LIBRARY ANNEX 2 Cornell University Library HF5476.M14 The economic value of the auctjo" ^s f d 3 1924 013 947 324 REPRINT OF A PAPER READ BEFORE THE SECOND PAN-AMERICAN SCIEN- TIFIC CONGRESS HELD AT WASHING- TON. D. C, FROM DECEMBER 27, 1916 TO JANUARY 8, 1916 :: The Economic Value of the Auction as a Distributor of Perish- able Commodities By VICTOR K. McELHENY, JR., President of American Fniit and Produce Auction Association, 204 Franklin Street, New York City. Srrag^wrwirafrfl'rAi.YT^i, ^1r>»1t)Sr1tr•^t/«^1;r*v.^fft^1.r*^1r«^T/i^1»i^1r/i^1t»()lVkW^^^ m Cornell University Library The original of tiiis book 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/cletails/cu31924013947324 The Economic Value of the Auction as a Distributor of Perishable Commodities. '^ f % It ;! ^^ ii ■ft '%- rr^' ^Vfk t^ ii The Fruit Trade Building, 204 Franklin Street, New York City. Headquarters of the three New York Auction Companies engaged solely In selling Fruits and Produce. Contains three Auction rooms and 12000 square feet of display space. Upward of 250 car loads of Sicilian Lemons, Florida, Porto Rico and Cuban Citrus Fruits and Pineapples are at times sold here In a single day. The Economic Value of the Auction as a Distributor of Perishable Commodities VICTOR K. McELHENY, JR. President of American Fruit and Produce Auction Association. Reprint of paper read before the Second Pan-American Scientific Congresi held at Washington, D. C, from December 27th, 1915 to January 8th, 1916. NEW YORK CITY 1916 iaa^^^iM!rii?riiirarnirfi5?iifwrirririir^^^ Copyright 1916 by AMERICAN FRUIT AND PRODUCE AUCTION ASSOCIATION. SYNOPSIS I. PUBLIC ATTENTION CENTERED ON THE AUC- TION SYSTEM. II. PREJUDICE AGAINST THE AUCTION. III. HISTORY OF THE INDUSTRY. IN FOREIGN MARKETS. IN THE UNITED STATES. IV. SERVICE RENDERED BY THE AUCTION. ADVERTISEMENT. CATALOGUE. LINING-UP OF THE OFFERING. PARTS OF MARKS. SALE. RECORD. DELIVERY. DISCOUNT. GUARANTEE. PRICE-REALIZED CATALOGUE. V. THE SELLER AND THE BUYER AT AUCTION. THE SELLER. THE BUYER. VI. DISTINCTIVE CHARACTERISTICS OF AUCTION. COMPLETE PUBLICITY. OPEN COMPETITIVE BIDDING. AUCTIONEER. MINIMUM EXPENSE. VII. CONTRAST OF PRIVATE SALE WITH AUCTION. PRIVATE SALE WAY. AUCTION WAY. VIII. IMPORTANT RESULTS ACHIEVED BY AUCTION. RELIEF OF GLUTTED MARKET. FULL MARKET VALUE WHEN THE CROP IS SHORT. FULL MARKET VALUE FOR BOTH HIGH-CLASS AND INFERIOR GRADES. STABILITY OF PRICE INSURED. SPEED IN DELIVERY. NO CHANGING OF PRICE AFTER SALE. EQUALITY OF LARGE AND SMALL GROWERS, WIDENING OF DISTRIBUTION. COMBINATIONS OF BUYERS IMPOSSIBLE. LONG-KEEPING AND PERISHABLE COMMODITIES BOTH SUITABLE FOR AUCTION. IX. AUCTION INCREASINGLY NECESSARY IN DIS- TRIBUTION. (1) JiiU'iiU'iaA'iiy.'iiU'ia^'iaA¥iJ.^iU¥^'i}u^iu^«j-'iK^^iu^ I. PUBLIC ATTENTION CENTERED ON THE AUCTION SYSTEM: In recent years a tremendous impulse has been given, in all lines of business, to the adoption of efficient methods. Growers and shippers have made great strides in growing, packing and securing good transportation facilities. Crops and the popula- tion are increasing. The problem is so to increase distribution and consumption as to market these crops satisfactorily. This important marketing problem has centered attention upon the "Auction" or "Public Sale" system as a distributor of fruits and vegetables. II. PREJUDICE AGAINST THE AUCTION: Whenever the word "Auction" has appeared it has sug- gested to some a red flag — a man standing on a counter or chair yelling at the top of his voice and knocking down under the hammer whatever by way of rubbish happened to be at hand. With regard to the Auction sales of fruit as conducted by the large Auction Companies the picture is so entirely different that it is hard to make a comparison. /^;- -' 3-5" III. HISTORY OF THE INDUSTRY: IN THE FOREIGN MARKETS: In England, France and Germany, Auction sales of fruit and vegetables are tremendously and increasingly important. Examples of their importance in the three leading markets of England and in the port of Hamburg will suffice. England's oversea importation of fruit and vegetables is vastly in excess of its home production. Auction has been in practice there for 100 years. In the four important foreign markets named the offerings at Auction are as follows : GLASGOW: 90% of all fruits. Nearly all flowers and plants. Foreign vegetables, principally from Holland. 3 riiffrariira i t7riijfarat7^rsrs i rfs i ir;irs[fnii? ?rTi,^iJ7^[j7^te^^^ (2) I w HAMBURG; All foreign fruits and produce. LIVERPOOL: Apples from America, Canada, Australia, Tasmania and Spain. Oranges from Jaffa, Italy and Spain. Melons, Tomatoes and Potatoes from Spain and Onions from Egypt and Spain. Almeria and Lisbon Grapes, etc., etc. LONDON: 80% of all foreign fruits and vegetables. The importance of Auction in England will be emphasized when it is stated that in the year ending May 1, 1915 there were imported into Liverpool, London and Glasgow about 1,788,236 barrels and 1,096,054 boxes of American and Canadian apples, nearly all of which were sold at public Auction. IN THE UNITED STATES: In the United States Auction sales of fruits began about the year 1847 and have had a wonderful and sound growth ever since. The circumstances under which Auction was in- ati^urated in the various fruit industries which now use this method have been strikingly alike from the beginning until the present; and these same circumstances now confront certain industries which have not yet turned to Auction. In the early days almost all oranges, lemons, grapes and pineapples were imported from foreign lands. Large quanti- ties would arrive at our eastern ports consigned to various importers ; buyers were divided and had to trade with various importers in various quarters. There was no uniformity or stability of price. Similar grades would bring widely diver- gent prices. Some brands would sell well; the same quality bearing a different brand would be sacrificed. Commodities could not be quickly distributed. Distribution was not expand- ing with increasing offerings. Before a cargo was cleaned up at private sale, another cargo would arrive. Neither shipper nor buyer knew what he was doing. It was not merchandis- ing; it was speculation. Such obstacles restrain trade instead I (3) a 2. a. Si: re" 1 of expanding it. For the purpose nf ()\-crcoming this division of the trade, of concentrating sellers ami buyers in one place, | of giving stability and uniformity to pi'iees, and of securing speedy and wide distribution Auction was adopted. Today there are sixtet'u American cities in -which are held regularly Public Auctions of fruits and in some instances vegetables. TODAY: 85 9r of Florida oranges and grape fruit. 75% of pineapples, oranges and grape fruit from Porto Rico, Cul)a and Isle of Pines. 98% of California oranges, lemons, cherries, peaches, apri- cots, pears, plums and prunes. 100% of Sicilian lemons. 100% of Almeria grapes from Spain. 100% of cherries, pears and prunes from tlie Pacific Northwest which are sold in the large Auction cities of the Eastern part of the United States are now sold at Auction. In addition, the bananas that are consumed in New York and Baltimore are sold in that way. In 1914 one hundred and fifty thousand dollars worth of chestinits from France, Spain and j| Italy added to the vast volume of business going through the Auction Companies of New York. IV. SERVICE RENDERED BY THE AUCTION: ADVERTISEMENT: The Auction advertises the sale in a daily paper, describes the offering by brands, gives the day and hour and place of sale. In order to attract as many buyers as possible the Auction endeavors to advertise in one sale a variety of commodities. CATALOGUE: The offering having been divided into units attractive to buyers a catalogue is printed. Each page of the cata- S?l^!S(tl3fflti«ai«flt>Sv1l7Sv1l>Sv1ti«\1ti«\1tl«VlI)Sv1tl«(Mv1IW^ (5) l9!)iaji(3rers, wholesale grocers, reiDrcscntatives of chain stores, brokers for hotels, restaurants and retail stores, push-cart men, and peddlers. There are buyers for all grades of fruit from the very finest to the most inferior. There are buyers for fruit in prime condition and buyei-s for rijie fruit that must go into immediate consumi^tion. There are large buyers and small buv(n's. VI. DISTINCTIVE CHARACTERISTICS OF AUCTION: COMPLETE PUBLICITY: The literature of distribution is full of complaints that necessarily arise where there is not the oiDportunity for the grower or shipper to see for himself all the details of hoAv his shipments are sold and the prices realized. One of the most important features of the Auction is that it works in the plain vie\v of all. It eliminates at once all these complaints. The larger the quantity of a commodity the greater the necessity for complete publicity on distribution. Auction gives that publicity. Auctions are public sales in e\-ei-y sense of the word. The Auction houses can have no secrets. Any questions that may be asked of them by a shipper can be answered and will be answered. OPEN COMPETITIVE BIDDING: Not less important than complete publicity is competitive bidding ; in fact it might be said that the keystone of the Auction system is the selling of the commodity to the buyer who will bid the most after open competitive bidding. The experienced auctioneer knows the buyers, knows what buyers (9) ssmiimmiimmsmtmmm^fmimimfmmm!simt!mmsimtmiimmimimmmimmmiimmmm>i\ are dealing in the same lines of fruit and the inevitable result is that competitive bidding brings to the grower results that cannot otherwise be obtained. || AUCTIONEER: No system of selling can handle the vast quantity of goods that the Auction sells with as few salesmen. The auctioneers are the salesmen. They must be efficient. It takes years to make a successful auctioneer in these lines. The auctioneer must know and be a specialist in the fruit or produce businss. His duties require him just previous to the sale to examine the commodity that he is to sell as to quality and condition and make a notation on his catalogue so he can secure the highest price for the different grades of fruit. He also must know the quality and condition of the commodity sold by his competitor. The auctioneer pays a license fee and is under bond to the Municipality. MINIMUM EXPENSE: There are few points connected with the marketing of fruit and produce that equal in importance the matter of expense. It is, therefore, well to remember that the Auction system of selling enables the grower to get prompt returns from the Auction Companies at a lower selling expense than by any other system. VII. CONTRAST OF PRIVATE SALE WITH AUCTION: PRIVATE SALE WAY: Picture a large industry, for example, the New York State barreled apple, the Northwestern boxed apple, the cantaloupe, watermelon or peach industry, or in fact any line of fruit or A forcible way of bringing the Auction system concretely to the mind is that of comparison. There is no desire on my | part unnecessarily to disparage other methods. Private Sale performs its service and has its place in efficient distribution but I desire to iix clearly in the mind of the hearer the impor- tant function performed by the Auction. I l mTB [ rTri i ff Rir yriirnii!Trt i ?r^ i fr«[rrr iifrriirT»ii7^ifrsit^ (10) vegetables where the production has become large, divided into small scattered selling units rather than concentrated in one place. Picture the buyers scattered. Picture two men negoti- ating over the price. At Private Sale a number of buyers never negotiate at one time. If any man sees another negoti- ating he will wait on the corner until the deal is completed and then take his turn. That consumes time and I might in this place point out that all loss of time means in the end an economic waste. The seller endeavors to get as high a price as the drift of the market will stand. He is handicapped by the fact that he must keep in mind retaining the buyer 's patronage. The seller is often further handicapped by not knowing what supplies his competitors are offering. The seller has undesir- able sizes and grades of fruit which the buyer does not want but which the seller is inducing the buyer to take by offering the desirable fruit for less money. The buyer is trying to obtain the fruit at as low a price as he can. No public record is kept of the price for which the goods sold. Furthermore it frequent- ly happens that a large shipping concern will employ one-half dozen Commission Merchants in a large market. A buyer must necessarily go to several of these houses before purchasing in order to determine the market. Time is wasted. Again let me say that waste of time by buyers must mean in the end a loss to growers. After viewing this mental picture, then compare the Auc- tion Sales in the auction room and you will gain the viewpoint of the progressive grower of California and Florida. AUCTION WAY; Picture all the commodity and all the buyers concentrated in one place at one time. The buyers arrive in time to inspect the commodity that is on display in one large warehouse or on the railroad pier. In that large exhibit each buyer — whether the fine fruiterer or the broker for department stores, or the chain store, or the retail grocery, or the push-cart man finds the lots and grades that he wants — in fact that he must have, if he is to keep his customers from going next door after their fruit. At a given time the gong rings and the buyers assemble in the sales auditorium. As a winning bidder needs to take only a limited number of boxes the representatives of the I W (11) Jj !MliyjliyiliUflMl«i-'liA^liU!lSU¥iJ!iUil!U¥A^liy.¥iiili!^liyi^^^^ POSITION or AUCTION IN CHANNEL OF DISTRIBUTION =fffW^. Tlmt means increased purchasing power for " time is money" and the grower benefits. Finally every Auction sale is a matter of public i-ecord. The catalogue and sales sheet are kept for a certain period before their destruction" is permitted. Some of the Auction Companies keep their papers for years. The shipper can write to the Auction Company and get a mailing catalogue showing the correct prices. In the city of New York, for example, the DAILY FRUIT REPORTER, an independent paper, publishes each day the results of the sales, car by car, and brand by brand. Any grower may sit in the public sales auditorium and hear the auctioneer sell his commodity to the highest bid- der at a cei-tain figure. He may note on a catalogue what his fruit or vegetables sold for and then compare that with the "account sales" subsequently rendered by the Auclion Com- pany. He will find that they agree completely. VIII. IMPORTANT RESULTS ACHIEVED BY AUCTION: RELIEF OF A GLUTTED MARKET: The Auction can relieve a glutted market as no other medium can. Just as soon as the market sags the repi-eseii- tatives of the peddlers and the push-cart men at the Auction buy heavily. With all the push-carts and peddler's wagons featuring a commodity, many not handling anything else for (13) •«;w«ia<;i3isi«fli3^ i the time being, vast quantities of fruit can be disposed of in case of a glut. The result is that consumption is greatly in- creased. The glut relieved, prices rebound and the market becomes normal. The public sales system has a particular advantage over private selling in that, the glut having been relieved, the stimu- lated rate of consumption sends prices upward at once. It is quickly apparent that a number of buyers want a certain kind of fruit. No buyer can hide the fact. He must bid briskly and bid high if he is to get the fruit that his customers want. FULL MARKET VALUE WHEN THE CROP IS SHORT: The objection is often made by the opponents of the Auc- tion that this method does not secure as high prices as Private Sale when the crop is short. That is contrary to the facts, and as an illustration note the following : Apples are a short crop this year. At the Auction sale of New York State barreled apples held in the orchards of certain growers at Red Hook, N. Y., Gardiner, N. Y. and Syracuse, N. Y. on September 1st, 2nd and 8th of this year, notwithstanding the inauguration of a new system and in the face of strong opposition these results were secured: It was a matter of common knowledge that previous to the Auction Sales buyers were paying farmers $2.50 per barrel for Grade "A", declining in all cases to buy Grade "B" fruit, and in a very few instances for some high class fruit $2.75 per barrel was paid for Grade "A" fruit. At the Auction Sales the lowest price paid for Grade "A" was $2.70 per barrel and the highest price was $3.40. In most cases the price paid was from $2.80 to $3.40 per barrel for Grade "A". Grade "A" and "B" in one orchard were sold together for $3.40 per barrel. Grade "A" and Grade "B" apples together of another orchard sold for $3.00 per barrel and Grade "A" and Grade "B" apples together of three other orchards were sold for $2.85 per barrel and $2.75 per barrel respectively. FULL MARKET VALUE FOR BOTH HIGH-CLASS AND INFERIOR GRADES: A relic of ignorance and prejudice on the subject of public sale as a means of distribution is the feeling held by some of the less informed that the Auction might sacrifice high-class •ifs?ir«viti«ii>»ii»(it)S«svii)S(ir«\it«Oirsa>ivM^ (14) fruit. Nothing could be further from the facts. There are present at each sale the fine fruiterers, high-class grocery houses, brokers representing high-class hotels, restaurants and retail houses and jobbers who specialize in high grade fruits, all interested in high-class fruit only. The result is that these fruits are bid up to the highest price that the market will warrant. In fact prices are realized at times for high grades of oranges, grape fruit, Spanish grapes, lemons, pears, Cali- fornia grapes, plums and cherries sold at Auction that could be secured in no other way. Furthermore the Auction is the keenest discriminator between the fruit of the careful grower and packer and that of the careless. Every grower and packer who uses intelligence, time and care in the production and packing of his fruit, wants these elements recognized. No system equals the Auction in recognizing what is good and in paying for it accordingly. The Auction is the place above all where each grower's effort stands on its own merit. STABILITY OF PRICE INSURED: There are no wild fluctuations in the prices at Auction. The fruit and the buyers are all in one place and the law of supply and demand is not interfered with. The fruit Auc- tions are held regularly and every daj- (Saturday excepted), in the large cities at a regular scheduled time. The buyers who attend these sales make a regular business of buying and sell- ing fruit. All of the buyers speculate occasionally but the great bulk of their buying is to supply a present need. SPEED IN DELIVERY: One great essential in marketing fruits and vegetables is promptness in the delivery to the buyer. This promptness is essential where large quantities are handled. The Auction specializes in promptness of delivery. For example, 100 cars of California fruit — in addition to the other lines of different varieties selling — are sold and delivered in a single day with- out overtaxing the capacity of the Auction to deliver promptly in one of our large cities. The more prompt the delivery the more satisfaction to the buyer and the more he will pay. i(!ts