Cornell University Library HD 1491.U5N4 Farmers' buying and selling organization 3 1924 014 041 358 ^m fork ^tate Qlolkge of Agritulturt At QlnrttpU Ittturraitg 3tliara. N. % Htbrarg H Farmers' Buying and Selling Organizations in New Hampshire ^ By LAWRENCE A. CARLISLE Assistant Commissioner of Agriculture in Charge State Bureau of Markets Published by State Department of Agriculture Andrew L. Felker, Commissioner State House, Concord, N. H. 1922 B775 Cornell University Library The original of tiiis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924014041358 Farmers' Buying and Selling Organizations in New Hampshire By LAWRENCE A. CARLISLE Assistant Commissioner of Agriculture in Charge State Bureau of Markets Published by State Department of Agriculture Andrew L. Felker, Commissioner. State House, Concord, N. H. 1922 A/ '" ' 6775 ACKNOWLiEDGMENT. Acknowledgment is made to the Exchange Managers, County Agents, and the many friends of the farmers' buying and selling organizations of our state for the information cheerfully submitted relative to those organizations in which they have special interest and for their guidance in the prepa- ration of the material in this bulletin. FARMERS* BUYING AND SELLING ORGANI- ZATIONS IN NEW HAMPSHIRE. . INTRODUCTORY. The alnf of this bulletin is to prepare in compact form for the farmers of New Hampshire a brief history and description of the farmers' buying and selling organizations now operat- ing in the state, together with a comparison of the methods employed and a summary of the fundamental principles con- sidered essential for success in co-operative enterprises. A study of the buying and selling organizations in New Hampshire reveals two periods when interest and activity in co-operative enterprises have been pronounced. The first oc- curred during the decade beginning 1874 in the form of a Grange movement, which functioned for a period of fifteen years; and the second, which is still active, got under way toward the latter part of the World War period. Only one of the organizations now operating existed in its present form previous to the year 1918. This one, the New Hampshire Potato Growers' Association, was organized in 1910 for the purpose of promoting the potato industry of the state, but later developed interest in the buying of supplies. Neither co-operative buying or selling seems to have been a major object of its organization nor does there appear to have been any widespread concerted interest in co-operative enterprises throughout the state at the time. It is true that numerous co-operative enterprises, especially co-jOperative creameries, were organized during the period intervening between the Grange Co-operative Movement and the more recent activity. However, all had discontinued business and insofar as in- formation is available there is no example that is outstanding for its success or that remained in business for a sufficient length of time to become well established. THE GRANGE CO-OPERATIVE MOVEMENT. On March 4, 1874, delegates representing eleven subordi- nate granges of Hillsborough County met at Nashua and or- ganized the Hillsborough County Council, the duty of which was to perfect a method for co-operative buying and to put the same into operation. The Council had no legal existence .but was officered the same as the Pomona granges of today and conducted similar meetings about the county, although no degree work was performed. Mr. C. C. Shaw, then sec- retary of the State Grange, and doubtless instigator of the movement in the Council and in the Grange, was elected pur- chasing agent and local agents were selected in tie subordi- nate granges, who assembled orders and forwarded them with the cash to the purchasing agent. The local agents distrib- uted the supplies to the members upon their arrival. The purchasing agent received 3% per cent commission for Ms services, while the local agents did their work without mone- tary compensation. Contacts were made with several of the larger wholesale supply houses of Boston, from which were secured groceries, implements, grass seed, fertilizer, and other necessities and essentials used in farm homes and upon the farms. The system came to be used by the granges of several of the other counties of the state an^ Mr. Shaw was chosen as the State Purchasing Agent for the entire movement, March 17, 1874. Upwards of ninety granges were organized, largely for co-operative business purposes, during the first five years that the Order had an existence in this state. An effort made in 1876 to develop a more satisfactory plan of operation swung away from the agent purchasing sys- tem to co-operative associations. Selling as well as buying was considered, but there is no record of actual co-operative selling being accomplished. These associations were modeled after the recommendations based upon the fundamental prin- ciples of the Rochdale system so successful in England. The Co-operative Grange Store became the center of interest dur- ing the late seventies and early eighties. Several of these were opened, notably at Rochester, Warner, and North Lon- donderry. The life of the stores varied, but probably none were more successful than the one at Rochester, which was conducted successfully for a period of ten years. The store at North Londonderry developed into the beginning of a chain store system operating there in recent years and in Berry and Manchester. The majority of the stores supplied goods only to members, but the larger ones sold goods to all who paid cash. The system under which the co-operative buying worlc was conducted by the granges "was never very satisfactory, but resulted in the saving of many dollars to the members of the Grange, especially in their purchase of feed, flour and ferti- lizers," so states Mr. E. C. Hutchinson, who acted as a local agent in Milford. Considerable difference of opinion pre- vailed among the members as to whether business should be Intermingled with the social and fraternal elements of the Order. The members were "too much isolated, and cannot conveniently attend to the details of the business as carefully and constantly as is mecessary to the success and prosperity of the business," ■ and "we do not understand the business" were commentaries made by Mr. George W. Wason, State Master, in his annual address of 1879. Another undermining influence which caused the system to result in failure seems to have been the employment of inefiicient managers, often- times men who were not conducting their own business affairs successfully. The annual reports of the proceedings of the State Grange reveal that the fundamental principles in co- operative undertakings advocated today were then known and recognized as essential factors to success. Determined efforts were made by the state officers to establish the business on a sound basis. The weaknesses of the system were recognized but the leaders seemed unable to overcome them. During the latter part of the eighties trade cards were is- sued to subordinate grange members, the use of which made possible discounts on the necessities of life at certain stores throughout the state. The members did not generally pro- cure them and those who did failed to use them invariably. The Grange Co-operative Movement seems to have been a closed chapter by 1890. Farmers Get Experieince in Co-operative Buying Before Ex- changes Were Organized. Doubtless our New Hampshire farmers have been giving for the last two decades more thought and study to the problems of co-operative buying and selling than ever before. The rapid development of co-operative business organizations can be at- tributed to the influence of many agencies. The public press and lecturers have been educating the public by constant agi- tation and by stories of successful co-operative enterprises. The Grange has not only shaped opinion through the agency of its educational program but has also schooled farmers in the art of co-operation by carrying on various enterprises. The Bureau of Markets of the United States Department of Agriculture, the State Bureaus of Markets and state col- leges have conducted investigations and assembled a vast amount of information upon the processes of marketing. The county agricultural agents have spread this information and have advised as to specific marketing problems. Finally the farm bureaus and other organizations, encouraged and as- sisted by public-spirited individuals, have actively promoted co-operative marketing enterprises where they seemed to be needed to secure more efficient distribution. Through the educational propaganda of these several agencies every farmer has become more or less familiar with the successful undertaking of the twenty-seven overworked and underpaid weavers of Rochdale, England; with the re- organization of the entire agricultural program of Denmark resulting from its co-operative movements; and with the fail- ures and successes of the California Citrus Growers' Associ- ation. The principles utilized by these people in conducting their operations have come to be recognized as the funda- mentals of true co-operation. It may be that our farmers were convinced of the soundness of the principles of co-opera- tive buying long before but to obtain action required the stress of rapidly advancing cost of their supplies during the years of 1917, 1918, 1919, and small returns for their products during the subsequent years, when farmers found it neces- sary to make savings at every turn. The most aggressive finally mustered sufficient enterprise and courage to under- take actual operations, trusting that savings would result in the purchase of their supplies and the distribution of thftlr products. A brief experience in co-operative group buying brought forth savings of from $3 to $10' per ton on grains and feed; $2 to ?4 per barrel on flour; $8 to $14 per ton on fertilizer; and 5 cents to 7 cents per bushel on oats. These savings were sufficient to whip the smoldering desires into action and the die was cast. Once started, interest developed rapidly and became widespread throughout the state. In the brief span of four years at least a dozen buying and selling organiza- tions sprang into existence. A study of their history reveals t the fact that all the buying organizations started in a small way on a car-door basis. The second development brought forth the storehouse. The third added milling and mixing machinery with elevators and cleaners. BtrriNG ORGANIZATIONS. Belknap County Farmers' Exchange, Inc. Organized Feb- ruary 15, 1919, as a stock company to be operated on a non- profit basis, with headquarters at Laconia. Capitalized for $50,000, with shares issued as common stock at par value of $20. Sales are not confined to members, although during early period of organization only members of the Farm Bu- reau could make purchases. During the first year car-door orders were pooled and distribution made directly from car door for cash. A storehouse was opened at headquarters in 1920. Business necessitated moving to larger quarters within a j-ear's time. A second storehouse was opened at Belmont during the latter part of 1921, from which commodities are retailed through a local merchant on commission. The usual car-door privileges are offered to all communities of the county beyond hauling distance of the storehouses and to all living within hauling distance of the storheouse who care to unload direct from the car. The Exchange qualifies to take care of the needs of each community within the county. Com- modities handled include grain, feeds, fertilizer, flour, fungi- cides, insecticides, lime and seed. Manager receives salary and devotes only part time to the business. Assistant man- ager works on commission and puts in entire time. Largest year's business, $85,000. For two years previous to the opening of the Exchange members of the Farm Bureau made carlot purchases of grain and feeds through a committee appointed from among them- selves. The husiness, however, was wholly confined to the members living within hauling distance of Laconia. The suc- cess and savings of the co-operative buying during this period resulted In the organization of the Exchange. Canaan Farmers' Association. Organized as a non-stock, non-profit association, September 21, 1921, with headquarters at Canaan. The association is strictly a town organization and is not incorporated. Any Grafton County Farm Bureau member of the community who will sign the constitution and by-laws may join. Orders are assembled for car lots by a purchasing committee, which consists of a president and secre- tary-treasurer, the only officers of the association. This com- mittee looks after the buying and distribution of supplies ana collects and makes all payments. The business is a strictly car-door type conducted on a cash basis. Commodities pur- chased include feeds, grain, flour, sugar, fertilizer and lime. The association purchases a car approximately every two weeks. Carroll County Farmers' Exchange. Organized January 4, 1922, on a non-stock, non-profit basis, with headquarters at Conway. Exchange has no constitution or by-laws and is not incorporated. At a gathering of the farmers interested in the enterprise a board of three directors was appointed to de- termine buying policies. Directors have employed a manager who devotes only part time to the business and is paid per diem for his services. Carlot orders are assembled in the various communities of the county and a strictly cash-at-car- door business is done. Commodities handled include feeds, grain, seed, fertilizer and lime. During the first five months the exchange handled $15,0 00 worth of business. Cheshire County Farmers' Bxchamge, Inc. Organized July 15, 1919, with headquarters at Keene, as a stock company on a non-profit basis. Capitalized for $5,000, with shares is- sued as common stock, par value of which is $5. Dividend on stock is limited to six per cent. Membership and sales confined to Farm Bureau members, who must own at least one share of stock. A manager is employed, who devotes his time to the business and is paid a salary without bonus. Man- ager sends quotations to subagents located in the several com- munities of the county, who take orders from the exchange members. Carlot orders are delivered by the subagents to the manager, who does the buying. An effort is made to have cars arrive in each community at regular intervals. Sub- agents receive seventy-five cents per ton for taking orders and distributing supplies when car arrives. The business is con- ducted on a strictly cash-at-car-door basis. Commodities han- dled include feed, grain, flour, sugar, roofing, lime, fertilizer, seed and woolen goods. The Exchange acts as a pooling and selling agency for the wool clip of its members. The practice has been to manu- facture the product into blankets, suiting, shirting, overalls, hats, etc., which have been sold to the farmers and public for such a price as would net good returns for the wool pooled ' and cover cost of manufacture and distribution. w M o a er pound were made to the producers, netting them from fifteen to twenty-five cents per pound more than the market was offering for the same wool at any time during the spring, summer or fall of 1921. The association has been equally successful in handling eggs, which at the present time is its leading commodity. These are candled, graded, placed in sealed cartons, distributed and marketed, for which services the association charges the producers a five per cent commis- sion. A market has been found which has accepted the en- tire output of the association to date and pays it a seven cent premium above the weekly wholesale market egg price de- clared by the Boston Chamber of Commerce. The association has fulfilled its mission of finding a market for all commodi- ties shipped to it and in most cases has been able to return a premium above the going market price for the same quality product. Plymouth Creamery System, Inc. On May 1, 1920, the pa- trons of the Plymouth Creamery purchased from Mr. Davies, its owner, the entire equipment and good-will of his business, paying $75,000 in preferred stock and $200,000 in cash. The Plymouth Creamery System, a co-operative milk marketing enterprise, was then organized, with headquarters at Boston, Mass. Only a portion of its supply is produced within the state. The System owns and operates four creameries in New Hampshire, which are located at Swiftwater, New Bos- ton, Littleton and East Haverhill, five in Vermont, and four in the Province of Quebec. Total sales in 1921 amounted to $1,3(58,162.22. 16 Roby Farm Dairy, Inc. Organized March 1, 1921, with headquarters at Nashua. The patrons, dissatisfied with re- turns received for their dairy products, purchased the busi- ness and equipment from the owners and retained the former trade name. Its principal business .is to retail milk and cream. The new dairy corporation Is capitalized for $50,0 00, divided Into preferred stock at par value of $50, and common stock at par value of $10. Dividends are established on pre- ferred stock at eight per cent and common stock at six per cent. Patrons are required to purchase stock on a ratable basis to the amount of product marketed through the Dairy and are bound to let the corporation handle their entire product. Those who fail to deliver entire product to the com- pany must surrender stock and forfeit all privileges. Stock- holders are limited to one vote, regardless of number of shares held. Producers are guaranteed N. E. M. P. A. pricesi before profits are accumulated. Manager receives salary without bonus. The drivers who make deliveries receive bonus for increased sales. Ten per cent of net profits remaining after dividends have been paid on stock Is to be annually set aside for a reserve fund until total equals thirty per cent of paid- up capital stock. Balance of profits is divided as patronage dividends on a pro rata basis. By-laws provide for a recalling and reissuing of not more than twenty per cent of outstand- ing stock, so as to keep the same in the hands of the pro- ducers and on a ratable basis to amount of product supplied. Turner Centre System. The Turner Centre System was cre- ated October 21, 1919, as the result of an effort to reorganize the Turner Centre Dairying Association on a truly co-operative basis. The Turner Centre Dairying Association started doing business in 1882, but the organization was not legally per- fected until 1893. Mr. E. L. Bradford, treasurer and general manager of the System, has the following to say in regard to the changing over of the Turner Center Dairying Association into the Turner Centre System: "It will be seen bv our by- laws that our old stockholders engaged to sell their stock to the producers. This concern was intended to be organized about forty years ago as a co-operative company, but the or- ganizers did not quite understand their work and without real- izmg it, they organized a straight Maine Corporation The busmess has been conducted, however, in practically a co- operative way, the farmers realizing all the proceeds except enough to pay expenses and make a moderate reserve for the HEADQUARTERS OF THE NEW HAMPSHIRE FARMERS' CO-OPERATIVE MARKETING ASSOCIATION. GRAIN MILL AND ELEVATOR OF THE ROCKINGHAM COUNTY FARMERS' EXCHANGE. STORAGE CAPACITY OF THIRTY-FIVE CARS. 17 protection and upbuilding of the business. It was in order to carry out the original intention that the old stock was sold out to the farmers October 21, 1919." The Turner Centre System is one of the largest dealers in milk and dairy products of New England. The larger part of Its supply is obtained from the State of Maine. Farmers in the northern section of our state supply milk and cream and hold co-operative stock, therefore the Turner Centre System is mentioned as one of the buying and selling organizations doing business in New Hampshire. During the past year end- ing April first the company handled but $60,820 worth of milk and cream from New Hampshire farmers, an amount ranging from one-half to one-third of the value of the products handled annually during the five previous years. By-laws adopted October 21, 1919, provide for a capital stock of $2,350,000 par value, which is divided into three classes, namely. Class A Common, Co-operative Common, and Preferred. Common Class A stock outstanding at the time the System was organized amounted to 35,000 shares, par value $10. By-laws provide for the conversion of Class A stock into Preferred stock at the discretion of the owners thereof prior to 1926, and further permits the corporation to annually buy in and cancel an amount not to exceed $70,000 par value of this stock which has not been converted. Five per cent is deducted from the milk check of each producer, which is used for buying up the Class A Common stock. Un- til January 26, 1926, the outstanding Class A Common stock has a right to one vote for each share. At the end of this period. Class A stock outstanding loses voting power and divi- dends. The System is also capitalized for 100,000 shares Co- operative Common stock, par value $10. This stock is issued to producers of farm products for cash and in lieu of the Class A stock as a bonus payment distributed pro rata among producers from surplus earnings. This stock is good only for five years from the first day of the January in which it is is- sued, at the end of which time it is the plan of the System to redeem the stock at par. Bach holder of Co-operative Com- mon stock has the right to cast one vote. Preferred stock to the amount of 10,000 shares at $100 per share has been authorized. Dividends are fixed at seven per cent, payable semi-annually. This class of stock has no voting power un- less dividends should fail to be paid for a period of a year, at the end of which time holders of Preferred stock take over entire voting powers of the organization. 18 No membership is required to sell products to the company. Bonuses and dividends are being paid in the form of Co-oper- ative Common stock, so that as soon as the profits are divided at the end of the first year's sales the producer becomes a member of the organization with power of one vote. Business Is conducted on a co-operative basis. Manager devotes full time and receives a salary. Employees receive bonuses. During 1921 the company sold $4,735,274.73 worth of products. Expenses for doing business amounted to $1,538,- 598.82. The amount of Class A Common stock outstanding December 31, 1921, was $271,852.42; Co-operative Common stock, $152,112.00; Preferred stock, $409,400.00. Profit bonuses paid producers: 1919, 3%; 1920, 1%%; 1921, S%. Windham County Co-operative Milk Producers, Inc. This association, incorporated during the spring of 1921, with head- quarters at Brattleboro, Vermont, is of interest as approxi- mately fifteen per cent of its milk supply originates in New Hampshire. Effort is made to market product as whole milk. Membership is limited to persons owning or operating farms or engaged in some form of agricultural enterprise and who have subscribed to five or more shares of stock. The organi- zation is capitalized for $50,000, divided into 5,000 shares of $10 each. Voting power is limited to one vote per stockholder and no member is allowed to hold more than ten per cent of thei authorized capital stock. The net profits are divided as follows: Ten per cent Is annually set aside as a reserve fund until total equals thirty per cent of paid-up capital stock. Prom the remaining funds ten per cent is used as a sinking fund to be applied upon the mortgage indebtedness of the corporation until paid in full, stock dividends limited to six per cent are paid, and the balance prorated as a patronage dividend. Members failing to deliver all of their product to the association must forfeit their stock and the privileges of the corporation. The management finds the binding features of the 'present contract not binding enough for the good of the organization, as members shift their product to and from the association, depending on source of highest price. Results Have Justified Creation. The successes to date prove beyond question that pro- jection into the field of co-operative buying and selling has not only been justified from the point of view of economy but that educational benefits have resulted, some of which may 19 prove to be of more substantial good than the monetary sav- ings. Farmers as a class are being taught business methods — to make savings Tjy paying cash, which causes caution in buying beyond their needs; to anticipate their supplies, which requires closer study of future plans; to use the banks and understand business principles, an education which is chang- ing their entire buying system. They are fast giving up the use of proprietary feeds "and are either home-mixing or using a standard formula irecommended by feeding authorities for local conditions and mixed by their own Exchange. This means a more thorough knowledge of the various grains and feeds and their individual feeding values, which makes pos- sible economical buying. The farmers further maintain abil- ity to secure fresher and better quality of feeds and types which the dealers would not carry, as they were pushing spe- cial brands. One of the most common claims for the co-oper- ative movement has been the checking of the manipulation of prices and the general leveling of the same throughout the communities in which the co-operative enterprise is operat- ing. Investors are finding the Exchanges a good investment, as the returns are usually better than savings bank interest. Selling organizations, when successful, make available mar- kets which desire to handle produce in quantity and that, for this reason alone, would be 'beyond the reach of the individ- ual farmer. They furnish the farmer with the advantage of a specialized sales agency which accepts his products and grades, standardizes, packages, advertises and distributes them in an efficient and economical manner. Often, when the volume of business is sufficiently large, the savings of effi- cient marketing return to the producer a premium above the prevailing market price without increasing the cost to the con- sumer. Relieved of the worry and problems of marketing, the farmer can devote his entire energy to production. He soon learns that it is the demands of the market and not those of some commission merchant whom he suspects is prompted by personal gain, that requires him to produce qual- ity products and to offer them in an attractive condition. ANAIiYSIS OF BUSIJVBSS FEATURES. Business Practices. Buying Organizations: A study into the business methods reveals a clear division of ipolicies on the part of the buying organizations. Six of the eleven do a wholly car-door busi- 30 ness, three offer the special benefits of both the car-door and the storehouse business, while the two remaining confine their business operations wholly to the storehouse. One of these two caters to trade within its own and neighboring towns, which are so located that they do not offer any extensive operation by rail. AH of the organizations operate on a strictly cash basis. Those favoring car-door operations claim for their system the most economical operation. This system is the most attractive as a means of co-operative buying where small, isolated groups are interested. The benefits 'derived from the addition of a storehouse are numerous. All of the older exchanges operating on a coun- trywide basis have either added the storeTiouse or are seriously contemplating doing so. When questioned relative to the ad- vantages of the addition of the storehouse to the car-door busi- ness the most common replies were as follows: Farmers within hauling distance much prefer to pay the extra cost necessi- tated by the overhead of the storehouse to obtain the privi- lege of being able to get grain at their own convenience, and especially at any time when their teams happen to be in town. Thus the farmer is often saved a special trip and being placed to the disadvantage of going to the car during a period of in- clement weather, bad roads, or pressing work. Supplies for long periods do not have to be anticipated, which seems to be a bugaboo to most farmers. They are saved the inconvenience and expense of tying up large sums of money for long periods. Losses from rats and spoilage occurring on commodities when stored on the farm are avoided. Other advantages which often nearly cover the extra cost of maintaining the storehouse are the savings made possible by the purchase of feeds and grains in "straight cars" rather than in mixed y:ars and the laying in of supplies when the market price Is favorable. Selling Organizations. Seven of the eight selling organi- zations are engaged in the marketing of dairy products. With the exception of the Clarksville Dairy Company, which to date has manufactured its entire product into cheese, all seek to sell as much of their product as ("whole milk and cream as possible and manufacture the surplus Into one of the several dairy products. At least four of the dairy companies retail their own products and own equipment for handling the same. All operate their own manufacturing plants. Profits above dividends on stock and reserve funds are divided pro rata among the producers. All six dairy companies pay their mem- 21 bers the equivalent o£ the market price established by the N. E. M. P. A. and their dividends, profits and overhead must come from the net earnings above this price. The eighth sell- ing organization handles no dairy products whatever. Its field of endeavor is confined to vegetables, fruits, hay, wool and eggs. The association seeks not only to find a market for its members' products but also to return to him a pre- mium above the prevailing market price. This premium is obtained through improved methods of grading, packaging, distribution and! salesmanship, and in the case of wool through manufacture. The association operates entirely on a commission basis. Incorporation. Four of the smaller organizations doing only a\ car-door business are not incorporated. All others are incorporated. There is no co-operative corporation law in New Hampshire and those organizations doing business wholly in the state have incorporated under the strictly business corporation law, which makes no distinction between an ordinary busi- ness venture and a co-operative undertaking. It is advisable for all organizations to incorporate, as this gives the organization a distinct legal status which cannot be obtained otherwise. The incorporated association is al an advantage in bringing suit. Individual liability of a mem- ber is fixed by statute and is limited in New Hampshire to the amount which he has invested in the capital stock. Mem- bers of the unincorporated organization are held responsible individually the same as in partnership. Furthermore, the incorporated association has a more definite form of organi- zation and the management is placed in the hands of cer- tain officers, who can be required to account more strictly to the association. Among other advantages is the value of providing an established business, the continued existence of which is assured more fully than that of the unincor- porated. Incorporation usually prevents any dispute as to the ownership of the property held by the association. Capitalization and Paid-in Capital Stock. Buying Organizations. It is noted from the brief descrip- tion of the several buying organizations that five of the six doing a strictly car-door business are not capitalized. The sixth carries a capitalization of $5,000. Of the larger associ- aitions two are capitalized for $25,000 and the others for 22 $50,000, $75,000, and $100,000, respectively. None have issued stock equivalent to the amount of capitalization. The three associations capitalized for the largest amounts have sold stock equivalent to 36.3%, 42.6% and 9.7% of their capi- talization. The two capitalized at $25,000 have issued 60.4% and 37%, while the car-door organization capitalized at $5,000 has issued 40.4%. Selling Organizations. The range in amount of capitaliza- tion of the marketing organizations extends from $10,000 to $2,350,000. Four are capitalized for $50,000 and two for $100,000. The percentage of authorized stock which has been issued is somewhat higher than for the buying organi- zations. The range for the dairy companies is from 40% to 61.8%, while the produce association has issued but 10.8%. Most of the dairy companies require that members purchase a definite amount of stock, ratable to the amount of product marketed. This system lends itself to the disposal of a good proportion of the authorized stock as soon as operation is commenced. A majority provide for a rotation of the hold- ings so that the stock shall be held by producers in ratio to amount of product furnished the company. The plan is ac- complished by deducting a small percentage, usually five per cent, from each payment and issuing stock to cover the amount due the producer. After a certain period of years the older stock is recalled and its equivalent redistributed in- stead of a new issue. When such a plan is followed the pro- ducers hold all the common stock and receive both stock and patronage dividends in proportion to their business. Size of Shares. Buying Organizations. Only one issues preferred stock and the shares are at par value of $2 5. Three of the six issu- ing common stock have fixed the par value at $25, and one each at $20, $10, and $5. Selling Organizations. Four issue preferred stock, the par value of which is either $50 or $100. The common stock of all companies is fixed at $10 per share. Limit in Number of Shares. Buying Organizations. Three of the organizations do not limit the number of shares a stockholder can hold. Two of the others have set limits of $1,000 and $500, amounts rep- resenting less than six per cent of the present paid-up capital 23 stock and which would be less than two per cent in case all authorized stock should be sold. The sixth organization has limited the holdings to ten per cent of the outstanding stock. Selling Organizations. Five of the eight have placed no limits on the holdings of their members, but through plans of rotation intend to keep the voting stock in the hands of the producers on a ratable basis to production. Two have set ten per cent of outstanding capital stock as a limit and one $3,000, which is at present less than nine per cent of paid- up stock and ultimately will be six per cent when all stock is sold. Transfer of Shares. Buying Organizations. Of the six which have issued stock three limit the sale of shares to farmers only, while the other three sell stock to anyone, whether interested in farming or not. Four of the six require that stock be offered to the or- ganization with privileges of purchase before any transfer is made. Selling Organizations. All of the dairy companies limit the holdings of common stock to their patrons. The New Hampshire Co-operative Marketing Association sells stock to anyone but requires all who make sales through the associa- tion to own stock. Six of the seven selling agencies require that stock be offered first to the association Before transfer is made. Overhead and Credit. The five car-door organizations have done a volume of busi- ness, ranging from $10,000 to $189,000 in a single year, with- out capitalization. All have found it advantageous to obtain credit which at no time during the existence of any organiza- tion has amounted to more than $8,000. The credit has varied from this amount down to a sum sufficient to lift the bill of lading on a carload of some commodity. It is, of course, true that credit is needed for short periods of time only in this type of buying conducted on a cash basis. The claim made by the advocates of this system of pooling group orders that the overhead on car-door operations is the most economical, is well supported, as all have been able to keep the costs well under five per cent. The five organizations maintaining storehouses and in some instances doing their own milling show a greater variation in overhead costs as well as the amount of credit which has been 34 required. The credit range lias been from $5,000 to $11,000 for the smaller operators and $26,000 to $42,000 for the larger. Four of these have been able to keep the overhead between 5% and 7.5%. In justice to the organization, with costs over 7.5%, it should be stated that it renders services to its patrons which the other organizations pay for in origi- nal purchase price or ask their customers to perform for themselves. If the organizations conducting storehouses can buy to better advantage it is quite possible that they can sell equally as low as the car-door organizations in spit© of the advantage these have in low overhead costs. ANALYSIS OF CO-OPERATIVE FEATURES. V^oting Powers. Buying Organizations. Seven allow only one vote per mem- ber,- regardless of the number of shares owned; three allow one vote per share, but limit the shares to one hundred, forty and twenty. In no case can a member hold over ten per cent of the voting power. One Exchange allows one vote per share but does not limit the shares. Selling Organizations. All of the dairy companies limit the voting to one vote per member. The New Hampshire Co- operative Marketing Association allows one vote per share, with no limit on the number of shares held. Interest on Stock. Buying Organizations. Of the eleven buying organizations five are not capitalized. Of the six that are, only one has issued preferred stock, the dividends on which have been fixed at six per cent. Four of the six associations issuing common stock have limited its dividends. One has fixed the rate' of interest at five per cent, two at six per cent, and the fourth at not over eight per cent. In actual operation this last organization has never paid over five per cent. The two re- maining associations! have neither established nor limited the rate of interest and the decision as to whether the divi- dend will be paid or not and the amount of the same is left to the vote of the directors. Dividends have been paid by these two organizations which have ranged from four to six per cent, with a single exception of one eight per cent pay- ment. It is interesting to note that only two of the six or- ganizations which are capitalized have failed to declare a ill ■ i THE LKADI.\<; COJIMODITY HANDLED BY THE M. H. CO-OPERATIVE MARKETING ASyOCIA- )X HAS BEEN ECiGS. THESE ARE CANDLED, GRADED. CARTllXKl., AND DISTRIBUTED BY THE SOCIATIOX AS THE JUST LAID BRAND" OF NEW HAMPSHIRE EGGS. 25 Tstock dividend and in each case the payment was omitted but once. These failures occurred during the years of business depression, when purchases were made on a falling market and the organization accumulated no profits. Selling Organizations. The eight selling organizations are all capitalized. Four have issued both preferred and common stock. In every case the dividends on preferred stock have been established and range from seven to eight per cent. Re- turns on the common stock are established at not over six per cent in five cases, seven per cent in one, and are not fixed In two. The directors of these two have full power to deter- mine whether there shall be a dividend or not and the amount It shall be. Two of the selling organizations have been doing business less than a year and therefore have made no interest pay- ments. Only two of the five that have operated for more than a year's time have failed to make a regular payment on the stock. As the interest returns paid on the stock have never been over seven per cent, and are usually less, it is quite evident that with the buying and selling organizations of our state dividend payments on stock are purely interest on invest- ment rather than profits on earnings and do not seriously de- tract from the proportion of the savings belonging to the pro- ducers. Patronage Dividends. Buying Organizations. Eight of the eleven buying associa- tions are organized on a non-profit basis. Whatever net earn- ings might be available are distributed to those who make the purchases as a saving on the cost of the same. No dis- i3rimination in price is made between patron and stockholder, although those organizations doing a car-door business, ex- cept the Potato Growers' Association, intend to confine their sales to membership. Of the three organizations developed on a profit-sharing basis one has mover declared any profit dividends and it? nolicy in regard to this matter has not as yet been established. A second divides the net earnings on the patrons' business equally among each share of stock and returns to the stockholders the profit?' on their own business. The dividends returned to the stockholders of this organiza- tion as profit on their own business amounted to 9.4% during the calendar year of 1921. The third, after paying dividends on the stock and setting aside a reserve fund, prorates the "balance of the profits as a bonus to its patrons according to 2(3 the amount of business furnished the organization. The bonus is granted to all patrons, whether they own stock or not. Selling- Organizations. In the case of the selling organiza- tions, all of the dairy companies have by-laws providing for pro rata division of the net earnings among the stockholders according to the amount of product furnished the company. The seventh organization has never accumulated profits and has made no provision in the by-laws for the distribution of the same. The marketing organizations are divided about equally on the question of handling the products of produc- ers who are not stockholders. Three of the dairy companies handle only the product -of members, while four make pur- chases from others to supply their trade in case of shortage. Up to the present time the purchases have been very limited, probably in no case greater than five per cent of the value of the product furnished by its members. There is only one instance among the buying and selling organizations of New Hampshire where dividends as net earn- ings are paid to patrons who are not stockholders. This ■practice is commonly employed in many sections of the United States and the divisions are usually made on the basis of two to one, which allows the stockholders twice the amount of dividend paid the patrons. The motive in such a practice is to gain the patrons' interest and business. AAlieu Is an Organization Truly Co-operative? Farmers' buying and selling organizations of the present time may be divided into non-co-operative and co-operative enterprises. The non-co-operative organization distributes its profits according to capital invested by means of dividends on stock. Usually in a company of this kind there is no limit to the proportion of the capital stock one person may own and the stockholders have as many votes as the number of shares owned. This makes the capital stock the ruling fac- tor. In a truly co-operative organization the financial inter- est and voting power of each member is limited and after a fair rate of interest has been paid from the net earnings anv further savinss are distributed in the form of patronage dividends proportional to the amount of business each has transacted with the organization. Such an organization holds Its members on an equal basis, and men, not money, do the voting. Capital is recognized as a servant, not a master. It receives a fair wage for the work it does, the same as an employee. Profits are recognized as coming from the men who furnish the business. All expense, including a fair rate of interest on capital invested, must first be deducted from the gross profit, and conservative companies usually set aside portions of the net profit for a reserve fund, for advertising, and for education, before profit or patronage dividends are distributed. Co-operative organizations are often formed on the capital stock plan, but, unlike the ordinary corporation, the number of shares a member can hold is limited, the voting powers of all the members are the same, and the stock divi- dend is limited to a fair rate of interest. Non-stock organi- zations needing capital usually charge a membership fee or else borrow the necessary money. The separation of farmers' organizations into co-operative and non-co-operative groups is not a simple matter. Some au- thorities on co-operation insist that an organization must meet all the requirements laid down for co-operative organizations before it can be classed as such. On the other hand, there are those who class all farmers' organizations as co-operative. The main point is the extent to which the organization works for the benefit of the farmers. An organization may never declare a patronage dividend and still be of profit to all its patrons. It is apparent from the study of the actual operations of the several buying and selling organizations in New Hamp- shire that all intend to give the farmer the full benefits ob- tained by the enterprise. However, when the three funda- mental principles are each in turn applied to the declared policies as stated in their by-laws, six of the buying organiza- tions and seven of the selling organizations fulfill all require- ments of co-operative organizations. In justice to several of the other associations, it can be said that they have not been doing business long enough to bring up certain questions of policy, so that the attitude of the members has not yet been determined. Fourteen of the nineteen organizations limit the voting power to one vote per stockholder, regardless of the number of shares he may hold. Sixteen would qualify as co-operative on the question of returning profits on a pro rata basis and an equal number on limiting the interest divi- dend on stock to eight per cent or less. 38 liBGAIi STATUS. In 1890 Congress passed the Sherman antitrust law. Un- der the provisions of this law every conspiracy or combination in restraint of trade or monopoly and every attempt to lessen competition or fix prices arbitrarily or create a combination or pool in violation of the law is deemed guilty of misde- meanor and punishable by a heavy fine and jail sentence. The status of farmers' co-operative buying and selling organiza- tions was not clear under this law and in 1914 the so-called Clayton Amendment was added. Section 6 of the Clayton Act reads as follows: "That the labor of a Tiuman being i3 not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws." It is apparent from this section that if the association is to receive its benefits (1) it must be a "labor, agricultural, or horticultural organization," (2) that it must be "instituted for the purposes of mutual help," (3) that it must be organ- ized without "capital stock," and (4) that it cannot be "con- ducted for profit." Therefore it is safer to confine the mem- bership of farmers' co-operative organizations to persons en- gaged in or directly interested in agriculture. The second re- quirement provides that it must be a co-operation association formed for the mutual benefit of the entire membership and patrons and not for a few persons only. The qualification that an organization shall be without capital stock does not mean that it is not permitted to have any capital. Money needed to carry on the business must then be provided in some other way than by the issuance of shares of stock. The final requirement indicates that a distinction must be made between profits and savings. Although the Clayton Amendment states that such organizations must not be conducted for profit, it does not mean that such an organization is not permitted to effect savings for its members. If the farmers, through co- operative collective bargaining, are able to effect economies in 29 the matter of the sale and distribution of their products and the purchase of their supplies, to that extent each member is benefited by his proportion of the savings. When the net earnings or savings above the cost of operation and a moder- ate reserve fund are prorated among the balance of the mem- bers and the patrons in accordance with the amount of patron- age, it is commonly held that the business is not being con- ducted for profit. In that case the so-called "patronage divi- dend" is only a refund to the member or patron of what the year's business experience has demonstrated to be an over- charge for services rendered to the member. There is considerable question as to whether an organiza- tion is truly mutual or non-profit when it fails to prorate the surplus net earnings to the patrons who are not stoclcholders as well as to those who are. From the requirements of Sec- tion 6 of the Clayton Amendment it follows that an organiza- tion transacting business with non-members must deal with them on the same basis with respect to charge for services rendered and the distribution of savings effected that it does with its members. It would appear then to be a wise meas- ure for the buying organizations to make all patrons mem- bers. This presents a problem of some difl5culty, for there may be instances where a non-member desires to deal through the organization without becoming a member. The best way to meet this difiiculty is to make it as easy as possible for any- one eligible to membership to unite with the organization; then if such a person does not wish to become a member it may be advisable for the association to refuse to act as his agent. This matter in regard to dealing with patrons who are not members of a co-operative marketing enterprise has been nicely cared for by the recent Capper-Volstead Act, which became a law February 18, 1922. The act also defines from a legal point of view what the fundamental principles of a truly co-operative undertaking shall be. Federal Co-operative Marketing Act. It provides "That persons engaged in the production of ag- ricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in associations, cor- porate or otherwise, with or without capital stock, in collect- ively processing . . . and marketing in interstate and foreign commerce, such products of persons so engaged. Such associations may have marketing agencies in common; and such associations and their members may make the necessary 30 contracts and agreements to effect such purposes." In order for an association to come within the scope of the Act, "The association shall not deal in the products of non-members to an amount greater in value than such as are handled by it for members," and must also conform to one or both of the following requirements. . . "That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, or . . that the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum." The Secretary of Agriculture is given supervision over the A.ct and power to cause any association that monopolizes or restrains trade in interstate or foreign commerce to such an extent that the price of any agricultural product is unduly enhanced to cease its operations. NEW HAMPSHIRE NEEDS A CO-OPERATIVE CORPORATION LAW. With so much interest being taken in enterprises which savor of the spirit of co-operation it will be well for our peo- ple if legislation could soon be enacted which will indicate a clean cut distinction from the usual form of corporations. Furthermore, such a law would act as a guide in helping those who wish to establish such organizations to make them truly co-operative. Such undertakings are entirely different in many important respects from ordinary business corpora- tions and must be provided for under a separate act contain- ing safeguards and privileges which cannot be extended to private business enterprises. The co-operative corporation requires special recognition and regulation in the laws, just as building and loan associations, insurance companies, credit unions and banks. A TEST OF A CO-OPERATIVE MARKETING ORGANIZATION. Issued by Virginia Division of Markets. Those contemplating the formation of co-operative buying or selling organizations will do well to give full considera- tion to the following factors established as essential to success Organizations now doing business will do well to check their methods and policies on this basis: 31 Pre-Requlsites. (a) Commodity produced at a cost which permits compe- tition in central markets with similar commodities produced in other sections. (b) A volume of business sufficient to insure the econo- mies of large scale operation. (c) Large volume of produce from a limited area. Essentials. 1. Organization to be by commodities. 2. At least 50% of commodity produced in the territory covered by the organization pledged for a definite period. 3. Strong, conservative and progressive directors and of- ficers who will not fail to give the organization the thought, time and energy necessary for success. 4. Energetic, sympathetic, efficient, progressive and con- servative management. 5. Definite plans for future development. 6. One man, one vote. 7. Only producers of the commodity on which the or- ganization is based should be members or stockhold- ers. 8. Loyalty to membership. 9. Regular and timely information on condition of or- ganization and future plans given to membership. 10. Sufficient capital or credit for the organization to withstand any probable period of depression. 11. Conscientious employees highly trained and experi- enced in marketing the commodity the organization handles. 12. Well paid employees and officers, in order to hold them and encourage eflScient management. 13. Commodity properly standardized by means of grades and packages. 14. Commodity guaranteed, sold under brand and trade mark. 15. Proper advertising campaigns to insure increased con- sumption and demand. 16. Storage facilities, so as to market gradually. 17. All officers or employees who handle money bonded for the amount they will ever hold at any one time. 18. Complete and accurate records of business. Photomount Pamphlet Binder Gaylord Bros., Inc. Makers Syracuse, N. Y. P«T. JAN 21, 1S03 I?''''J- .'C'/.i- !;'-^i fi^^^i^vT me'