QforttEll Utttocrattg ffilibrarg iltljaca. JStat |lnrk BOUGHT WITH THE INCOME OF THE FISKE ENDOWMENT FUND THE BEQUESTOF WILLARD FISKE LIBRARIAN OF THE UNIVERSITY 1868-1BBS 1905 CORNELL UNIVERSITY LIBRARY 3 1924 082 454 426 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924082454426 ^art, a>c&affner & par); JJrtj* (Economic (Easapu THE CAUSE AND EXTENT OF THE RECENT INDUS- TRIAL PROGRESS OF GERMANY. By Earl D. Howard. THE CAUSES OF THE PANIC OF 1893. By William J. Lauck. INDUSTRIAL EDUCATION. By Harlow Stafford Person, Ph.D. FEDERAL REGULATION OF RAILWAY RATES. By Al- bert N. Merritt, Ph.D. SHIP SUBSIDIES. An Economic Study of the Policy of Sub- sidizing Merchant Marines. By Walter T. Dunmore. SOCIALISM: A CRITICAL ANALYSIS. By O. D. Skelton. INDUSTRIAL ACCIDENTS ANDTHEIR COMPENSATION. By Gilbert L. Campbell, B. S. THE STANDARD OF LIVING AMONG THE INDUSTRIAL PEOPLE OF AMERICA. By Frank H. Streightoff. THE NAVIGABLE RHINE. By Edwin J. Clapp. HISTORY AND ORGANIZATION OF CRIMINAL STATIS- TICS IN THE UNITED STATES. By Louis Newton Robinson. SOCIAL VALUE. By B. M. Anderson, Jr. FREIGHT CLASSIFICATION. By J. F. Strombeck. WATERWAYS VERSUS RAILWAYS. By Harold Glenn Moulton. THE VALUE OF ORGANIZED SPECULATION. By Harri- son H. Brace. INDUSTRIAL EDUCATION: ITS PROBLEMS, METHODS AND DANGERS. By Albert H. Leake. THE UNITED STATES INTERNAL TAX HISTORY FROM I 86 I TO I 87 I . By Harry Edwin Smith. WELFARE AS AN ECONOMIC QUANTITY. By G. P. Wat- kins. CONCILIATION AND ARBITRATION IN THE COAL IN- DUSTRY IN THE UNITED STATES. By Arthur E. Suf- fern. THE CANADIAN IRON AND STEEL INDUSTRY. By W. J. A. Donald. THE TIN PLATE INDUSTRY. By D. E. Dunbar. THE MEANS AND METHODS OF AGRICULTURAL EDU- CATION. By Albert H. Leake. THE TAXATION OF LAND VALUE. By Yetta Scheftel. RAI LROAD VALUATION. By Homer Bews Vanderblue. RAILWAY RATES AND THE CANADIAN RAILWAY COM- MISSION By D. A. MacGibbon. THE CHICAGO PRODUCE MARKET. By Edwin Griswold Nourse. HOUGHTON MIFFLIN COMPANY Boston and New York %<\xt> #e#affntt & (HUtx (pn^ I&maw XXV THE CHICAGO PRODUCE MARKET THE CHICAGO PRODUCE MARKET BY EDWIN GRISWOLD NOURSE Professor of Economics, University of Arkansas BOSTON AND NEW YOKE HOUGHTON MIFFLIN COMPANY (3rbe Btontfibe pre&* Cambti&gc 1918 COPYRIGHT, I9I8, BY HART, SCHAFFNER & MARX ALL RIGHTS RESERVED Published April rgi8 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 Lattghltn, Chairman, University of Chicago. J. B. Clark, Columbia University. Henry C. Adams, University of Michigan. Edwin F. Gat, 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. University of Arkansas, May 31, 1917. CONTENTS I. Introduction 1 II. The Wholesale Market — Location and Equip- ment 14 III. The Wholesale Market — Personnel and Or- ganization 27 IV. The Wholesale Market — Organization (con- tinued) 47 V. The Wholesale Market — Transportation and Storage Facilities 71 VI. The Retail Market 92 VH. The Effect of the Market System upon Prices 107 VIII. The Effect of the Market System upon Prices (continued) 133 IX. The Chicago Municipal Markets Commission . 159 X. Other Projects for Improving the Market System 190 XI. Summary and Conclusions 227 Appendices 251 Bibliography , 291 Index 297 THE CHICAGO PRODUCE MARKET CHAPTER I INTRODUCTION 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 2 THE CHICAGO PRODUCE MARKET 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: — • 1S90 1900 1910 1915 Farm products 65 65 98 100 Food, etc 86 76 96 100 Cloths and clothing 98 89 100 100 Fuel and lighting 78 92 95 100 Lumber and building materials 77 81 107 100 Drugs and chemicals 79 86 90 100 House furnishing goods 118 109 102 100 Metals and metal products 118 109 96 100 INTRODUCTION 3 loss. Figures of indubitable authority * 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 841, United States Department of Agriculture, Farmers' Bulletin 746, etc. 2 Report of the Massachusetts Commission on the Cost of Living (1910), pp. 816-16. 4 THE CHICAGO PRODUCE MARKET 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-thousand- car 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 orange- growers 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. INTRODUCTION 5 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. 6 THE CHICAGO PRODUCE MARKET 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 r * Since this essay was written (1914-15), The Marketing of Farm Prod- ucts, by Weld (Macmillan) ; Agricultural Commerce, by Huebner (Apple- ton); and Marketing Perishable Farm Products, by Adams (Columbia University Studies), have appeared. INTRODUCTION 7 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 dly 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 vegetable? 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 dipdt, 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 8 THE CHICAGO PRODUCE MARKET 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 INTRODUCTION g 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 fine 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 "" ' Including adjacent suburbs not included within the city limits. 10 THE CHICAGO PRODUCE MARKET 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. l 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. INTRODUCTION 11 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 12 THE CHICAGO PRODUCE MARKET 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 INTRODUCTION 13 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 MAEKET — 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). tw : '^mm u u l\: u\u (Xj £f S ~£] El" □ VITv Fult°n Street ' flggy^nnipn Gra.na Ave. □ 1=1 flap i= a □ □ a h c Aj/?.z / g Stre et _□ JDSDJZ pco DDD DDD DDD 77h «t=is e'DDD Central Market District of Cnica.00 rrait roads —~ ~ — 7eatp Tracks X-X /\ taction noomS F^ CM Sterajm £ Uu 3 CZ1 3 C ^)iv«;/J/ ntjD ddQ a □ 3 CD . FrT=- nrr^n-J.iK ■ I M (■ 5k Wafer Street Z-a/t-e Street Randolph Stre et bod ftboc V- ^Was hing ton Street Street Z.R«U*/f>t Market THE WHOLESALE MARKET 23 their supplies through the South Water, Randolph, or Fulton markets, it is evident that the one central mar- ket really determines the conditions of both supply and price for the whole city. Another aspect of the tendency toward decentraliza- tion may be observed in the truck-farmers' market at Seventy-first and State Streets. The building-up of the city toward the southwest had gradually pushed the veg- etable growers of this section farther and farther away from their old markets. The Randolph market is any- where from ten to fifteen miles from the present location of their truck farms, and even hauling their products to Forty-seventh Street, Thirty-first Street, or any other of the principal business streets of the residence sections of the South Side or the West Side, consumes a large amount of time. A custom has accordingly grown up of meet- ing the retailer halfway. The growers with their loads of home-grown vegetables congregate around the inter- section of State and Seventy-first Streets early in the morning, and there await the coming of buyers. From daybreak until six o'clock, this is a busy little market. From that time on the empty wagons of the farmers begin to scatter toward the south and west, while the full wagons of the peddlers and store-keepers draw away to the north and the day's business. By seven o'clock the street is practically empty. Retail grocers or butchers who have light motor trucks for delivery purposes come here from considerable distances, small dealers from near by come on foot and take their small purchases away in a wheel- barrow or cart; a few thrifty householders with large fam- ilies or numerous boarders likewise avail themselves of this market. 1 The truckers are not usually willing to dis- 1 "Wagon peddlers" appear to be the most important class of pur- chasers. As the city is very long and rather narrow, growers located on the west side of the city have readier access to the Randolph market, while those on the North Shore face the same difficulties as those from the South, many of them being even farther away. Some of their product 24 THE CHICAGO PRODUCE MARKET pose of their wares in small lots. The city takes no official cognizance of this use of the street and no fee is charged nor is any market master in attendance, though the police- man from that beat makes it a point to be on hand. In conclusion, a word should be said concerning the transportation connections of the Chicago produce market. Perhaps the most striking feature of this matter is that in this, the greatest railway center in the world, the produce market — likewise one of the greatest in the world — is provided with no special terminal facilities. Far from hav- ing a central terminal building where perishables could be delivered — direct to heated or cooled rooms when necessary — Chicago has not even that centralization of its deliveries which is possible under the New York sys- tem of dock delivery and sale or which the Pennsylvania Railway recently supplied to Pittsburgh through the con- struction of a special produce freight yard. In Chicago the most expensive perishables are delivered by the different railroad companies quite casually at their general team- tracks. Goods taken from heated or insulated cars in mid- winter are frequently frosted before arrival at the dealer's store, a mile or two away. 1 In summer a similar journey over cobblestone pavements and under a burning sun causes delicate fruits and vegetables to deteriorate rapidly after leaving their refrigerated car. Under the present system the receiver who has shipments coming to him over several different roads is obliged to spend a large is shipped by rail, much is disposed of to retailers or jobbers in the northern part of the city or in its suburbs, some is sold at the farm or at some halfway station, like the one we have been discussing, to traders who sell on the Randolph market. Not all of the wagons there represent actual producers. The motor truck, of course, widens the radius of such a market. 1 About November 1, 1916, arrangements were made whereby, for the first time, car-lot shipments of Florida and other southern vegetables might be unloaded at a steam-heated platform adjacent to the " banana house" in the Illinois Central yards, close to the South Water Street market. THE WHOLESALE MARKET 25 amount of time traveling from one freight yard to another, perhaps a mile or more away, in order to inspect his goods. When he attempts to sell them, the salesman must take prospective buyers over the same tiresome and time- consuming journey. Even if the goods are reshipped with- out breaking bulk, there is the delay and cost of having the car switched and reswitched to get it on its way again over a new route. Finally, if the car be broken up into smaller lots for re-shipment or local sale, or if the goods came in as less than car-lots, there is the expensive teaming through busy downtown streets, with delays at the team- tracks, more delays amid the congested traffic of South Water Street and its vicinity, deterioration as a result of the exposure of the goods, or their frequent rehandling and their being jolted about over uneven paving-blocks. The present teaming cost is enormous. l The other outstanding feature of the transportation sit- uation is that neither the boat lines nor the electric inter- urbans make important contributions to the handling of produce entering Chicago. An occasional boat-load of pota- toes comes from northern Wisconsin and considerable fruit is brought across the lake from the Michigan fruit belt, but these shipments constitute but a tiny fraction of the whole fruit and vegetable business of Chicago. Such goods as the steamship companies do carry must be unloaded at their own dock and teamed to the produce district. 2 Also, though there are six inter-urban electric lines tributary to Chicago, none of them have downtown terminals. They 1 Estimated at $7,000,000 per year. Of course this figure could hardly be regarded as more than the guess of a well-informed traffic man, but even so it points to a great leak in the present operation of the market. How much should be added to this amount to cover the cost of incidental deterioration of goods is even less capable of statistical measurement, though it is evidently a large amount. ! Except for the limited producing area which lies within teaming dis- tance of the few lake ports, it is ordinarily more expedient for the Michi- gan grower to ship to Chicago direct by rail than to use both rail and water and suffer the delay and cost of transshipping. 26 THE CHICAGO PRODUCE MARKET make connections on the outskirts of the city (or even in its suburbs) with the various surface and elevated car lines. The development of an electric freight traffic similar, for example, to that centering at Indianapolis is, therefore, precluded. 1 Though several of these electric lines carry package freight in limited amounts, the handling of milk is the only line of perishables in which they have assumed any importance. During the last few years there has been much talk con- cerning the unsuitable location and the inadequate equip- ment of Chicago's wholesale produce markets. Criticisms have come both from within and from without the trade. These suggestions will be examined with some care in chapters rx and x: they can be better appreciated after a discussion of the manner in which the produce business is carried on. 1 See, also, pp. 47 and 171. CHAPTER III ' THE WHOLESALE MARKET — PERSONNEL AND ORGANIZATION Turning from our consideration of the physical aspects of the market to an examination of its functions, we pass from a relatively simple to a somewhat more complicated matter. Perhaps the easiest way of getting the system clearly in mind is to examine first the personnel of the produce trade and to pass in review the various individ- uals by whom the work is carried on. Chief in such a gath- ering of the personages of the market are the commission merchant, the jobber, and the car-lot wholesaler. Of these three the first is already fairly familiar to most persons and it is convenient, too, to begin with him because his method of dealing is the simplest of the three. He main- tains a place of business to which shippers may send their goods to be sold and to which purchasers of such goods may come to do their buying. From the gross proceeds of such sales as he effects he deducts his own commission * and any charges which he has incurred for freight or ex- press, cartage, or storage, and remits the balance to the consignor. He is left free to handle the consignment accord- ing to his best judgment and to take the best price which he can secure for it. In case the shipper elects to retain control over his goods, it becomes a brokerage rather than a commission transaction, and the broker submits to his principal such offers as he can obtain. Only after securing from him a confirmation of the price and terms of the sale 1 Commonly of five, seven, or ten per cent, except in the case of large quantities (e. g., $10 per car of potatoes) . The same commission merchant will charge different rates on different classes of goods, but most of them assert that five per cent charges belong to a day of lower operating costs and should be abandoned. For a fuller discussion of charges, see chap. vn. 28 THE CHICAGO PRODUCE MARKET can the broker complete the deal. He ordinarily takes the responsibility for the handling and delivery of the goods and sometimes, though not always, for the collection and remitting of the purchase price. 1 -- The jobber is to be distinguished from the commission merchant and broker in that he purchases his goods out- right, looking to profits rather than to commissions for his remuneration. He may contract for his supplies, far in advance, from individual producers or cooperative selling associations; he may buy them as he needs them from local shippers in the producing territory; from brokers, com- mission men, or wholesale receivers in his own market; or through the public sales of the auction company. In a general way the term "jobber" is limited to dealers in less than carload lots, but the more prominent jobber often purchases in very large quantities. In all cases he sells to retailers. He is the man who breaks up car-lots, and this fact distinguishes him from the true wholesaler. This car-lot operator goes by several different names. The term "car-lot wholesaler" is probably the clearest and least ambiguous. The term "car-lot receiver" is very generally used, and is quite suitable for the dealer who buys in car-lots and sells in lesser quantities to local jobbers. In everyday speech this is shortened so that he is simply called a "receiver." In a similar manner a class of dealers who buy supplies from wholesale receivers in the city market or from commission merchants, brokers, or jobbers, and make up car-lots for shipment to othei markets are frequently known as "shippers." This leads to confusion, since the same expression is used habitually for those who sell or consign from out-of-town points — the "country shippers." Finally, we should notice that the individual or firm which deals in goods in car-lots on its own account also, in many cases, handles cars on a com- 1 These brokerage arrangements are, of course, practically limited to car-lot business. THE WHOLESALE MARKET 29 mission or brokerage basis. This matter of the relation of commission and brokerage transactions to the out-and-out buying of the jobber and wholesaler is a question of some interest, but its discussion had best be deferred until the other members of the trade have been introduced. Something has already been said about the broker in connection with one class of brokerage transactions. But besides selling brokers there are buying brokers, whose business in the Chicago market is to execute orders for the purchase of goods here for dealers elsewhere. This is par- ticularly convenient in the case of goods for which this market is a trading center, but for which the smaller city offers only a limited or irregular demand. Likewise, there are traveling as well as resident brokers — men who go from one town or city to another in search of buyers or from one producing field to another in search of supplies for which they can locate a purchaser and thus earn a commission. The work of the solicitor and the buyer is quite similar to that of the traveling buying broker except that the former are the salaried representatives of some particular concern, not the agent now of one and now of another principal who makes occasional use of such services on a commission basis. The salaried buyer goes through a producing territory, making contracts with producers or shippers for the whole or some stated portion of their output or buying from day to day wherever he can secure goods at satisfactory prices. He keeps in close touch with his employer, advising him by letter, telegraph, or telephone concerning the condi- tions in the field and the outlook as to quantity, quality, and prices demanded for the goods in question and the amount and character of competition from other buyers. In turn he is advised of the demand situation and given suggestions or specific instructions as to how much to buy and what to pay. The "solicitor" of consignments may be a different person from the traveling buyer, but very SO THE CHICAGO PRODUCE MARKET often the distinction is merely one of time. The solicitor of yesterday becomes a buyer to-day and perhaps drops back from the cash to the consignment basis again later in the season. The "shipper's representative" may be, to all intents and purposes, a resident selling broker, offering his services to any shipper who has goods to sell in the Chicago market. These services may, however, be more in some directions and less in others than those of the ordinary broker. The shipper's representative may give special attention to see- ing that goods are handled promptly by the railway or express company and that cars are properly iced and that perishables are protected from freezing temperatures dur- ing cold weather. He will ordinarily make a special inspec- tion of goods upon arrival in order to ascertain whether they have suffered loss or damage in transit and to fix the blame therefor. He will attend to the filing of such damage claims as are called for and see that the goods are ade- quately handled and disposed of in such a manner as to secure the most favorable prices. He may have no concern whatever with the actual selling of the commodities, which will perhaps be attended to by a commission merchant or through an auction company. Such a shipper's representative receives a fee or com- mission for his services, but there are also salaried repre- sentatives who perform similar duties for the larger ship- pers. Some growers' associations and even a few individual producers send their own man to Chicago to represent them personally during the season in which their product is being marketed. In a very few cases the volume of busi- ness is large enough and sufficiently continuous to justify the maintenance of permanent offices here. This is not- ably true of the California Fruit Growers' Exchange, which occupies a large suite of offices on Clark Street some two blocks from South Water Street. They have a district manager in charge and employ a considerable office and THE WHOLESALE MARKET SI field force to look after their interests in this market and throughout the adjacent territory. The "car peddler" is, strictly speaking, a producer or country shipper who goes along to market with his car of produce and peddles it out from the car door in the freight yard. This class of business is much more prevalent in smaller cities than it is in Chicago. But here the same term is applied to the dealer who starts in business on a "shoe- string," has his office under his hat, and finds it cheaper to pay demurrage than store rent and team hire. The practice is frowned upon by regular dealers and has been largely eliminated of late through the action of the railroads, who refuse to allow their tracks and rolling stock to be tied up in this manner. In the poultry trade is to be found another specialist known as the "dresser." The work of the dresser consists in buying live poultry from the commission merchants, killing the birds, and preparing them for market. The finished product he sells to butchers, hotels, or other buy- ers, or he may put his dressed poultry in cold storage to await a better price situation. In this latter aspect the dresser is thus one of a group of market traders who take up surplus stocks at times when the market is over- supplied, put these goods in storage until demand has in- creased or current supplies fallen off, and sell at the higher prices which then obtain. Of course, the dresser or jobber may find that demand does not increase as he had antici- pated, or supplies may prove to be more abundant than he had expected. Then prices do not advance enough to pay his costs of storage, interest, and handling, and he suffers a loss on his operations, or at best only comes out even. , ' In any event, such transactions put him in the class of " speculators," of whom we hear so much and so ill. There are few if any distinctly professional speculators, but almost any merchant is sure sooner or later to engage in 32 THE CHICAGO PRODUCE MARKET speculative buying and selling on the market, indulging in a little "flyer" on some line of goods in which he thinks the price is about to make an advance. Indeed, every jobber and every wholesaler who puts his money into the pur- chase of supplies for which he has no actual orders enters upon a speculative transaction. The more extensive and more habitual speculative operations, such as the regular seasonal movement in butter and eggs, depend vitally upon the use of cold-storage facilities and we will therefore defer the discussion of speculation in produce until the fol- lowing chapter. 1 Thus far the discussion has been entirely in terms of the individual trader or firm and the methods of private sale. The question may naturally arise, Are there no trading associations or exchange methods of dealing? As for or- ganized exchanges for trading in these perishables in a manner similar to that by which Boards of Trade, Cotton, Produce, or Stock Exchanges deal in staple wares, the answer is no. In their respective fields, however, the work of the auction companies and of the butter, egg, and poul- try "boards" is important and deserves attention at this point. As mentioned in the preceding chapter, there are two auction companies operating in the Chicago market. They are stock corporations controlled by the members of the local trade. The Central Auction Company is the older organization, from which the Green Fruit Auction emerged as a dissatisfied and seceding body several years ago. It has recently received some very strong backing and has undertaken both to extend the field of the auction method and to secure for itself the leadership in the Chicago market. This question of personal affiliations is one of great importance to the auction company. If it is to be prosperous, earn satisfactory dividends, attract a large group of buyers, and thus secure good prices for shippers, 1 See also chap, vn, p. 148, and chap, xi, pp. 238, 239. THE WHOLESALE MARKET S3 it must obtain contracts to handle the output of those producers or shippers who control a large bulk of goods of brands which are favorably known. To do this it must rely upon the efforts of the stockholders and their friends. Many of the produce merchants who hold stock of the auction company are likewise financially interested in ship- ping and producing concerns in the distant fruit-growing region. Or, if not actually participating in their operations, they are their local representatives and thus in a position to direct an important volume of goods toward one or the other of the auctions. As buyers, too, the stockholders "protect" goods offered on their auction, by bidding up the price. Only a limited number of commodities are handled by the auction method. In Chicago this includes Florida oranges, grapefruit, and tangerines, California oranges, 1 lemons, 2 and grapefruit, and the deciduous fruits of the Pacific Coast States. 3 Beginning with California cherries about the middle of April, there is until early December a continuous succession of fruits, which include the follow- ing: peaches and apricots; plums and prunes - % figs; apples, pears, and quinces; grapes and pomegranates. At the open- ing of the season, shipments consist of only a few boxes of fruit, which come by express, but in the course of a few days they begin coming in carload quantities and at the height of the season thirty, forty, or even fifty cars of fruit will be auctioned in a single day. Sales are held each morning at nine o'clock and are attended by a large number of jobbers from the South Water Street and Randolph Street markets. It is not feasible to sell goods 1 The California Fruit Growers' Exchange does not sell at auction in the Chicago market, but handles the sale of its products here through its own representatives (see p. 48). In some other cities it uses the local auctions. 2 Also Palermo lemons and Almeria grapes. * As well as small shipments from Arizona, New Mexico, Colorado, Utah, Idaho, and Montana. 34 THE CHICAGO PRODUCE MARKET in lots small enough to attract retail merchants or ped- dlers. For its services 1 the auction company charges the seller a small commission and the buyer a flat " terminal " fee. It is impossible to state the exact amount of the commission, since it varies with the special arrangement in the individ- ual case. In general it may be said to run from one and one half to two per cent of the selling price of the goods. Competition brought these commission rates down to a point where the auctions were barely able to make ex- penses. Then a terminal charge of three cents per pack- age was added. This was levied by both auction companies, but, with the rivalry which developed during the season of 1915, the charge was dropped to one cent by the Central Auction in the spring of 1916, but restored to the old three- cent charge at the opening of the 1917 season. The termi- nal or service charge on citrus fruit is five cents per package. The Chicago auctions are still in a state of warfare. A strong figure arose in the market during the season of 1914, and, in the following winter and spring, sought to consolidate the entire auction business under one roof. Failing of this, he threatened to erect a third auction- house 2 and drive both the others out of business. In the end, however, he threw his support in with the Green Fruit Auction, 3 thereby greatly augmenting its business in deciduous fruits, which had previously been of minor importance. The Central — which had not previously been selling citrus fruit — responded to this move by invading the Florida citrus field and beginning the sale of these products at the Illinois Central auction-house in the fall 1 The services of the auction consist in unloading the fruit and arrang- ing it according to brands and lots in their display-rooms, with one or more packages open for inspection; furnishing a printed catalogue of each day's offerings; conducting the sale; collecting and remitting the proceeds. 2 Or rather to have the Santa Fe Railway erect one for his use. This was to have been located at Twenty-second Street. See p. 220. * This was just prior to the opening of the deciduous season in the spring of 1916. THE WHOLESALE MARKET 35 of 1916, as already mentioned. 1 This means a splitting of both the citrus and the deciduous business, whereas there is substantial agreement that the prime purpose of the auction system — namely, the bringing of the forces of supply and of demand to a sharp focus — is to be served better by one auction than by two. As to the proposal that the field of auction dealing be broadened, definite results have hardly as yet developed. A group of jobbers in near-by cities where auctions are not in operation called a special meeting (February, 1916) to register a protest against the selling of citrus fruit at auction. This protest was brought to the attention of such interests as were thought to be contemplating the ex- tension of this method of selling, as well as of those already engaged in the business. Notably the California Fruit Growers' Exchange, the Florida Citrus Exchange, and the Santa Fe Railway were apprised of the stand of the jobbers. Their argument was that they are obliged to pay high prices for the supplies which they purchase direct, only to find themselves faced in their selling territory by the competition of Chicago jobbers who have bought similar goods at a much lower figure on the auction. 2 Since then 1 See p. 18. * They claim to have paid $3.25 for the same kind of fruit that was sold on the auction at $1.50. Auction officials replied that these jobbers, having "been getting an exorbitant profit and forcing their trade to pay their price, were disgruntled at the auction because it was a means of revealing to their trade what real market conditions were." A Florida grower responded with a letter arguing that the consumer paid the full price anyway and that the auction enabled the jobber to pocket the margin, whereas by private sale it was passed back to the producer. He cited a case of his own, wherein he had sent two cars of grapefruit to New York on the same day, one to the auction and one to a commission man. He got thirty cents more per 'box, net, from the latter than from the auction, in spite of the fact that the commission merchant's car con- tained seventeen boxes known to be of inferior grade. He views the auction as "a dumping-ground for surplus or poor quality goods. People attend auctions to buy cheaply. Now, if the grower ever gets his just share of the money invested in his products, it will be after the auction- room is eliminated from the handling of his product." 36 THE CHICAGO PRODUCE MARKET a second citrus auction has sprung up, and on October 28, 1916, the author of the original proposal to extend the use of the auction came out with a public announcement that he would demonstrate the benefits of his method by selling at auction, during the season 1916-17, over one thousand cars of Northwest box apples. He says: — I am going to prove my point — which is the superiority of the auction over the private sale system — with my own money, not with the growers' money. I am the absolute owner of over 1000 cars of box apples — by count, so far, 654,791 boxes — and every single solitary car of that block of fruit — the largest by all odds ever owned by any individual in the history of the trade — will be sold through the auction. If there is any chance in thus settling beyond all further con- troversy the merits of the auction system, I am taking it — not the grower. If the plan of selling these apples at auction proves profitable to me it should prove profitable to the grower who sells his own fruit at auction instead of selling it to me to resell at auction for my own profit. It is to be borne in mind that when I talk "Auction," I talk it for the regularly established auction points for the sale of fruits in cities of over 300,000 population, and I talk it for all recognized and reputable companies outside of any in which I have a personal interest. The selling of these 1000 cars of box apples at auction will settle for all time and beyond all further controversy the com- parative merits of the system that I am backing with my money and at my own personal risk. 1 There has been much talk in recent years to the effect that a wider use of the auction method of selling produce would be the means of greatly reducing the cost of market- ing and thus the prices of the products. Many attempts in this direction, however, have met with only meager 1 These apples were sold at auction in various cities throughout the country. As to what measure of success greeted the venture, the writer has been unable to learn anything definite. The fact that the seller has raised no shout of victory and that enquiries in the trade meet with evasive answers, seems to argue that no conclusive success was achieved. THE WHOLESALE MARKET 37 results. In general, vegetables have not proved to be an auctionable commodity, though Kansas City handles a few lines with success. New York had to give up the attempt in butter, eggs, and poultry after several years of heroic but disastrous effort. Apparently it is necessary that the line of commodities must be one which is con- trolled by very few persons or by a very strong organiza- tion, as well as one which is highly standardized, and thus capable of accurate grading. Even California canta- loupes met with serious reverses when offered at auction in New York during the summer of 1916, a certain well- known brand selling at some times for as much as one dollar less at the auction than on the dock. A similar situa- tion for Oregon apples is indicated by the following re- marks of the vice-president of the Northwestern Fruit Exchange. 1 The first straight car of Yakima Grimes Golden apples sold at auction at 70c. to $1.15, averaging 93c. This ought to be a good argument against the auction propaganda now so actively and persistently being agitated through Western newspapers. There is absolutely no reason or excuse why good apples should be slaughtered at these prices, especially at this season of the year. We are growing a high-class specialty, which needs to be mer- chandised along modern specialty lines. Our fruit cannot be placed upon markets in competition with barreled apples and other Eastern produce and sell at prices .profitable to our grow- ers. We are producing fruit under a severe transportation handi- cap as compared with Eastern apple-growers and our merchan- dising methods must be extremely high-class throughout in order to make a success of the business. It should be evident that the situation is quite different when practically the whole of a given line of produce — for example, Northwestern boxed apples — is offered exclu- sively at auction than it is when a large number of pri- vate dealers are making their utmost efforts to sell as large blocks as possible of the best brands to their most 1 The Chicago Packer. October 7, 1916. 38 THE CHICAGO PRODUCE MARKET discriminating trade and only a residual portion of the crop is offered on the auction. It has become a well-estab- lished principle among livestock producers who sell peri- odically at auction to refuse to sell any animals at private sale prior to the opening of the auction, realizing that nothing takes the snap out of competitive bidding more effectively than the knowledge that the stock has already been picked over. Some of the fruit-shipping sections have failed to recognize this principle and have therefore tried to eat their cake and keep it too. They have sought to get the top-notch price from a limited fancy trade and then expected the auction to bring the general price of their product up to the same high level. Obviously, the auction is heavily handicapped by such a division of the trade. Turning now to associations for organized trading in produce, we will take up first the Chicago Butter and Egg Board. This organization maintains permanent quarters at the corner of Lake and La Salle Streets, where the members meet each morning at nine o'clock for the trans- action of business. Wholesale receivers offer such goods as they have for sale, and jobbers and buying brokers make such bids as they think are justified by the condition and prospects of the market. It is the purpose of the Board to bring the forces of both the supply and the demand side of the market together at this daily session (known as the "call"), so that a rational basis for price-making can be arrived at. Only a comparatively few transactions take place at the meeting of the Board and occasionally the bids and offers there may represent ideas of value too far apart to be reconciled and the session may close without any sale being effected. Until about three years ago, a quotation committee of the Board issued each day a set of official price quotations, but the Government brought suit under the Sherman Act and the practice was aban- doned. The Board is still free to meet for the transaction THE WHOLESALE MARKET 89 of its buying and selling business and the discussion of trade conditions. It had also been the practice for the members of the Butter and Egg Board to deal in futures at the daily "call." Thus, a receiver could offer a car of eggs to arrive the following day, a week later, or at some more distant date. This practice was attacked both from within and from without the Board, as being of too speculative a character. It was defended as being a great convenience to the dealer who had shipments on the way, which he desired to sell in advance of arrival. It was further urged that such a method of sale simply amounted to getting orders for goods and guided the merchant in his buying operations. On March 19, 1915, however, the Board voted to dis- continue future trading, as an experiment, for sixty days. After five weeks the old system was resumed, except that futures were to be limited to a ten-day period. This restriction continued in effect until late in July, 1916, when the Board voted almost unanimously to allow members to buy and sell for delivery at any time in the future. Under the new rules every sale of butter or eggs for delivery more than ten days in the future must be accompanied by a written contract signed by both buyer and seller, and a margin of thirty cents a case for eggs and sixty cents a tub for butter must be deposited with the treasurer of the Board. 1 Sales are made by future months as in the case of grain futures, and delivery may be at either the buyer's or the seller's option, one or the other being specified in the contract. If it be at the seller's option, he may deliver the goods on any day of the month named in the contract, but must give one day's notice if delivery is to be made on any day before the last day of the month. Similarly, if it be a buyer's option, he may 1 Two per cent of this deposit is retained by the Board to cover clerical or other expense involved in handling the transactions. 40 THE CHICAGO PRODUCE MARKET demand delivery at any time during the specified month, provided three days' notice is given. 1 Like most trading associations, the Butter and Egg Board prescribes standards of quality for the products in which it deals and standards of business conduct for its members. It arbitrates such differences as may arise and may suspend or expel members who fail to observe its rules. It also undertakes from time to time such other activities as appear to be for the general good of the membership. Such was the campaign of publicity (to which reference is made later), in which newspaper advertising was used as a means of stimulating the consumption of eggs and of removing the popular prejudice against cold-storage products. The Live Poultry Board is essentially similar to the Butter and Egg Board, though rather less pretentious in character. They have no such extensive quarters, but meet each morning at nine-thirty in a room over the store occupied by one of the South Water Street members. Receivers post on a blackboard the amount of stock of the various kinds which they have on hand or en route to them. Jobbers and dressers, who are in attendance, canvass these offerings, and are free to make whatever bids they see fit. If actual sales are thus effected, the price so received is regarded as the Board's price for the day, but members are in no way bound to observe it if they desire to make other prices. If buyers' and sellers' ideas of values are so far apart that no sales can be brought about, dealers and purchasers regard the quotations of the preceding day as still standing. However, the situation revealed at the 1 All trading in futures was again abandoned in the spring of 1917 when popular agitation against war prices caused every practice which savored of speculative manipulation to be strongly condemned. The same action was taken by similar organizations in other cities. On June 1 the Kansas City Butter, Egg, and Poultry Board disbanded in order to make doubly sure that they should not become the target of public criticism. THE WHOLESALE MARKET 41 morning session of the Board will be likely to have more or less bearing upon actual prices. 1 Of other than trading associations we may mention the Chicago Produce Trade and Credit Association, the Chicago Poultry Dressers' Protective Association, the Fulton Street Market Association, the Randolph Street Commission Merchants' Association, and the South Water Street Credit and Protective Association. All of these aim to eliminate or lessen the abuses of bad credit, which have always been a serious difficulty in the produce business. 2 To a considerable extent, also, they devote their energies to combating legislation which they regard as mimical to the interests of the business. 3 The South Water Street organization has likewise been active in a project for securing a better location. It seems that there is one opportunity for great service which these organizations have thus far neglected. That is in the way of publicity 1 The " Elgin Butter Board," or, to give its official title, the " Elgin Board of Trade," is to all intents and purposes a Chicago trading organiza- tion. A few traders from this city have been in the habit of going out to Elgin each Saturday for a short session at which they went through the form of a " call." The amount of butter thus sold has averaged only about fifty tubs per week, say one tenth of one per cent of the amount handled on the Chicago Butter and Egg Board in the same time. Since 1914 the Elgin Board has been enjoined from publishing its price as offi- cial, and in November, 1917, they discontinued their meetings for the period of the war. This was done at the request of the Government, but many persons believe that the members will never again resume operations. 2 The first of the associations mentioned above has recently adopted a new set of credit rules governing dealing with retailers and has purchased the files of a local mercantile agency which had formerly been reporting for wholesale grocery and meat concerns. It appears to be in a fair way to get credit relations on a firm basis. Dun and Bradstreet are exten- sively used and there is also a credit rating agency of national scope (with headquarters in Chicago) which devotes its energies exclusively to the produce trade. It does not, however, appear to enjoy the entire confi- dence of the trade. 8 There are also the Chicago Potato Dealers' Association and the American Fruit and Vegetable Shippers' Association. The latter has de- veloped out of a Chicago organization of similar name and is composed of dealers whose business is at least seventy-five per cent car-lot shipping. 42 THE CHICAGO PRODUCE MARKET work designed to inform the public about the needs and intentions of the dealers and their attitude toward the problem of better produce distribution, which has been engrossing so much public attention of late. There are many facts about which the public is ill-informed, and it would seem distinctly worth while for the men who are in- terested most deeply in the business to approach the pub- lic in a frank and friendly attitude and endeavor to come to a better understanding of each other's point of view and a more reasonable regard for each other's interests. 1 There are also several national associations to which members of the local produce business belong, and which have an influence in shaping the character of our market system. These include the National League of Commis- sion Merchants, the National Poultry, Butter, and Egg Association, the Western Fruit Jobbers' Association, the International Apple Shippers' Association, and the Na- tional Onion Association. These are important for four reasons. They secure cooperative endeavor toward better transportation, better grading and packing, more adequate information, and the defeat of legislation which they re- gard as hurtful. 2 They tend to enlarge the field of friend- ship and business activity of the members and thus get a more flexible and extensive system of trading. Finally, they are making a beginning, and offer a large possibil- ity, in the way of creating and enforcing better trade 1 In March, 1917, a new organization, to be known as the Boosters' Club, was formed. This is patterned upon a club of the same name in Philadelphia, and if it follows the lead of the older body may be expected to accomplish something toward a more intelligent and friendly relation between dealers and public. 2 Thus they supported the "Standard Barrel Law" and some other standard measure acts, they fought the war tax on commission mer- chants, worked for the amendment of section 21 of the Pomerene Uniform Bill of Lading Act, and oppose any attempt by the railroads to advance rates or curtail service. The apple and the onion associations differ from the others in that they gather and disseminate crop and market informa- tion to their members. THE WHOLESALE MARKET 43 standards of fair and honorable dealing. For example, the Western Fruit Jobbers' Association provides that applica- tions for membership shall be thoroughly investigated by the Secretary and the result of said investigation, together with the application, shall be sub- mitted to the Executive Committee, who shall take into account the reputation of the applicant for fair dealing, commercial probity, and financial stability, and if the applicant is approved by the Executive Committee, the applicant may be admitted to membership, etc. And in Article vm, it is provided that — Any statement of grievance against a member of this Associa- tion made by a party not a member, involving a written and specific charge of questionable mercantile conduct, may be filed with the Secretary, accompanied with an agreement of the complainant (non-member) to present evidence and testimony to the Arbitration Committee to sustain such charge, and further agreeing to abide by the findings of the Arbitration Committee. Such documents shall be referred by the Secretary to the Arbi- tration Committee for investigation. If the charge is sustained, the member so charged may be reprimanded, suspended, or ex- pelled. The Arbitration Committee shall make its findings and recommendations to the Board of Directors and said offending member shall be dealt with at the discretion of the Board. 1 1 By-Laws of the Western Fruit Jobbers' Association. That the organization takes somewhat seriously the stipulations of its By-Laws that all members must conform to a high standard of business dealing is indicated by frequent comments in its monthly magazine, The Western Fruit Jobber. In the issue of December, 1916, appears the following: "During the month of November the directors have passed favorably upon the following applications [a list of nine firms]. It must be borne in mind that all applications filed with the organization for membership are not accepted, but only those that the Executive Committee of the Board of Directors feel come up to the requirements laid down by the By-Laws. The above new members have stood the 'acid test' and investigation and inquiries made by the directors lead them to believe that these firms are worthy of fellowship in the organization." And in the issue following a member offers a set of congratulations to the association upon the completion of thirteen years of successful work — "thirteenth anniversary of the day when practical help and broth- erly love joined hands in the formation of your association." Three of his paragraphs follow: — 44 THE CHICAGO PKODUCE MARKET Of these four associations, however, the National Poultry, Butter, and Egg Association demands a word of special attention, because it exerts one type of influence not common to the other national organizations. Besides undertaking legislative, transportation, and standardiza- tion services similar to those of the associations of fruit and vegetable dealers, this organization becomes a signifi- cant factor in actual trading operations, particularly in connection with eggs. This result comes about through the annual convention, which is held about the first of October at Chicago, the headquarters of the Association. At the 1916 meeting over one thousand active members were in attendance and it was reported that more than one hundred thousand cases of eggs were sold. 1 It is pos- sible that this figure was exaggerated (one of the largest of these deals later fell through), but, at all events, this gathering of traders from all over the country becomes a clearing-house of information, gossip, and opinion, as to the movement of storage goods, which is just getting under way. It can hardly be other than an important equalizing force on prices. Perhaps even more important in this regard are the con- ventions held by the shippers' associations of the important egg-producing states, such as Missouri, Illinois, Indiana, Iowa, Nebraska, and others. These are held in the spring, just when the big laying season is opening up and when eggs are being bought for cold storage. The dates of the meetings are so arranged as to succeed each other, and " Congratulations that every one of your members must be just, whose business has been thoroughly investigated before applying to you for membership. " Congratulations on the great sermon your whole association preaches to the text, 'Truth, Power, Square Deal, and Justice to All.' "Congratulations on your thirteenth anniversary of demonstrating the Golden Rule." 1 This trading, of course, has no connection with the meetings of the association. It is purely private trading which takes place in the lobby of the hotel or at the stores of the Chicago dealers. THE WHOLESALE MARKET 45 many dealers plan to make a tour of the circuit. At these gatherings Chicago merchants are always in evidence, ex- tending their personal acquaintanceship among shippers, adding to their stock of information about local sources of supply or about local pure-food rulings, transportation rates and rulings, and any other matters of interest. Particularly active is the discussion about the outlook for the season's production and the probable volume of ship- ments. Both formally in the sessions of the Association, and informally in the conversations of the shippers and dealers, the whole situation is reviewed, and at the end a fairly definite conclusion is arrived at as to the price at which it will be profitable to store eggs for the coming season. Opinions may vary within a certain limit, to be sure, but every one gains a certain "feel" as to the funda- mental conditions of the business. Whether it be a "bear" sentiment or a "bull" sentiment, it will tend to color all his price offers for the season. The trade papers report all these conventions very fully, and in addition, through their local representatives and through a wide correspondence, get a forecast of each crop, which is an important factor in the trade. Thus, just before the opening of the strawberry season, they pub- lish an extensive summary of what they call "the outlook for the strawberry deal." This consists of a symposium of opinions of prominent growers and shippers as to the amount and quality of fruit that will probably be sent to market. Similarly, they give data as to acreage, condi- tion, and movement of crops, as issued from time to time by the United States Department of Agriculture, period- ical reports of goods in cold-storage warehouses, a weekly sheet of price quotations from various important markets, and a large number of local dispatches concerning produce transactions, producing conditions, and other matters of interest to the trade. Through this news service, through their advertising facilities, and through the exposure of 46 THE CHICAGO PRODUCE MARKET the "crooks" who infest the business, 1 these papers be- come an important cog in the machinery by which the business of selling produce is carried on. Naturally, in a business of this kind, prompt and au- thentic information about market conditions and prices is an important aid to the trader. To meet this need, the Federal Bureau of Markets instituted in 1916 a Market News Service, which issued daily mimeographed reports on the principal fruit and vegetable products in the most important cities. 2 These sheets 3 were supplied to ship- pers' and producers' associations, produce dealers, news- papers, agricultural colleges, and other interested parties, and served a useful purpose in giving a broad and impartial view of the market to those engaged in buying and selling operations. This service was resumed on an enlarged scale in the spring of 1917. Chicago prices and conditions are also reported in a small sheet known as the Daily Trade Bulletin. To this publication the produce merchants subscribe, each taking such a number of copies as he finds use for in his trade. A copy is enclosed in each letter of remittance sent to country shippers by the commission merchants or in the letters of solicitation which they send out. 4 While the prices it quotes are in no sense official, they are looked upon by shippers as an indication of what is to be ex- pected from goods sent to this market upon the day cov- ered by the particular Bulletin. 1 They offer, through their local representatives in the different markets, to investigate the complaints which shippers desire to make concerning unfair treatment from produce merchants. Some of The Packer's exposure articles are shown in Appendix A. 2 An experimental service covering four commodities — cantaloupes, strawberries, peaches, and tomatoes — 'had been in operation during 1915. Onions were added at the opening of the 1916 season and then potatoes, cabbage, apples, and other crops, — sixteen in all. a A specimen is reprinted as Appendix B. 1 A specimen page will be found as Appendix C. CHAPTER IV THE WHOLESALE MARKET — ORGANIZATION {continued) In the preceding chapter a brief account has been given of the various middlemen of the Chicago wholesale produce market and of the associations into which they are organ- ized. In order to get an adequate idea of the way in which the business is actually carried on, however, we must look beyond the confines of the local marketing area and seek a view of the whole process of which this city handling is but a single phase. For convenience we may divide all selling of produce into three classes. First, there is the producer who brings his own goods to market and does his own selling here._ Second, there is the producer who ships his goods to this market to be sold by some other person, but for the shipper^saccount. Third, for a large class of goods, abso- lute ownership passes into the hands of professional trad- ers at some early stage of the marketing process (for example, at the farm or the local shipping point) and their subsequent movements are under the control of these dealers. The first two of these methods — direct selling and commission dealing — are comparatively simple modes of doing business, but the third presents some complexities which call for close examination. Direct selling plays an insignificant r61e in the produce business of Chicago. With the lake on one side of the city and with the land side occupied by manufacturing and residential suburbs, carved up by railroad rights-of-way, or given over to steel mills, sand dunes, or milk farms, there is but little area, within hauling distance of the city, which is available to the truck-grower or the fruit-farmer. 48 THE CHICAGO PRODUCE MARKET We have already observed, also, that Chicago offers but little attraction to the more distant producer to bring produce in car-lots and job it out to retailers in the rail- road yard. On the whole the greatest possibility of direct wholesale 1 selling by producers in the Chicago market lies in the direction of cooperative marketing by growers' "exchanges" or selling associations. Such is the case of the California Fruit Growers' Exchange and a few others of large size, but the smaller organizations still find it necessary to sell to wholesale receivers at the shipping station or to sell on a commission basis in the city market. 2 And it should be noted also that even those large associa- tions which maintain their own selling forces in Chicago and a few other large cities commonly sell to the jobber, not to the retailer, and much less to the consumer. 3 The simplest form of commission dealing is that wherein the producer consigns his goods to a commission merchant in the distant market city, to be sold by him to retailers. This is a method which is convenient for producers located too far from market to do their own selling, and producing in quantities too small to call forth a more direct or per- manent selling system. The poultry trade is a good illus- tration of a line which lends itself naturally to this means of dealing. There are many farmers who occasionally have a few spring chickens, a coop of old hens, some turkeys, or other poultry to dispose of, and are glad enough to be saved the bother of trying to find a buyer for their goods. Many poultrymen also, who specialize in table eggs or show birds, have surplus stock to get rid of at irregular intervals, 1 The producer occasionally attempts to retail goods to the consumer by means of parcel post or express shipments. This will be discussed later. 2 See discussion of cooperative methods, chap. x. 8 Not very long ago it was rumored that the California Fruit Growers' Exchange contemplated undertaking the retailing and jobbing of its own fruit, in addition to present wholesaling activities. The general manager denies any such intention. THE WHOLESALE MARKET 49 largely in the spring and fall. Particularly in the latter case, where the cost of feed is carefully considered, it is a great advantage to be able to ship at whatever time the hens stop laying or whenever broilers come to marketable size, rather than to await the convenience of the local butcher or the whim of private customers. Easy access to a market which can always absorb such goods at some price is a great boon to a large class of small poultry- men, suburban gardeners, and farmers who produce a few vegetables, a little fruit, or some eggs and poultry as a side line. Such shipments come to the Chicago dealer mostly by express, and all that the shipper needs to do is to tack the commission man's tag on his case of eggs, crate of berries, tomatoes, asparagus, or what-not, and deliver it to the express company. Empty chicken coops are returned by express, and the proceeds of the sale remitted by check on an early mail. Commission merchants who handle this kind of busi- ness maintain mailing-lists of previous shippers or others whom they know to be producers, and make it a point to keep these persons supplied with shipping tags. Price- quotation cards or form letters are mailed from time to time, and special advice as to the needs of the market is sent out whenever current receipts tend to run behind the demands of buyers, or at seasons of special require- ments, such as the Jewish holidays. Many commission merchants run a business card or advertisement in certain poultry or farm journals, or in local newspapers, in order to get their names before possible shippers and to solicit consignments. Where there is a somewhat specialized producing area or well-defined shipping season a personal representative is often sent out to solicit consignments. It must not be supposed, however, that the direct and simple process just outlined is the only way in which the commission method comes into the process of marketing 50 THE CHICAGO PRODUCE MARKET produce. It may be that the goods which are consigned to the Chicago commission merchant are sent, not by the original producer, but have been bought from him by the local shipper or country buyer, who then employs the commission method of disposing of his goods. This is particularly likely to be the case if the local purchaser of the goods be the proprietor of a general store at which he has taken in the produce "in trade." But even the pro- fessional egg and poultry buyer and the country produce company who ship in car-lots may send their goods to a broker or wholesale commission dealer. On the other hand, the goods which the Chicago commission merchant has received on consignment from numerous local shippers may not be sold directly to retailers, but to a wholesaler who is making up a car for shipment to some other con- suming or distributing point or perhaps to a speculative trader who is accumulating a block of goods for storage. Indeed, a commission transaction may be the first, the last, or any one of the intermediate steps by which the products of the farm move from the original producer into the hands of the retail trade. But so interwoven are the methods of sale on commis- sion with those of out-and-out purchase by the produce dealer that we cannot complete our account of the com- mission man until we have examined the practices of the dealer who buys and sells on his own account. For the dealer and the commission merchant are not, in the great majority of cases, two separate individuals, but the same person carrying on his business now in one manner and now in another. To understand the situation we must bear in mind certain peculiarities of the produce business and certain facts in connection with its growth and de- velopment. Though country merchants, from pioneer times onward, have taken farm produce "in trade," and they or other local dealers have developed such business to a greater or THE WHOLESALE MARKET 51 less extent upon a basis of cash purchases, dealing in perish- ables at city centers was long attended with too much risk to be organized extensively upon any other system than consignment. Freight schedules were so slow and uncer- tain, railway facilities so crude, and standards of produc- tion and of packing so divergent, that outright purchase by the produce merchant was out of the question. All he could do was to act as agent, accepting the goods as they came, selling them for what they would fetch, and taking a commission from the proceeds. But the march of time has brought many changes, and these changes exhibit an interplay of influence between the technical conditions of production of perishable food- stuffs, the transportation and storage equipment by which they are handled, and the commercial organization of the produce business. In this process of reciprocal develop- ment the outright purchase of goods by the dealer for sale upon his own account has assumed greater importance, but it is a mistake to suppose that this means that the old commission business has been transformed into what is often referred to loosely as the "jobbing" method, or that the commission business is passing out of existence and that a time has arrived when legislation should deal it a coup-de-grace. 1 The real situation may best be understood by noticing some of the defects of the older attempts to market perishables and the changes introduced through the business enterprise of the merchant or growing out of changes in the field of production. It has already been suggested that the goods which the early commission merchant undertook to market were as heterogeneous an assortment as the blind gropings of scat- tered and unorganized producers might make them. Like- 1 See Report of Chicago Municipal Markets Commission, p. 22: "The Commission business is moribund and should have been discarded long ago. . . . Due to the dissatisfaction felt by the producer toward the com- mission man and definite economic reasons, the commission man is slowly being supplanted by another middleman — ■ the jobber." 52 THE CHICAGO PRODUCE MARKET wise they arrived in such condition and at such times as the weather and an unguided transportation system might dictate. The commission merchant's chance of getting satisfactory results was slim indeed, so long as he stood in this passive attitude, possessed of no control of the factors upon which he must depend for the desired marketing results. He was not even able to build up and hold to- gether an efficient group of employees, because the more or less regular recurrence of slack seasons would compel the dropping of some salesmen or other trained workers or, by lowering the level of profits, prevent adequate pay- ment for experience and special fitness. Produce dealers early attacked these two problems, namely, the developing of sources of supply which, both as to quantity and as to quality, would most fully meet the demands of their market, and of securing an expert commercial organization of the business so developed. Turning to the first of these efforts: from the time the produce merchant enters business he begins to acquire familiarity with consumers' needs and fancies; he learns about many markets and the lines of access to them. But perhaps few or none of the goods which come to his hand through the voluntary activities of producers match up precisely in quantity, quality, character of package, or time of arrival with those desires of buyers. Here lies the merchant's opportunity; it consists in effecting a readjust- ment of these misfit conditions. One of the first things he sought to change was the form in which goods were offered. Much has been done in this matter of securing high-grade products and of the proper sorting, packing, and transportation of such goods, but even to-day it stands in the forefront of the produce deal- er's problems. In the earlier days much that was delivered to market was in a condition so unattractive as to cause a serious scaling-down of its price or even to render it un- marketable. The dealer who knew the tastes of his own THE WHOLESALE MAEKET 53 and perhaps of outside markets might sort out and repack such goods so as to obtain a fancy price for the best, but fair values also for the inferior grades, and a total return much above what could have been secured from the ship- ment in its original condition. Naturally, he added this cost of grading and repacking to the charges which he de- ducted from the "account sales" which he returned to the consignor of the goods. But such charges were often viewed with suspicion by the shipper. Likewise, the produce mer- chant observed that frequently the advance in price which was secured by this process of repacking considerably ex- ceeded the cost of doing the work. There was then a strong temptation for him to buy the goods upon arrival and thus himself to profit by the whole of this improvement. Even though the price paid were quite all the goods would bring in that condition on the open market, such a practice would hardly satisfy a man of high ideals, but if the trans- action were moved back to the producing territory and the dealer bought from the grower at his farm or at the shipping platform, he might entirely meet the demands of fair and open dealing and yet secure this margin of profit for himself. * Such a movement has gone on to a considerable extent and has been one phase of the development from consign- ment to outright purchase as a marketing method. In most cases, to be sure, the dealer has not desired to have this clutter of sorting and repacking going on at his Chi- cago place of business. Rent and labor are too expensive here and it is poor business to pay freight or express charges on that portion of the goods which is eventually culled out. In many cases, therefore, the Chicago dealer has built or rented a packing shed at the shipping station, where he buys goods as they come from the producers' fields or orchards, has them packed according to his own standard by his own employees, loaded (and perhaps pre-cooled or iced) under their supervision. In some cases 54 THE CHICAGO PRODUCE MARKET this desire of a Chicago dealer to provide for a very par- ticular quality of goods to supply a definite trade has led him to erect expensive packing-houses, permanent ware- houses, and cold storage plants at numerous points through- out the producing districts. In such a case every effort is made to capitalize these efforts into a trade reputation and to market the goods under the dealer's private brand or trademark. 1 On the other hand, many produce merchants prefer to specialize exclusively in the marketing function and to leave these supplementary tasks to others. Such dealers will purchase from growers, 2 and seek to secure satisfactory grades and packing by refusing to purchase inferior goods or by offering prices which show a profit to the producers of goods of superior quality. 3 It is evident too, that com- mission transactions may continue alongside this newer type of dealing — nourishing, in fact, with this growth of the movement toward better and more dependable quality 1 Some dealers purchase in advance the whole or some stipulated portion of the output of one or more growers whose producing ability is already known. Others lease farms or orchards and have goods pro- duced under their own supervision or upon contract. In a few cases the dealer (generally a partnership or incorporated company) actually owns the producing property. For example, one of the large apple-distributing firms claims that nearly half of the goods which they handled in a given season — they handled more than one hundred thousand barrels — ■ "was off our own orchards and all packed by our own men to insure pack and quality up to our usual standard." 2 Or from dealers at primary marketing points who, in turn, have purchased from growers or have secured goods on consignment. This relationship of Chicago to subsidiary market centers will be discussed later. 3 Many agencies have been engaged in teaching farmers and orchard- ists the best methods of preparing their goods for market. Doubtless, in general, this work can be done more cheaply, and in many cases — partic- ularly those of perishables — better, by the producer than by the dealer, provided the grower knows in advance in which market his goods will be sold. Since market requirements differ widely, however, this method is not always feasible. The question as to where the line between the work of the producer and the distributor may most advantageously be drawn is discussed elsewhere (pp. 61 ff., 176-80, 207). THE WHOLESALE MARKET 55 in the goods offered by producers. Likewise, as we shall see later, certain lines of the trade seem to lend themselves more readily to the consignment system and to resist the movement toward outright sale to dealers, and some part of practically every line of the business seems bound to continue upon that footing. A second aspect of the movement toward outright pur- chase by wholesalers and jobbers connects itself with the effort to secure supplies of goods at the times best suited to the satisfying of consumers' demand. When the merchant found that some consumers in his market wanted fruit or vegetables out of their local season, he was able in some cases to secure these supplies upon a commission basis. But as the sources of such supply were far away and the goods highly perishable in character, he often found the distant producer loath to assume the risk of shipping on consignment. Under these circumstances the offer of cash in the producing territory was often the only means where- by the produce merchant could secure goods for his trade at times when they were not available from local sources. 1 1 By opening this larger market to the grower on the basis of an assured price, the produce merchant has had an important influence in building up many of the specialized truck- or fruit-growing sections, notably those, of the far South and West. The importance of this service in assuming risks will be treated more fully later, but it should not be overlooked at this point that the prosperity and growth of many a pro- ducing section has been due to the financial assistance which it received through its market connection. All through the trade are to be found examples of the financing of country shippers or of producers by the Chicago houses with whom they deal. This may be for only a very short time, as in the case of a sight draft sent to a Chicago receiver by a Florida, Texas, or California shipper as soon as his car of fruit or vegetables has been loaded. If he carries on the transaction by telegraph, he may have the funds perhaps two weeks before the goods have arrived at the market, been sold, and payment made to the dealer. To that extent the local shipper is using the capital of the Chicago dealer. Ordinarily, of course, drafts are paid only after goods have arrived and been inspected, but in other cases the financing of the shipper may go even farther back, through the payment of "advances." Where a produce merchant makes a contract in advance to handle the output of a particular grower or a producers' association, it is not unusual for him to pay a stipulated sum 56 THE CHICAGO PRODUCE MARKET And the same proposition would apply to the securing of goods in a poor season when near-by supplies had failed. The produce merchant must then seek to get his stock from more distant producing sections and, in meeting the competition there of merchants already having connec- tions in those fields, outright purchase on a competitive price basis would be the surest way of getting the goods. But perhaps the most important work of the produce merchant in the way of securing time utilities for his pa- trons has come about in connection with the development of storage methods. In the old days enormous quantities of produce went to waste for the lack of an immediate market. Other quantities were stored after a fashion, but suffered much loss through deterioration. Not less impor- tant, however, was the fact that both consumption and production were curtailed because of the lack of proper means of equalizing supplies. Here again the dealer saw the road to a profit if he could secure control of the goods so that he might obtain the margin of price which would accrue from better distribution in point of time. This commonly meant purchase of the goods. 1 It also meant the erection of frost-proof warehouses, cold storage plants, buildings which were damp-proof or specially ventilated, and — in the case of sweet potatoes — even dry kilns. 2 per crate, per barrel, per acre, or what-not, at some specified time during the growing or harvesting season in order to give the producer the money he needs to carry his operations through. This practice is followed by commission men as well as by dealers who purchase goods upon their own account. 1 In some cases the commission merchant now stores goods for a consignor's account, later disposing of them upon instructions from the owner or acting upon his own judgment. 2 An important aspect of all this is that we were getting a better machinery for handling our perishable food products and that the prod- uce dealer was contributing much of the capital for this special equip- ment. Many of the warehouses he built and operated for himself, either at shipping points or at the market center. Others, such as the cold storages, were built by separate companies, but such companies often se- cured their capital in whole or in part from members of the produce trade. THE WHOLESALE MARKET 57 With goods bought and put in suitable storage, the dealer was in a position to supply his patrons at all seasons, according to their wants. It is now in order to notice how this evolution of the business also permitted the dealer to effect an organization of his business system on a basis which would achieve internal efficiency. We have been dis- cussing certain phases of the trend of the produce business away from the uncontrolled and fluctuating conditions of the older day. Another feature of the matter is that then some months of the year were practically bare of business while the rush of other seasons brought confusion, waste, and dissatisfaction to all parties concerned. The trend has been toward a steady, predictable, controlled flow of busi- ness, organized on a twelve-month basis. The old-time produce dealer had to handle practically every line of goods available in his market in order to make his active season as long as possible. But present conditions demand that he shall have expert knowledge of widely scattered and remote fields of production; that he shall master the technical details of an elaborate system of transportation, refrigeration, and business finance; and that he shall be deeply versed in the precise demands of all portions of the market, a connoisseur of quality, and a master of the art of market promotion and salesmanship. This has sug- gested the wisdom of specialization in a limited number of produce lines so chosen as to be mutually complementary and to give a tolerably steady volume of business. A few concerns still handle poultry, eggs, and butter along with fruit and vegetables, but "The House that's Strong on Onions," "The Cabbage Kings," "Headquarters for South- ern Truck," "Apple Specialists," and similar advertising phrases indicate the character of the trend toward special- ization. "The house that's strong on onions" also handles cabbage, root vegetables, and apples; and another firm has evolved an effective organization based on Texas onions, Northwest apples, and Imperial Valley canta- 58 THE CHICAGO PRODUCE MARKET loupes. Other minor lines will be worked into such an arrangement, as opportunity offers, but < in their main specialties these concerns have built up a permanent clientele and an efficient business organization. In developing such a business, the merchant seeks to create or to organize a certain volume of demand in such a way that it will constantly turn to him for supplies. Let us suppose, for example, that he thus holds himself out to buyers as a dependable purveyor of peaches. In order permanently to hold his trade he must be in a position to get peaches if any one can, and this means being ready to buy peaches wherever they can be found, be it Georgia, Arkansas, or California. Furthermore, even the produce house which has developed its main line or lines of business upon a commission basis may depend upon purchased goods to fill out and equalize the volume of its business. Such minor lines may be of a temporary character and show considerable changes from year to year. In a general way it may be said that the more recently developed parts of the produce business — and they con- stitute a very large fraction of the whole — have inclined to the purchase rather than the commission method of dealing. The increasing importance of the wholesale receiver and the jobber results from the growth of their business in these new directions more than to an actual falling-off in the older departments of the trade. This would apply noticeably to those commodities which, thanks to modern methods of refrigeration, may be stored in the flush season and marketed over the larger part of the year. A large percentage of them are bound to pass at the beginning of this process out of the ownership of the producer to that of the dealer. It applies likewise to the car-lot business in high-grade perishables which are brought from remote distances and over which there needs to be the protection of a close personal interest at every step of their market career. On the other hand, such goods THE WHOLESALE MARKET 59 as are dealt in in small lots and locally (such as the express receipts of eggs and live poultry) must of necessity con- tinue to be consigned. This will perhaps serve to explain the remark made early in this chapter that " a commission transaction may be the first, the last, or any one of the intermediate steps" in the marketing of produce. Thus, many supplies of fruit, vegetables, eggs, and poultry are gathered by dealers at primary marketing points, who receive goods on consignment from small, local producers. These dealers — often called " concentrators " — in turn may send their car-lot shipments to commission men or brokers or they may sell them at their shipping point to buyers representing the dealer of the central market. 1 For example, an Iowa farmer sells two cases of eggs to a local merchant, who consigns them to a concentrator at Sioux City; he includes them in a carload which is sold outright to a Chicago wholesaler, who sends them to a broker in New York City. There they are sold to jobbers or to an exporter. It is doubtless natural that criticism should be directed from time to time against produce merchants who receive goods to sell on commission and who also buy and sell on their own account. Reformers have suggested that this practice should be forbidden by law, but in response to all such suggestions the dealers point to certain advantages which they assert accrue to the shipper from the present arrangement. Admitting the advantages of the purchase method of which producers now gladly avail themselves, it is claimed that they would lose rather than gain if the dealer who serves them in a marketing capacity by buying their goods and assuming the risks and profits of distribut- ing them were deprived of the opportunity of rendering further service on a commission basis. The dealer argues that he assumes all the risks which sound business judg- 1 Or by the exchange of letters or of telegrams may arrange sucb sale directly, without the intervention of the traveling representative. 60 THE CHICAGO PRODUCE MARKET ment will permit in his regular buying operations. If, now, there are peculiarly uncertain conditions affecting some portion of the shipping season, such as the unsettled period at the opening of the movement of winter tomatoes or early strawberries, to pick two convenient examples, or at a time when several producing sections overlap and threaten to glut the market, the instinct of self-preserva- tion forces the dealer to cease his buying operations. 1 If he is then estopped from handling business on a commis- sion basis, the shipper's opportunity of marketing his product (supposing he desires to assume the risk of do- ing so) is impaired rather than improved by an injunction against the erstwhile buyer's handling of his consignments. It is well to remember, too, that it is often the shipper's demand for immediate returns which causes the merchant to sell consigned goods to himself. Remitting to the shipper at the market rate, he takes the chance of being able to dispose of the goods at some future time without 1 One who read this chapter in manuscript expresses doubt upon this point and asks, "Will not the dealer buy, but offer a lower price so that the wider margin will cover the greater risk? " To an extent, yes. But in the rather extreme case cited above, after he has "assumed all the risks which sound business judgment will permit," experience shows quite definitely that the dealer does cease to offer any price, even a low one, and that shippers under such circumstances still continue shipping, but upon a consignment basis. They are risking only transportation charges, whereas the dealer would be risking the whole of his purchase price in addition. The following statement is typical: — BUYERS SHOW NO INTEREST NOT WILLING TO TAKE CHANCES ON TOMATOES Moke Consignment Business on the East Coast than Usual Miami, Fla., April 16. — There has been comparatively little f.o.b. buying here dur- ing the pa9t week, the stock either being forwarded subject to inspection or being con- signed. Buyers have been stung pretty badly, as the stock did not carry well. Weather conditions have been such during the past 10 days that 'stock ought to carry well, but buyers are not disposed to take chances. Fancy tomatoes are quoted $2 @ 2.10, with choice 50c lower, but a buyer who is willing to take chances on the stock carrying right could get all he wants at $1.75 to $1.90. This would give a chance for big profit if the stock showed up on the market in the right kind of condition. THE WHOLESALE MAKEET 61 loss to himself. In so doing, he is seeking to serve his client's interest, not to defraud him. 1 Let us take the case of a Chicago dealer who has received a car of apples on consignment. There are six hundred boxes, and the com- mission merchant disposes of the larger part of them in lots of fifty or a hundred boxes. The car must be emptied or demurrage charges paid. Also, the shipper is anxious for his money. There are perhaps twenty-five boxes left. The commission man takes them over, charges them to his own account, and sends a remittance to the shipper. Now these apples must be hauled to his store and peddled out in small lots of perhaps five boxes at a time and perhaps only one. Goods in such lots must generally be sold at a sacrifice, as buyers view them with more or less suspicion. They may knock around from pillar to post until they do become actually inferior in quality. If so, the dealer will probably lose and the shipper gain through the buying operations of the commission merchant. The whole matter comes down finally to a question of the most advantageous division of function between those who are primarily producers and those who are primarily merchants, particularly as concerns the distribution of risks. If the grower sells his product at his farm or local shipping station, he avoids all further risk and surren- ders all further chance of profits. On the other hand, if he elects to consign, he takes the responsibility of select- ing the particular market, a certain agent, and the time and manner of shipping his goods. If it be a brokerage transaction, he still reserves the right to accept or re- ject offers and, as indicated above, may store his goods and speculate for a better market later. In other words, he is retaining a considerable share of the marketing function in his own hands. Whether it is possible to get better 1 Though, if he does lose on such a transaction, there is undoubtedly created a strong temptation to sell himself some other goods upon which he is certain to recoup his loss. 62 THE CHICAGO PRODUCE MARKET results by so doing will, of course, depend upon the par- ticular circumstances of time and market situation. Un- less the grower is thoroughly informed as to market con- ditions and methods, it is by no means certain that he will do better by the commission method. The large producer and the cooperative association of producers can often afford to develop a special organization for handling goods up to their final sale in the central market. But it is significant that many of them sell their goods outright at the local shipping platform whenever possible. Even among the cooperating California citrus-growers there is a strong faction who urge that all sales should be made " f .o.b. California " and a like sentiment is frequently heard among Northwest apple producers. But the California Fruit Growers' Exchange continues to " tramp" its cars * and to sell its wares through brokers, auctions, or its own representatives in the various Eastern markets. However these particular differences of policy may ultimately be worked out, there can be no doubt but that there are enough growers willing to assume the risks of consignment marketing or offering goods in such small quantities or under such unfavorable circumstances that no cash buyer is forthcoming, so that a large volume of goods will con- tinue to be handled on commission for as long a future as we can foresee. Indeed, one of the largest and strongest produce firms in Chicago relies exclusively on consignment business, basing its appeal upon the fact that they have " no purchased goods to compete with your consignments — no bought goods of our own to claim first attention." Finally, it appears that, whether the form of business relationship be that of commission dealing or of trading upon their own account, produce merchants are to-day 1 That is, sends them East unsold, consigned to their own representa- tives in the central markets or at convenient diversion points. For a dis- cussion of these shipping arrangements see chap. v. THE WHOLESALE MARKET 63 considerably enlarging the size of the operating unit through which their business is carried on. For several years past there has been a well-marked movement toward the integrating and federating of the agencies by which produce commodities are marketed. This is but the nat- ural response to the demand of the grower that he shall have a cheaper and more efficient means of distributing his product and the outcome of the keen competition among produce dealers to enlarge their volume of business and their profits through increasing the efficiency of their service. Such growth of large sales agencies through the process of integration or of federation is of two fairly distinct types. One of them begins with growers or local shippers and aims to effect an organization which is of sufficient magnitude to call for the establishing of branches or sales offices in the great central markets like Chicago. The other represents the expansion of the Chicago (or other) dealer's business until it embraces other cities, large and small, in its scope. Sometimes these two types of growth are blended in a yet larger coalition. This is perhaps the normal outcome of the process, but our discussion will doubtless be simpler and clearer if for the moment we regard them as distinct. The California Fruit Growers' Exchange is the familiar type of comprehensive selling organization which may be built up by the federation of a large number of small local exchanges. Through it, some eight thousand producers have acquired a thoroughly trained selling force and the most up-to-date equipment for handling their product. Growers of Florida citrus, of raisins, of nuts, apples, and various other kinds of fruit and vegetables have moved in this same direction. 1 Such a selling department has its headquarters in the producing section, whence it seeks to 1 But the majority of producers' coSperative exchanges differ funda- mentally in that they are organized primarily for shipping, or for f.o.b. selling, not for the more ambitious type of market distribution. 64 THE CHICAGO PRODUCE MARKET organize the whole market, finding out and stimulating the demand for its product, and supplying this demand with the highest possible degree of efficiency. Under a system of this kind the Chicago wholesale seller of the given commodity is the salaried employee of the distant centralized selling department of an organized producers' group. He develops the local field to the best of his ability, but sales policies are not determined by him nor by the individual producer, but by the exchange management at Riverside, Jacksonville, Fresno, or other points. The second type of this first class of consolidated selling arrangements is that which springs from the primary mar- ket. With the growth of numerous specialized producing sections in various parts of the United States, certain cities and towns which are located at strategic points have assumed importance as buying, storing, and shipping cen- ters. 1 Thus Sacramento has become a primary market for California fruits and vegetables, Fresno for raisins, Brawley for cantaloupes, Wenatchee for apples, Laredo for onions, Fort Worth for turkeys, and so on through a long list. We have already spoken of the activities of Chicago dealers in exploiting these distant fields; home enterprise in each of these local and primary markets is likewise ac- tive. Local firms or individuals spring up and grow with the growth of the industry, striving to improve their sell- ing ability and lower their costs in order to make them stronger competitors for additional business. As such a concern prospers and accumulates capital it may enlarge its field of operations and establish additional places of business at other concentration points. If the logical re- sult follows, the larger volume of business so obtained can be handled more cheaply and better results can be secured in the market. If such benefits appear, other firms which are not in a position to establish branches of their own, will 1 Likewise, goods are frequently graded and repacked at these places; eggs are candled, poultry dressed, and cream made into butter. THE WHOLESALE MARKET 65 secure the same result by affiliating themselves with friendly or competing concerns at near-by market points. Such a consolidation or "chain" arrangement is likely to be ac- complished through the process of incorporation and the distribution of shareholdings among the constituent prod- uce houses. One such corporation, which not so many years ago was a small partnership, is now incorporated for $1,000,000, includes thirty-one "associate houses," and is still making additions to its family group. Starting from Minneapolis, it has now nine branches in Minnesota, six in North Dakota, one in South Dakota, one in Wyoming, eight in Montana, one in Iowa, two in Michigan, two in Canada, and one in Chicago. This last member is of im- portance not only because it gives the organization their own selling agency on a large market, but also because it enables them to buy other classes of goods for distribution through their branch houses. Other groups of from three or four to a dozen houses are to be found in every important consuming section. On the other hand, the large fruit and vegetable shipping companies of the West and South are of a similar type of organization. The California Vegetable Union, for ex- * ample, is not a farmers' cooperative union, but an incor- porated wholesaling company, operating shipping stations in various producing sections. Another big California fruit company which last year (1916) did some buying in the Northwest has now been reorganized to absorb a previous Northwestern fruit company and to extend the business. This concern will ship thousands of cars during the season. It will doubtless maintain a representative in Chicago, but sell through the auction. Its sales arrange- ments for all markets will be determined from its Western headquarters. It will be observed that the tendency and purpose of all this large-scale selling organization is to mobilize a large volume of supply and to market it under a unified and cen- 66 THE CHICAGO PRODUCE MARKET tralized control. A similar movement has gone on at the other end of the marketing process. That is, there has been a like attempt of dealers to enlarge the field of demand which they can mobilize to bring to the service of sellers. To this end a few Chicago dealers have established branches in other cities; many have established special trading agree- ments with dealers in other cities where they desire to enlarge the outlet for their supplies; and a few years ago efforts were begun which secured the establishment of a national sales association. This is simply a selling organ- ization which embraces under one management all the principal markets of the country — one hundred of them, — from Boston to Seattle, and from Tampa to Winnipeg. In each of these cities the company keeps a permanent trade representative, whose services are placed at the sellers' command. The ideas of the founders of this com- pany were set forth in 1911 as follows: — The time is ripe for uniting the efforts of various fruit grow- ers' exchanges into one central sales exchange, international in its scope and operations, enabling each exchange to enjoy the broadest representation, and the most efficient salesmanship in the markets of the world, at a reduced cost. To this end a number of prominent exchange officials, pro- ducers, and shippers, of national reputation, have united in or- ganizing the North American Fruit Exchange. The general trend among exchanges everywhere, in con- scientiously handling the business, has been toward salaried representatives in the markets. The volume of business con- trol led by a single exchange is frequently sufficient to warrant representation in only a comparatively small number of markets of the world. A local exchange whose shipping season lasts only a few months, is confronted with the difficult problem of obtain- ing satisfactory representation of a temporary character. There exists in all these organizations a desire to improve conditions. Even where unusual success has been achieved through the un- tiring efforts of the management in the interests of the grower, it is recognized that closer cooperation must be developed between all producers, to the practical end of providing broader consump- tion to meet increased production, and to eliminate many glaring defects and abuses existing in the fruit and produce business. THE WHOLESALE MARKET 67 The law of evolution is active. Leading men identified with fruit production everywhere, unanimously advocate that growers apply to their business the same well defined principles so successfully employed in other well organized lines of commercial activity. Upon this basis they have built up a business of over twenty thousand cars * a year. But there has been no gen- eral stampede of business away from older methods, 2 and the established individuals and firms in Chicago and other markets appear to flourish in the face of this new type of competition. Nevertheless, the venture is significant evi- dence of a drift toward larger operating units or groups. A still more ambitious plan to effect a merger of large proportions was set forth in the announcement of the General Sales Agency of America. This project was launched early in 1915, as a coalition of some half-dozen big shipping organizations with several distributing agen- cies. 3 These latter represented a very large volume of de- mand " in every car-lot market throughout the United States and Canada and the principal foreign markets." Their work was to be unified under an " executive com- mittee, thereby securing the greatest sales efficiency to- gether with reduced cost of handling these products." 4 It was estimated that this organization would have charge of the marketing of " seventy-five per cent of the deciduous fruits of California, seventy-five per cent of the vegetable output of California, a large block of the apple crop of the Northwest, nearly all of the independent banana business coming into this country, and twenty to thirty per cent of the citrus output of California. In addition to this there 1 Their figure. Rivals aver it contains duplications due to the hand- ling of goods from one branch to another. 2 They have now devised an interesting compromise organization in the "Flying Squadron" of expert salesmen which they offer to install on a salary basis at any large shipper's station during his active season. 8 Including the North American Fruit Exchange. * Official statement of Charles E. Virden, second vice-president. 68 THE CHICAGO PRODUCE MARKET will be some 4000 or 5000 cars of Florida oranges, a per- centage of the Georgia peach crop, quite a portion of the Texas onion crop, and the Michigan grape crop." * Two years' experience seems to indicate that the large hopes of the founders of this organization are not to be at once realized. The constituent concerns have not sunk their individual identity in the parent company, as was at first predicted. It continues, however, as a sort of league of interests or an operating pool, constituting a more or less oligarchic group interest in the principal markets. 2 In Chicago, its moving spirits have attempted to enlarge their influence through active control of an auction company. It may be added, too, that the prime mover in the whole matter is an ardent advocate of the commission method of dealing and of the increased use of auctions, as already mentioned, 3 and that this consolidating movement — whether of the cooperating type like the California Fruit Growers' Exchange or the capitalistic General Sales Agency — contemplates the offering of a comprehensive selling service upon a fee basis, rather than the concentration of ownership of these goods through the methods of dealers' purchase previously discussed. It should be remembered also that this large-scale organization is practically limited to car-lot business and in no case would go farther than to include some jobbing agencies. In summary, then, we may say that the Chicago whole- sale produce merchant does not to-day organize his busi- ness only in the form of a separate and independent unit dealing, on the one side, with producers, and, on the other, with retailers and large consumers. For, besides this type 1 The Chicago Packer, May 8, 1915. s A certain feeling of dissatisfaction with the close control of the General Sales Agency gave rise, early in 1916, to talk of the formation of a rival organization of similar scope and character. This talk seems not to have crystallized into tangible results. 3 See p. 36. THE WHOLESALE MAEKET 69 of business, many others have grown up. The Chicago es- tablishment may be the local branch of a wholesaling com- pany whose headquarters are in New York, Pittsburgh, or Minneapolis. Likewise, it may be one in a chain of wholesaling and jobbing stores, located at important points for the concentration or distribution of supplies, or for both. Finally, the Chicago selling agency may be merely the local representative of a marketing system which has organized the distribution of some one class or of several classes of goods upon a national scale. In this case execu- tive control may be exercised from this or from some other large central market, or the seat of control may be located in or near to the producing field. This will be determined largely by the source from which the consolidation move- ment originally sprang, whether from shipping or from dis- tributing agencies. 1 These relationships will perhaps be made more clear by the accompanying diagram on page 70. 1 The complexities of organization which have grown up in the modern produce trade might be illustrated in another way by taking a cross- section through the business at the point where some one individual stands in the system. Such a. picture is presented quite vividly in the newspaper account of the business affiliations of a prominent produce merchant who died in Pittsburgh recently: — ■ " Mr. was president and director of the California Fruit Dis- tributors; treasurer and director of the Connolly Auction Company of New York; secretary-treasurer and director of the Connolly-Fanning Company; president and director of the Fanning-Charters Fruit and Dis- tributing Company of New York; president and director of the James M. Fanning Company of New York; treasurer and director of the Earl Fruit Company; treasurer and director of the James B. Coll Company; president and director of the Pittsburgh Fruit Auction Company; vice- president and director of the Producer's Fruit Company, and secretary and director of the Union Fruit Auction Company." Besides these connections, this man's activities included the pro- motion and direction of a trust company which was the principal bank- ing agency of the produce district in his city. His case could be fairly paralleled amongst the dealers in the Chicago market. To make the list of possible interlockings complete, we should remember that the produce merchant is frequently interested in cold-storage enterprises and in producing operations as well as the array of business affiliations pre- sented above. CHAPTER V THE WHOLESALE MARKET — TRANSPORTATION AND STORAGE FACILITIES It is evident that the present organization of the produce business has been determined in many of its important details and even in some of its general outlines by the possibilities offered for, or the limitations placed upon, the physical handling of goods. The present development of specialized producing centers in regions of favoring climate or extraordinary soil conditions and the business organiza- tion for handling this long-distance trade have progressed step by step with the evolution of transportation facilities and services. Likewise, the distribution in point of time and place has been mediated more and more by artificial methods of preservation and particularly by the supplying of cold-storage warehouses. 1 In view of this importance of transportation and storage facilities in the organization of the business and in the determination of market sup- plies and prices, the present chapter will deal with some of the salient features of these traffic and storage arrange- ments. While the development of long-distance shipping of perishables began shortly after the close of the Civil War, and the foundations of the present system of refrigerated transportation were laid in the latter part of the eighties, when practicable methods of icing cars were perfected, it was not till after the recovery from the depression of 1893-96 that the great expansion of the trade in perishable fruits and vegetables came about. This applies particu- 1 Another angle of this matter of the preservation of perishables is coming into greater prominence of late, viz., the saving of surplus products by canning and the utilization of the inferior grades in the manufacture of by-products. 72 THE CHICAGO PRODUCE MARKET larly to the marvelous growth of the Southern and West- ern field. The present development has been due in part to the extension of railroads into fields not previously equipped, — the Imperial Valley is a notable case, — but still more to the establishing of lower rates, better equip- ment, and additional services upon lines already in exist- ence. The contest over rates is perennial. In general, this class of traffic is one which is bound to pay high rates as compared with cheaper and bulkier commodities. The rates secured have been low enough to permit the growth of an enormous tonnage and the roads now realize that the business is one which it will well repay them to cultivate. Likewise, the produce dealers have several organizations of national scope whose active efforts are directed toward the securing of favorable treatment from the railroads or forcing such benefits through legislation or the interven- tion of the Interstate Commerce Commission. They have succeeded fairly well in establishing the principle that rates must be justified by service, and we may therefore examine the character of service furnished to the produce business. First comes the question of refrigerated cars and other special classes of equipment. 1 Such cars were originally supplied by special car companies, owing to the fact that the railroads were timid about tying up their capital in relatively costly rolling stock which could be used during only a part of the year. In the beginning, they were even dubious as to the practical success of this type of trans- portation. The meat-packers, however, felt an imperative demand for such equipment; Gustavus Swift did valuable pioneer work and, later, the Armour Car Lines " became the most important private company owning refrigerator 1 The principal other class of special cars are those used for live poultry. Of these there are probably not over a thousand or twelve hundred in use, as against fifty-five hundred or more refrigerated cars. THE WHOLESALE MARKET 73 cars for fruit and vegetables." l By leasing cars from the private company as needed and by organizing subsidiary car companies of their own, most of the railways of the country have now put themselves in a position to furnish producers with suitable equipment. However, in seasons of heavy traffic, complaints of car shortage and consequent discrimination are loudly made. This was manifest in the Northwest apple district in the fall of 1916. It is evident that unless a producing field or shipping point can secure immediate and ample supplies of refrigerator cars for its perishables, its access to distant markets is at once cut off and its business ruined. This fact has intensified regional specialization and concentration of the business at central shipping points, where icing plants can be provided. Icing of refrigerator cars 2 is done by the railways for their own cars and for those of the smaller private com- panies, but the large refrigerator car lines maintain their own stations both for initial icing and for the inspection and re-icing of cars at suitable points. Icing charges must be published in the same manner as freight rates and are, under the Hepburn Act of 1906, also under the control of the Interstate Commerce Commission. This power has been frequently exercised and considerable reductions have been effected. " The general course of refrigeration charges has been downward. The charges on fruit from California to Chicago, for instance, originally varied from 1 See Weld, Private Freight Cars and American Railways, Columbia Studies (1908), and Johnson and Huebner, Railroad Traffic and Rales, vol. 1, part 11. a It should be remembered that these cars, being insulated, are equally suited for use in keeping perishable products from being chilled or frozen. It has been estimated that about half of the goods carried in these cars is not iced. Much of this is carried under ventilation without refrigeration, some of it is supplied with artificial heat. When not iced, such cars are usually furnished without extra charge, but, particularly when short of this class of equipment, certain roads have levied a car rental of five dollars per car. If the carrier furnishes heat, charges are made in accordance with regular tariffs, subject to review by the Inter- state Commerce Commission. 74 THE CHICAGO PRODUCE MARKET $185 to $245 per car, according to distance and season. They now (1911) run from $70 to $90, according as the traffic originates in the territory adjacent to Sacramento, San Jose, or Los Angeles." 1 Some comparative rates for both transportation and refrigeration on longer and shorter hauls may be seen from the accompanying table. 2 In recent years it has been learned that thorough cooling of goods before shipment is not less important than good refrigeration in transit. Fruit and vegetables are com- monly shipped during hot weather and if closely packed in a car at their natural temperature they cool but slowly. The refrigerating mechanism of the car is not such as to produce very low temperatures or a rapid movement of air, and consequently it may be a couple of days before the load is chilled through. The ripening process is not halted as it should be and decay soon gets a foothold, particularly at the top of the car near the middle. Ice can be saved and deterioration avoided if the goods are quickly and thor- oughly chilled at the outset. This pre-cooling may be done in warehouses prior to loading in the car or may be effected by the forced passing of cold air through the car after loading but previous to icing. If the local shipper or pro- ducers' association has a cold-storage plant, the first type of pre-cooling is readily provided for; if not, the capital outlay involved may be a serious bar to securing the service. Car pre-cooling plants were at first limited to rail- road or private-car company ownership and were operated in connection with the manufacture of ice and the icing of refrigerator cars. In 1908 the United States Department of Agriculture devised a portable pre-cooling plant (in- stalled in a box-car) which puts this method of treating perishable products also within reach of the small shipping station. 8 1 Johnson and Huebner, op. cit., vol. 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