems to have been 10 per cent on the gross sales, though 7, 8 and 12 per cent ^^ have also been mentioned. "The Exchange charges the growers only actual cost for . . . selling the fruit which ... [in 1895 was] about 4 per cent, a saving of a full $150,000 this year to the grower. ' ' ^- In a feature article ^^ in the Los Angeles Herald, June 27, 1897, based on data furnished by the officers of the Southern California Fruit Exchange, the statement was made that, "Under the Exchange system the cost [of selling the fruit] the past season has been only 71/2 cents a box. The old [commission] system of charging would be about 25 cents a box on Navels and about 17 cents a box on seedlings. Here is a saving of nyo cents a box on Navels and Oi/o cents a box on seedlings."

In some of the early reports regarding reductions in the cost of marketing oranges, the savings made by the growers due to reduced costs of packing and of selling were combined into one item for purposes of comparison with other methods of marketing. In a brief review of the first year's marketing of oranges

10 Pacific Riiral Press, Mar. 9, 1895, p. 146.

11 California Cultivator, Nov., 1895.

12 Allcs, Fred L., in California Cultivator, Nov., 1895.

13 Los Angeles Herald, June 27, 1897, pp. 16-17.

under the Exchange system, AV. E. Collins said:" ". . , the charge to the grower for packing and marketing the fniit has been from 25 to 50 per cent less than the combined charge for packing and commission under the old system. ' ' Reports for the season of 1894-95^^ "show that the Redlands growers [not in the Exchange system] paid 52 cents per box for packing and selling their fruit, while the same item of expense in the Colton Exchange was but 32 cents — a clear gain of 20 cents in favor of the Exchange system. " In a circular issued by a " committee of the Orange Exchanges comprising the Pomona valley," in the fall of 1896,^^ it was stated that "the expense of packing and selling [had been] reduced to the actual net cost, saving the growers 15 to 35 cents per box. ' ' A circular issued by the Riverside Fruit Exchange in the fall of 1898 ^^ said: "The entire cost of the box material, packing and selling . . . will not exceed ... 35 cents a box to the grower [in the Riverside Exchange, for the season of 1897-98]."

The low cost of selling instituted by the "Exchange system" in the early days has been consistently maintained to the present time, even though the service has been vastly extended and improved. December 20, 1911, B. A. Woodford, General Manager of the California Fruit Growers Exchange, issued a statement that "pnor to the formation of the Exchange . . . the growlers paid the California shipper 7 to 10 per cent on the gross proceeds for selling the fniit. Now, a better service is open to all growers for less than 3 per cent. "^^ The annual reports of the present general manager, G. Harold Powell, show that the cost of selling citrus fniits through the California Fruit Growers Exchange, from 1912 to 1916, has been less than 3 per cent on the gross sales. In this selling co.st has been included the cost of maintaining a comprehensive advertising campaign each season. The continuance of this low cost of selling in spite of the greatly improved semnce has been made possible by reason of the

14 Eural Calif ornian, Oct., 1894, p. 533.

15 Eural Calif ornian, Nov., 1895, p. 594.

16 Rural Calif ornian, Oct., 1896, p. 413.

17 Riverside Daily Press, Nov. 16, 1898, p. 5.

18 Circular issued by the California Fruit Growers Exchange, Dec. 20, 1911.

large volume of business transacted, the thoroug-h. organization of all departments of the service, and the employment of salaried agents in place of brokers in the principal markets of the country.

In addition to reducing the costs of packing and selling fruit for its members, the California Fruit Growers Exchange was the principal factor in securing reductions in freight rates and refrigeration charges on California citrus fruits. The orange freight rate was reduced 7 cents per box and the lemon rate 21 cents per box. Based on the output in 1911, this was equivalent to an annual saving of over $1,700,000.^^ Reductions in charges for the various kinds of refrigeration service were secured from time to time, and resulted in further reducing the cost of transportation. Since these savings in freight and refrigeration charges were available to all shippers alike, the Exchange has been of direct service to the entire industry in this connection, and not to its own members alone.

The California Fruit Growers Exchange has also been able, in its transactions, to reduce greatly the losses due to freight overcharges or damages in transit, and to bad debts or failure of purchasers, which losses might otherwise constitute an important item in the cost of marketing. The payment of freight overcharges is avoided by a thorough system of auditing instituted by the traffic department of the Exchange. This department also secures and compiles the data for the establishment of claims against the transportation companies for damages to fruit in transit whenever such damages have occurred. The importance of this service in saving money for the growers is indicated by a statement in the annual report of the general manager of the Exchange for the year ending August 31, 1916, as follows: "There have been presented to the railroads during the year 11,364 claims, including those for pilferage, overcharge, and for loss and damage in transit. These claims aggregated $151,006.01, and during the year $111,557.31 have been paid and returned to the shippers. The expense of this service is included in the marketing cost."

Losses due to bad debts and similar causes have been practically eliminated by having personal representatives in all the

19 Proceedings of TMrty -ninth Fruit Growers' Convention, p. 89.

leading markets, by conducting the business on essentially a cash basis [requiring settlement in full for every car of frait ^^^thin 48 houi's after the sale is consummated] , and by using local banks as depositories for funds, thus avoiding the possibility of loss due to failures while checks were being transmitted to and from California. During the year ending August 31, 1916, the growers belonging to the California Fruit Growers Exchange lost only "$102.73 due to bad debts and all other causes. This equals tliree- eighths of one-one thousandth of one per cent of the money returned to California [by the Exchange] . In thirteen years the Exchange has returned to California $192,500,000, and during this period the losses from bad debts and from all other [similar] causes have amounted to only $7,688.56. . . This business represents transactions with 2,500 jobbers in the United States and foreign countries. ' ' ^^

Other co-operative marketing organizations have adopted the methods of the California Fruit Growers Exchange in reducing marketing costs, in so far as these methods have been applicable to the business of the respective industries, in their present stage of development. The organizations composed of local associations operating their own packing-houses purchase on the best possible terms the packing-house supplies needed by all their members. The California Fruit Exchange (handling deciduous fresh fruits) has for years had its fruit handled through the sales agents maintained by the California Fruit Growers Exchange in the various markets. Since the heavy shipments of deciduous fruits occur at a season of the year when shipments of citrus fruits are comparatively light, this arrangement has been of advantage to both Exchanges. The California Walnut Growers Association, by establishing more direct connections with the jobbing trade than existed when each local association acted independently, has been able to reduce the selling cost to about 3 per cent,^^ whereas the brokerage alone was formerly from 5 to 6 per cent. The California Walnut Growers Association and the California Almond Growers Exchange are now co-operating in a mutual effort to secure a reduction from the pres-

20 Annual Eeport of General Man-ager, California Fruit Growers Exchange, Aug. 31, 1916, p. 4.

21 Personal interview with C. Thorpe, Manager, Apr. 26, 1916.

ent freight rate of $1.40 per ewt. on walnuts and almonds from Pacific Coast producing points to eastern markets.

HOW THE DISTRIBUTION OF THE PRODUCT HAS BEEN IMPROVED

Before the formation of growers' co-operative marketing organizations in California, the frait shipped to points outside the state was sent almost entirely to a few of the larger markets, and difficulty was experienced in disposing of the crops to advantage, under the methods then employed, when the total annual shipments of oranges, for example, were only about 4,000 cars.^^ The shipping was done by a number of firms, each acting independently of the others. The result was that some markets were oversupplied and others undersupplied. This occasioned a great disparity in prices. Reports of low supplies and high prices in a given market incited such heavy shipments to that market that the best market might quickly be made the poorest market. It was even claimed that shippers sometimes purposely "broke" certain markets in order to dissuade their competitors from continuing to offer goods in those markets. This was done principally during the period when shippers were handling the fruit on a commission basis, and the losses due to low prices fell upon the growers whose fruit was sacrificed in the competition between different shippers for the control of certain markets. The shippers were sure of a profit on the packing, and received a commission on the gross sales, so that the losses resulting from the unsystematic method of distributing the crop fell principally on the gi'owers.

The returns to the growers Avere so low that the cry of ' ' overproduction" was set up, and in some cases large areas of fruit plantations were uprooted because the crops were netting the growers less than the cost of production. This was especially true of the raisin industry before the formation of the California Raisin Growers' Association. Almond growers had also begun to destroy their orchards for the same reason shortly before cooperative marketing of their product was instituted.^^ The orange growers did not pull out their orchards, but were greatly

22 Circular issued by California Fruit Growers Exchange, Dec. 20, 1911.

23 Personal interview with J. B. Davidson, of the California Almond Growers Exchange, Oct. 10, 1916.

concerned because of the apparent ease with which the markets were oversupplied and prices depressed; and rumors of overproduction were rife.

The trouble was not due to overproduction, but to lack of adequate distribution. Under the marketing methods then in vogue, the growers had no control whatever over the distribution of their products; the shipping firms dictated the time of harvest, each usually striving to place as much fniit as possible on an early market in the hope of securing high opening prices, instead of supplying the market through as long a season as possible, and thus affording an outlet for larger quantities of fruit at paying prices. Moreover, the shipping firms confined their business principally to supplying the large cities with fruit, and made little or no attempt to develop markets in the smaller places. Thus for years California fruits were not generally distributed over the country as a whole, but their sale and consumption were confined principally to the large cities and immediately surrounding territory.

One of the first and most important changes in marketing IK)licy instituted by the co-operative organizations of growers was a widening of the distribution of their products, both as to time and place. The shipping season for each of the various products has been extended as much as the nature of the commodity and the customs of the consumers will permit; and the latter are even being changed by the systematic effort of growers' co-operative marketing organizations. For example, the marketing season for lemons was fonnerly confined almost exclusively to the hot summer months; now lemons are shipped from California twelve months in the year. Oranges were formerly used principally during the winter and early spring, and shipping ceased entirely during the summer months; now they are handled the year round. Both these results have been brought about largely through the efforts of the California Fruit Growers Exchange in persistently calling the attention of the consuming public to the winter uses of lemons and the summer uses of oranges.

The area of distribution for their respective products has been greatly extended by nearly all the large co-operative marketing organizations of California growers, by establishing business connections in practically every city in the United States and Canada which is large enough to handle the given product in carload lots. Thus many markets are supplied by direct wholesale shipments from California which formerly depended upon reshipments from the larger cities, often in small lots and at high transportation rates. Moreover, these smaller cities now serve as distributing centers from which the products are sent to the surrounding villages in a much fresher condition and at less transportation expense than when the goods were distributed only through the larger cities; and many small places are now supplied which were never reached by the former method of distribution.

It has been largely through the efforts of the growers' co-operative marketing organizations that the railroads have been induced from time to time to improve their transportation and refrigeration service. This has been brought about partly as a result of conferences by representatives of the growers with the railway officials, in which it was pointed out to the railway companies that it was to their advantage as well as that of the growers to maintain a character of service which would make it possible to place the fruit in good condition in all markets of the United States and Canada. The position of the growers was further emphasized by the establishment and collection of claims for damages whenever it could be shown that the poor condition of fruit on arrival was due to any negligence or delay for which the railway company was responsible. The relations between the railroads and the fruit growers have really passed through three stages. At first, the railroads did as they pleased, regardless of what the fruit growers said, and the growers had no recourse because they were not organized. Then came a period during which the organized fruit growers were almost continually fighting the railroad companies for better service or pressing damage suits based on claims for losses due to inefficient service. The third stage has now been reached, in which the railroad companies recognize that they and the fruit growers have mutual interests; officials of the leading fruit growers' organizations are advised with before new rulings or regulations affecting the shipment of their respective commodities are published ; and certain classes of claims are promptly paid without any court proceedings.^* Thus the organizations of fruit growers have been insti-umental in bringing about better relations between the railroads and the fruit industry, and in securing more efficient transportation service.

HOW DEMAND FOR THE PRODUCT HAS BEEN INCREASED

The production of California fruits, particularly citrus fruits, has been increasing much more rapidly than has the population of the United States. "The population of the United States increased 20.7 per cent from 1890 to 1900; the shipments of citrus fruits increased 195 per cent during the same period. From 1900 to 1910 the population increased 21 per cent, while the shipments increased 292 per cent during the same period. ' ' ^^ Foreign markets, particularly those of Canada, have been developed to help take care of this increased production ; but the disposition of the greatly increased quantity of citrus fi-uit has been made possible largely through an increase in the per capita consumption of oranges and lemons by the people of the United States. "It is through the increase in fruit-eating habit of the people that the enormous increase in the fruit production is taken care of. ' ' ^^ This increased per capita consumption of oranges and lemons by the people of the United States is the direct result of systematic effort to that end by the California Fruit Growers Exchange. ' ' There is no other force as powerful in increasing the use of citrus fruits as educatipnal advertising to consumers. For seven years the [California Fruit Growers] Exchange has been advertising ... . continuously, the organization realizing that in times of financial depression advertising is a necessity, and that in times of prosperity it is an opportunity. During prosperous times, per capita consumption of oranges and lemons can be increased, new buying habits can be formed, and new uses developed more economically and more easily than under any other conditions. . . The Exchange

24 Personal interview with A. M. Mortensen, Traffic Manager, California Fruit Growers Exchange, May 16, 1916.

25 Address of G. Harold Powell, before meeting of Western Fruit Jobbers Association, Feb. 16, 1915. Printed in TJw Western Fruit Jobber, April, 1915.

26 Address of G. Harold Powell, above cited.

advertising is increasing the use of oranges and lemons by educating the public to their delicious and healthful qualities by repeating appeals to the appetite, by tempting illustrations and displays, by constant suggestions of new uses and new reasons for using. . . The opportunity to increase the consumption of citrus fruits is indicated by the fact that the total consumption of oranges during the Washington Navel season, including fruit from California, Florida, Porto Rico and other sources, is only two dozen per month for each family of five persons, and approximately one-half dozen per month during the Valencia season. Including imports the consumption of lemons is approximately one-half dozen per family per month throughout the year.