pg "4 ^ :;:!!!# ^^f^7'^. Cornell University Library HD9037.N9A51914 Report on terminal grain elevators made 3 1924 013 914 803 M ■<^' ^^''' REPORT ON TERMINAL GRAIN ELEVATORS MADE TO THE Fourteenth Legislative Assembly OF THE State of North Dakota BY The Board of Control of State Institutions WfT?T-J; 1946 oePT. OF AGRiC ECON* 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/cu31924013914803 REPORT ON TERMINAL GRAIN ELEVATORS MADE TO THE Fourteenth Legislative Assembly BY The Board of Control of State Institutions Knight Printing Co. State Printers I'argo, N, Dak. ..\\ MEMBERS OF THE BOARD OF CONTROL OF STATE INSTITUTIONS R. S. Lewis, Chairman F. 0. Brewster J. W. Jackson E. G. Wanner, Secretary To the Honorable Members of the Fourteenth Legisla- tive Assembly. Gentlemen; In compliance with Chapter 279, 1913 Session Laws, we herewith respectfully submit the report of the Board of Control in the matter of a system of Terminal Grain Elevators. For convenience the Report is divided into three parts, as follows: 1. Specific Information required by Chapter 279, 1913 Session Laws. 2. Summary of the experience of Canada in the owner- ship and operation of Provincial and Government Grain Elevators. 3. General Review of the proposal for the State of North Dakota to establish and operate a system of Termi- nal Elevators in the States of Minnesota and Wisconsin. State Board of Control. R. S. Lewis, Chairman. F. O. Brewster J. W. Jacksom PART ONE To the Honorable Members of the 14th Legislative As- sembly. Gentlemen: In conformity with Chapter 279 of the 1913 Session Laws, the Board of Control herewith submits its report in the matter of the proposal to establish and operate North Dakota State Terminal Elevators in the States of Wisconsin and Minnesota. In order to secure the information required by the above mentioned Chapter, careful inquiry has been made into the Terminal Elevator question in both the United States and Canada. Members of the Board have gone in person to the leading interior and terminal grain mar- kets of Canada, and have ifaspected the terminal ele- vators built and operated at various points by the Do- minion Government. From personal interviews with farmers, business men, grain men, millers, bankers and Government officials, and from public reports of Pro- vincial and Dominion grain commissions, the Board has secured much valuable data on the history of Dominion and Provincial owned elevators. Special effort was made to thoroughly acquaint ourselves with the Cana- dian situation for the reason that it was cited as a cri- terion for North Dakota during the consideration of Chapter 279 by the 1913 Legislative Assembly. The members of the Board have at various times gone to Duluth, Minneapolis and St. Paul for the purpose of studying grain marketing conditions in connection with terminal elevators at those points. At these times every effort has been made to secure full and complete infor- mation on the subject and for this purpose our inquiry has been as broad as it could be made. Officials of the Equity Co-operative Exchange at St. Paul, of the Cham- ber of Commerce at Minneapolis, and the Board of Trade at Duluth have been asked for their views on the gen- eral proposal for the State of North Dakota to own and operate terminal elevators, as to the best locations for such elevators, cost of construction and of sites, methods 6 Report on Terminal Grain Elevators of operation and all other phases of the Terminal Ele- vator business. In addition to these men, all of whom are more or less actively engaged in the grain business, we have interviewed exporters, millers, bankers, railway officials, lumber men and merchants of Duluth and the Twin Cities, practically all of whom, in addition to any grain interests they may have, are also largely interested in the State of North Dakota and the price it receives for its wheat crop. Among them are many former North Dakotans who now live in these cities. Many farmers, business men and legislators of our own state have been requested for their opinions and sug- gestions as to the proposed undertakijig, the most advantageous locations for elevators, capacity and con- struction of elevators and method of operation. This inquiry brought out the fact that many were opposed to this proposition. Those who were found 'O be in favor of such an undertaking were asked to state their reasons therefor, and the same request has been made of those who were opposed. The bill as passed may not explicitly make it the duty of this Board to ascertain or set forth whatever advantages or disadvantages the gen- eral proposal for the state to establish and operate termi- nal elevators in Minnesota or Wisconsin may have. Nev- ertheless, in securing the data which the bill does re- quire the Board to furnish, these features were neces- sarily brought out and we therefore include- them in this report in the belief that the information is public property and that the Legislative Assembly desires all information on the terminal elevator matter which we have at hand as the result of our investigations. Fur- thermore, the Board realizes that the marketing of grain is of tremendous importance to the people of North Dakota, and the further fact that the proposal for the state to own and operate a terminal elevator system is of such magnitude that careful and thorough considera- tion must be given it before it is undertaken on account of the large amount of money which will be involved if the system is to be put in operation by the state. To comply with the specific instructions of Chapter 279, the Board reports as follows: 1. Location of Terminal Elevators. Provided terrriinal elevators are constructed or oper- ated by the state we believe the best guide as to the most desirable location is that offered by the going com- mercial concerns in the business. It is the consensus of Board of Control of State Institutions 7 opinion among those who own or operate terminal ele- vators, that in order to make the most of natural geo- graphical advantages, to meet competition and conduct the business with best success, two terminal elevators are necessary, one of which should be located at the Twin Cities and the other at the head of the Lakes. By having the two terminal elevators available any advan- tage which might exist by reason of the demand for local or nearby milling wheat or during the closed lake shipping season could be exercised by the Twin City Terminal, and any advantages that might exist by reason of demand for export or eastern shipping via water route could be exercised by the Lake Terminal during the lake shipping season. As between Duluth and Superior, the advantage in location appears to be with Duluth. Among them are the benefits of Minnesota state inspection, grading, weigh- ing and regulation; the established selling facilities offered by the Duluth Board of Trade, and the location there of eastern buyers and exporters. At Superior a North Dakota terminal elevator would come under the supervision of the laws of Wisconsin and the regulations of the State Grain and Warehouse Commission located at Superior. Our advices are that one of the strongest objections to the Wisconsin location is that terminal warehouse receipts issued therefrom are non-transferable and therefore not accepted as bank collateral. It is our understanding that constant effort is being made upon the Legislature of Wisconsin to change this provision, which however Wisconsin officials claim does not in fact exist. The laws of Wisconsin provide for state grain inspection, so that the inspecting, grading and weighing of grain consigned to the public terminal elevators or warehouses located at Superior is similar to that given by the State of Minnesota to grain con- signed to public terminal elevators at Minneapolis or Duluth. It appears, however, that the Wisconsin inspec- tion is not accepted by the grain selling agencies of Minnesota, more particularly by the Duluth Board of Trade. Whether this is due to inadequate or unsatis- factory inspection by Wisconsin, or merely to rivalry between the cities of Duluth and Superior is a debated question. Exportors and foreign consumers seem to give the Minnesota inspection preference over that of Wis- consin. 8 Report on Terminal Grain Elevators 2. Costs of Building and Site. c a1 Cost of Building. Careful study has been made as to costs of terminal elevators and sites. Should the state finally determine to build terminal elevators it is probable the latest and most approved type of reinforced concrete construction would be followed, as it offers distinct advantages in handling grain, also lower insurance rates, general safety with permanency, and greatly reduced cost of upkeep, mainte- nance and deterioration. In fact the success or failure -of the terminal elevator business as conducted under keen competition today so largely depends upon the type and construclion of the elevator itself that unless the state of North Dakota provided the same facilities for handling grain which are now offered by those privately owned terminal elevators, the state would be at a serious handi- cap in competing with them. Roughly speakiijg, a terminal elevator fully equipped and ready for operation would cost from 25e to 45c per bushel, dependent upon the type of construction, the ca- pacity of work house as compared with storage capacity, and also dependent upon the number of storage bins and their capacity. An elevator having large storage bins and limited work house capacity costs materially less to build than an elevator having many small storage bins and large work house capacity. The greater the number of small bins and the greater the capacity of the work house as compared with the elevator storage capacity, the heavier tjie cost of construction. Capacity in a work house costs more than capacity in storage bins. The terminal elevator building owned by the Dominion of Canada at Port Arthur, Ontario, on the north shore of Lake Superior, has a capacity of 3,250,000 bushels and cost complete, with a $90,000.00 site and all incidental expenses, $1,379,409.43, or about 42c per bushel. As far as the Board could learn there is nothing better in the way of terminal elevator construction in existance. A modern complete elevator of three million bushel capacity would cost about $1,000,000.00, but one of 1,500,000 bushel capacity would cost more than half the cost of the larger capacity, for the reason that as the capacity lessens the percentage of cost increases. While wooden construction could be adopted at ma- terially reduced initial cost, it has been discarded as un- safe, temporary, and uneconomical through the resulting fire hazard, with consequent high insurance rates, ex- cessive cost of upkeep, maintenance and deterioration. Board of Control of State Institutions 9 B. Cost of Sites. As far as the Board has determined, a desirable site at the head of the Lakes practically requires the purchase of a water lot, dredging, filling and driving a pile founda- tion. While no money has been expended for options, the best opinion is that such site as should be secured at Duluth would cost when ready for elevator construction, anywhere from $75,000.00 to $150,000.00. This would in- clude cost of water lot, dredging, tilling and pile founda- tion, and variation in price as above given would depend upon its geographical location, accessibility to trackage and dockage facilities; engineering difficulties, such as the character of the foundation, the amount of dredging that would be necessary, piling and revettment, the area and possibility of future additions to the elevator. The water lot of the Dominion of Canada's terminal elevator at Port Arthur cost $90,000.00, and the expense of dredg- ing was $37,000.00. A site at Superior would probably cost less than a site at Duluth. At the Twin Cities a desirable site can be purchased at from $25,000.00 to $75,000.00, depending upon the location as to sw^itching charges, proximity to mills, side track room, area, etc. There is also a possibility of securing a site by lease-hold from the Railway Company owning it. 3. Capacity. Should the state operate a terminal elevator system and should the elevators be largely patronized, a large capacity would be required in order to handle the busi- ness satisfactorily. On the other hand, if the elevators were not largely patronized they could not succeed, and the smaller the capacity the smaller the resultant loss. The success or failure of a terminal elevator appears to .depend very largely upon the volume of business it re- ceives. The Board is advised that a terminal elevator with a capacity of three million bushels or over is the most economical to operate, as fixed charges and cost of handling grain on less capacity than that greatly reduces whatever profits there might be. The capacity of terminal elevators at Duluth, Superior, Minneapolis, Fort William and Port Arthur is as follows: Number Capacity Average bushels Cap. Minneapolis— Public Elevators 26 30,000,000 1,165,384 Duluth and Superior 25 33,325,000 1,333,000 Fort William and Port Arthur 23 41,860,000 1,820,000 10 Report on Terminal Grain Elevators A number of these terminal elevators have capacity for more than three million bushels, and some of them have six, seven, eight, nine and ten million bushel ca- pacity. 4. Purchase of Terminal Elevators. It may be possible to purchase terminal elevators at the Twin Cities and probably elsewhere, but as far as the Board has yet learned, such as might be bought are of wooden construction, more or less obsolete, and this ac- counts in large part for their being offered for sale at what appears to be 50c on the dollar of cost of their construction. It also appears that the margin of profit from the operation of these same elevators has been small. If there is a modern up-to-date terminal elevator for sale at the Twin Cities, Duluth or -Superior, at what might be considered a fair price, the Board has not as yet learned of it, and considerable inquiry has been made. This might be taken by advocates of state owned terminal elevators as an indication that the operation of modern, up-to-date terminal elevators at the Twin Cities and head of the Lakes is, under existing conditions, suc- cessful from a financial standpoint, but such conclusion might nevertheless be entirely misleading. 5. Plans and Specifications of Buildings, Equipment and Machinery. At the request of the Board, the architects and builders of the Canadian, terminal elevator at Port Arthur, Messrs. Barnett & Record of Minneapolis, who are highly recom- mended as elevator builders, have offered to submit for $100.00, photographic plans, condensed specifications and rough estimate of cost of erecting terminal elevators at the Twin Cities and head of the Lakes. The Board has not felt justified in making this expenditure, but should the Legislative Assemblj^ desire this information, it can be secured in a week or ten days. Such detailed set of plans and specifications as would finally be required be- fore beginning construction, would consist of some hundred ,and fifty sheets of drawings, several hundred pages of specifications, and would cost several thqusand dollars. The Canadian Government paid for architect's plans, specifications, engineering and supervising construc- tion charges of the Port Arthur elevator, $13,000.00. Inasmuch as they provide for a modern, up-to-date terminal elevator, such as North Dakota would probably build, should the state finally determine to. construct any Board of Control of State Institutions 11 terminal elevators, the Board believes the above men- tioned photographs of plans and specifications, together with photographs showing completed elevators would serve all practical purposes at this time, and that they would adequately illustrate the kind and amount of ma- chinery required to operate a terminal elevator to best advantage. 6. Leasing or Renting of Terminal Elevators. Careful inquiry has been made as to the possibility of leasing or renting terminal elevators at the Twin Cities or head of the Lakes. No definite proposals for leasing or renting terminal elevators have come, but it is possible such might be secured. Certain it is that if North Dakota finally concludes to establish and operate a system of terminal elevators at the Twin Cities or head of the Lakes, or any other point, this Board recommends that every effort be made to rent or lease existing terminal elevators rather than have the state expend a dollar for their purchase or the construction of new ones, at least until actual experience in operating a terminal elevator system shows that the state would be warranted in build- ing. 7. Methods and Rules of Operation. Should the state of North Dakota build, own or operate a public terminal elevator at the Twin Cities or Duluth it would be governed according to the laws of Minnesota as administered by the Minnesota State Railroad and Warehouse Commission in their supervision and regula- tion of all terminal elevators within that state. A copy of the Minnesota statutes relating to the operating of pub- lic warehouses as elevators are there termed, together with the rules and regulations covering the Minnesota grain inspection is on file in this office and available to members of the Legislative Assembly at any time. From this will be seen that all public terminal elevators in the state of Minnesota are supervised and regulated by the state. Not only does the state of Minnesota in- spect, grade, dock and weigh all grain consigned to public terminal elevators or markets within that state, but the handling and storage and other charges of the terminal elevators are determined by it also. Should a public terminal elevator be established at Superior, it would necessarily have to conform to the laws of the state of Wisconsin in the manner of its opera- tion, as enforced by the rules and regulations of the Wis- 12 Report on Terminal Grain Elevators consin Grain & Warehouse Commission. These provi- sions are practically the same as those of Minnesota in so far as they relate to inspecting grain, docking, weighing and elevator handling, and storage charges. The foregoing statements assume that any North Dakota terminal elevators that might be established in the states of Minnesota or Wisconsin would be duly licensed public warehouses, thereby entitled to state inspection on all grain consigned to them. Whether North Dakota could own and operate a terminal elevator within the State of Minnesota or Wisconsin as a private warehouse, should it desire to do so, seems to be somewhat in doubt, but if so, then grain consigned to it would not be entitled to or subject to state inspection and such advantages and disadvantages as it carries. For ordinary business methods and rules of operation as are. not covered by statutory provision of either Wis- consin or Minnesota, the Board's investigation shows that the system in use by the various terminal elevators oper- ating under private ownership is best adapted for the suc- cessful conduct of the business. Legal requirements as well as the rules and regulations of the various public commissions in charge of the conduct of terminal ele- vators in Canada, Minnesota and Wisconsin, call for a full and complete system of bookkeeping, and these records are at all times subject to inspection. Uniform warehouse receipts for grain consignments are among these require- ments, and in order to keep close and careful record of each car shipped, a complete system of checks and bal- ances is maintained by all terminal elevator companies. In this way any one or more car shipments can readily be traced from point of shipment to final destination. 8. Cost of Operation. To ascertain the cost of operation of a terminal elevator, the Board has gone to those engaged in the business, both as private and public institutions in Canada and the United States. While the cost of operation necessarily depends to a very considerable extent on location of ele- vator, type of construction, facilities for handling grain, insurance rates, fixed or over-head charges, upkeep, main- tenance, deterioration, wages and expense, of administra- tion, generally speaking it can be placed at from about three fourths of a cent to three cents per bushel, depend- ing on the volume of business handled. This figure pre- supposes efficient business organization, efficient manage- ment and operation. The question of salaries for man- Board of Control of State Institutions 13 agers depends largely upon •whether or not the elevator if; a storage elevator pure and simple, or whether it is also a cleaning, drying and mixing house. A competent superintendent for a straight storage elevator could probably be secured for from $1700.00 to $2500.00 per year, whereas a manager competent to successfully manage a high class cleaning, drying and mixing house would be worth, according to the Board's advices as to salaries now being paid such men, $5000.00 and more per year. As an indication of cost of operation of terminal ele- vators, it may be cited that the State of Minnesota per- mits terminal elevator companies to make a maximum charge of l%c per bushel for receiving, handling, storing iind delivering grain at such elevators for the first fifteen days or part thereof, %c for each fifteen days or part thereof thereafter, or 4c per bushel for continuous storage from November 15th to May 15th next succeeding. This charge is supposed to cover actual cost for handling grain, and such additional profit as the operators are reasonably entitled to. The charges at Lake terminals in Canada for receiving, elevating, cleaning, spouting, insurance against fire and storage for the first fifteen days, three quarters of one cent. Storage for each succeeding day or part thereof, after the first fifteen days, one thirtieth of one cent. PART TWO Summary of the Experience of Canada in the Owner- ship AND Operation of Provincial and Government Grain Elevators. As already stated, during the discussion by the Leg- islative Assembly of Chapter 279, 1913 S. L., under which this investigation and report is made, the ex- perience of Canada in connection with grain market- ing was cited as an illustration for North Dakota to t consider. For this reason the Board has personally investigated the Canadian situation and the results are herein set forth. Strange as it may seem, enthusiastic advocates of a terminal elevator system for the State of North Dakota have been pointing to the Canadian situation as an ex- ample of the complete success of state owned eleva- tors, while those who do not believe the proposal for a system of North Dakota elevators is sound, are point- ing to the same Canadian situation as an object lesson of complete failure of state owned elevators. The facts, when known, leave no question as to the success or failure of Provincial owned and operated elevators in Canada. It should be remembered that the Dominion of Canada is divided into various provinces, corresponding for the purpose of comparison, with our own states. The grain growing provinces are Manitoba, Saskatchewan and Alberta. The Province of Manitoba has tried out and abandoned state or provincial owned and operated elevators. Saskatchewan is now trying out a plan which some refer to as state or provincial owned, bvf which in fact is not in that the Provincial Government has merely loaned a Co-operative Company, composed of farmer stock-holders, a part of the funds with which to operate the system. Alberta, with the experience before it of the Manitoba plan of provincial owned and operated elevators, and the Saskatchewan plan of co- operative elevators, has followed the co-operative plan of Saskatchewan. 16 Report on Terminal Geiain Elevators The Government of the Dominion of Canada, corre- sponding to our Federal Government, has built and placed in operation a terminal elevator at Port Arthur, Ontario, on the northern shore of Lake Superior. In addition, the Dominion Government is now construct- ing interior storage elevators at Saskatoon and Regina. Before the various Canadian Provinces and Dominion Government took up the matter of Provincial and Gov- ernment owned grain elevators, there was considerable agitation among the wheat producers which led up to this action. This agitation was based on certain condi- tions then existing, and they should be given serious consideration at this time by the people of North Dakota who believe the state should go into a similar under- taking. The chief reasons for this agitation were lack of railroad facilities, including lines of transportation and rolling stock; the great increase in wheat acreage, owing to the rapid development of the Provinces; the lack of interior and terminal elevator facilities, which* had not kept up with the growth and demands of the country; and the further fact that two successive grain ■ crops had been seriously damaged by dampness, with /•esulting heavy financial loss to the producers. This latter condition the producers wished to overcome by Provincial or Dominion elevators equipped with drying apparatus. It will readily be seen that the conditions which brought about the Provincial and Dominion owned and operated elevators in Canada, are not the conditions which have caused agitation for North Da- kota owned and operated elevators. As was brought out during the investigation, unless one is fully acquainted with the entire grain market- ing system of Canada, or at least understands its funda- mental principles, it is quite possible to be misled into erroneous conclusions. It must be understood that Winnipeg, the chief grain market of Canada, is not a sample market as is Minneapolis, St. Paul, Duluth and Chicago. Instead of each car of grain being sold from actual sample taken from that car, it is sold on grade as determined by Dominion of Canada inspection. For example, the 1912 wheat crop of Canada was subdivided into 47 grades each of number one, two, three and four Northern, as compared with Minnesota's 7 grades of Spring wheat. As the Canadian grain authorities state, this trading by sample at Minneapolis and other markets in the United States causes elasticity required in grades. Furthermore, it must be understood that the Canadian Board of Control of State Institutions 17 grades for wheat are much higher than those of the United States, both as to quality and weight. The pro- ducers of North Dakota are getting No. 1 Northern for the same quality that grades No. 3 in Canada. In com- paring daily prices of wheat at Winnipeg and markets of the United States this fact must be taken into con- sideration or wrong conclusions are certain tq result. At the time Chapter 279 was under consideration by the 1913 Legislative Assembly, the Canadian experience , in Provincial or Government owned and operated eleva- tors was limited to the Province of Manitoba, and any references made at that time to the .Canadian situation must necessarily have been to Manitoba. The Provincial Government of Manitoba at the urgent solicitation of its people, for reasons already stated, purchased 140 country elevators and built some 30- more, so that in all it owned and operated a system of 170 elevators, costing approximately one million dollars. The first year's business resulted, according to the official report, in a loss of eighty thousand dollars, much to the dis- appointment of the advocates of the proposition. The second year's operations, according to the same author- ity, resulted in a loss of sixty thousand dollars, after which the Provincial Government, thoroughly satisfied that the state or provincial owned and operated eleva- tors were not a practical success, leased the entire system to a co-operative company composed of wheat producers only. The terms of this lease were most favorable to the new Company, in that the Provincial Government paid all insurance, taxes and maintenance of buildings, and charged but 6% rental on the basis of valuation. Notwithstanding these favorable conditions, the first year's operations of the system under the Co- operative Company resulted in a loss, according to their official report, of forty thousand dollars. Last year, being the year 1913, the operation of 'this system under the Co-operative Company, resulted in a profit of four thousand seven hundred dollars. This information, coming as it does from the public history of the under- taking, can hardly be cited to the tax payers of North Dakota as an object of successful ownership and opera- tion of state or provincial owned elevators. Agitation for provincial owned and operated elevators in Saskatchewan resulted in the appointment of a com- mission to investigate and report on the entire question of grain marketing. The report of this body, after a world-wide investigation, advised against provincial 18 Report on Terminal Grain Elevators owned or operated elevators. It did recommend the formation of a co-operative company composed entirely of producer stock-holders, to which company the Pro- vincial Government would loan 85% of the cost of build- ing elevators after the stockholders themselves had sub- scribed and paid 15% of the cost. This plan was car- ried out and according to our information has so far proved quite successful insofar as its 215 interior Cana- dian elevators are concerned. No terminal elevator has been built or operated under this plan, however. Alberta, with the two examples before her, being the provincial owned and operated plan of Manitoba and the co-operative plan of Saskatchewan, has followed the co-operative plan of Saskatchewan and now has in operation a line of 100 country elevators. Asked whether in the opinion of the Saskatchewan Co-operative Elevator Company, provincial owned and operated elevators are preferable to co-operative sys- tems, the general manager of the Company states : "In connection with the interior, our experience has cer- tainly demonstrated as against that of the Province of Manitoba, that the co-operative system is preferable. The , failure in Manitoba and our success in Saskatche- wan is of course one of the great reasons for this opinion. In this country Provincial Government ter- minals have never been considered as a possibility. I am decidedly of the opinion that a co-operative terminal elevator handled in conjunction with a co-operative system of interior storage would be much more desirable than a Provincial Government owned terminal elevator. There are many reasons for this belief, the chief of which is the necessity for a line of gathering houses working in conjunction with the terminal elevator in order to insure the billing of sufficient grain to the terminal to make it pay its way." The elevators built and operated by the Dominion Government are entirely separate and distinct, both as to ownership and operation from those of the various Provinces. Their establishment came as a result of political promises based on agitation for better grain marketing facilities, as the- result of lack of railroad facilities and car shortage, lack of interior elevator storage caused by the rapid increase in wheat acreage, and from lack of grain drying facilities. Other causes for this agitation came from delays in getting inspec- tion returns from Winnipeg, delays in getting returns from the terminal elevators, the diflSculty in borrowing Board of Control of State Institutions 19 money, due to such delays, and the widening stretch between street and track prices as the close of naviga- tion approaches. The grain fields of Alberta lie on the average over 1200 miles from the terminal storage points, and those of Saskatchewan about 800 miles, whereas the most distant shipping points in North Dakota are not over 600 miles from Duluth and Twin City terminal points, and the average are about 350 to 400 miles distant. Ample terminal storage and inspection is thus brought closer to the producer, and alternate shipping routes by rail or water, each well equipped with transporta- tion, storage and inspection facilities, are available to the producers of North Dakota. It will thus be readily seen that the conditions which brought about the establishment of Dominion terminal elevators were not such conditions as now exist in North Dakota. All grain inspection throughout Canada is under the Dominion Government, operated through the Cana- dian Grain Commission, composed of three members with headquarters at Fort William, Ontario. At Winni- peg and other grain markets all grain is inspected, graded, docked and weighed by Dominion Government ofiQcials. All public elevators are subject to the rules and regulations of this grain commission, which there- fore determines the charges that shall be made for handling and storing grain therein. Whereas the ter- minal elevators and interior storage elevators, owned and operated by the Dominion Government, are all con- trolled by rules of this Dominion Grain Commission, any terminal elevator which the state of North Dakota would own or operate in the States of Minnesota or Wisconsin, would be conducted, not according to any laws or rules of the State of North Dakota or its Grain Commission, but entirely by the laws of the States of Minnesota or Wisconsin, in which laws the people of North Dakota would have no voice whatever. Under the Dominion laws, government country elevators, as administered by the Board of Grain Commission, the following matters are given special attention: 1. The licensing and bonding of the elevator and the issuing of rules and regulations. 2. Inspecting the elevator by traveling inspectors, and rendering full and complete reports to the Board as to the conditions and methods of operation at each country elevator. 20 Report on Terminal Grain Elevators 3. Collecting statistics. Quarterly and annual state- ments of a most detailed character are required from each country elevator. 4. Investigating complaints from producers. This has resulted in the appointment of a Shippers' Agent whose duty it is to give particular attention to the interests of the shippers, although he himself is a government official. The Dominion terminal elevator at Port Arthur has now been in operation a full year, a period of time in- sufficient to prove either a success or failure of the plan for government owned and operated terminal ele- vators. From the 1913 crop a fairly good business resulted in a fair financial showing, not allowing for interest on the investment or depreciation. The 1914 crop is small and the business from it through the Dominion terminal elevator is negligible. In our opin- ion North Dakota would not be justified in going into the elevator business, either terminal or interior, with the experience of Canada before it as a criterion. If the Canadian experience has been a benefit it is in demonstrating that a far better proposal than state owned and operated elevators is that system of co- operative grain marketing companies in operation in the Provinces of Saskatchewan and Alberta. The Cana- dian experience also goes to show that many producers who advocate the need for state owned terminal ele- vators do not ship their grain to such terminal eleva- tors after they have once been put in operation at heavy expense to the general tax payer. Many of the thfeories and expectations of advocates of Provincial and Gov- ernment owned elevators in Canada have been found entirely unfounded in actual practice, and there was no hesitation on the part of public officials and those in close touch with the situation throughout the Dominion in stating that co-operative elevators owned and oper- ated by the farmers themselves were much preferable to any system of Provincial or Government owned and operated elevators. PART THREE General Review of the Proposal for the State of North Dakota to Estahlish and Operate a System OF Terminal Elevators in the States of Minnesota and Wisconsin. As heretofore stated, in securing the above informa- tion, much discussion has taken place as to the sup- posed advantages and disadvantages of the general pro- posal for the State of North Dakota to establish and operate terminal elevators in the States of Minnesota or Wisconsin, or in both. For reasons already set forth and for such benefit as it may be to the Legislative Assembly in the further consideration of tlie undertaking, the supposed advan- tages or disadvantages are here given. The ijrice of wheat is of vital importance to the peo- ple of lijorth Dakota. If by any feasible and practical plan the state, as a state, can better the price that would otherwise be paid, such plan is worthy of serious con- sideration. But before adopting any plan which calls for heavy expenditure or responsibility on the part of the state, every possible precaution should be taken in order to guard against failure of the plan, financial loss and disappointing humiliation. It would therefore seem advisable that before determining on any one plan, either to establish terminal elevators within the state or without the state, that every phase of the grain mar- keting business should be carefully gone into, and if abuses are found to exist, or if there is any lack of business eflBciency, and if it is shown they are not susceptible to remedy without actual participation in the grain business by the State of North Dakota, then that would be a proper time to consider any practical plan that might be presented. It is generally assumed that any terminal elevator North Dakota may establish or operate would be con- ducted for the primary purpose of bettering the general marketing of grain for the producers of this state, and not for the specific purpose of making money as a 22 Report on Terminal Grain Elevators strictly business proposition. That terminal elevators^ have been operated at Minneapolis and the head of the Lakes at a distinct loss, or at such low profit as not to warrant continuance is an accepted fact. It is also ad- mitted that certain terminal elevators are today being operated at these points with profit to the operators. Whether this profit is any greater than that resulting from an equal investment in the banking, manufactur- ing, merchandising, lumbering, or farming business, is questionable. And whether the operation of those ter- minal elevators is successful by reason of their being operated in connection with, or as a part of a system of interior country elevators, is another question to be considered. But whatever those terminal elevator profits may be, there is no valid reason why the State of North Dakota, by operating similar terminal elevators at the same points, could not make the same profit, provided the North Dakota elevators were as well located, as well built and equipped for handling grain, had equal financial backing, and were as eflSciently managed and as well patronized as are the privately owned terminal ele- vators. Special attention is here directed to the forego- ing proviso: If it is possible to better the price paid North Dakota farmers for their wheat, then it must come about through one or more of the following agencies: 1. By bettering the quality of the wheat which they produce. 2. Through greater demand for the particular variety of wheat which they produce. 3. By lower freight rates on the wheat which they ship to terminal markets. 4. By the producer bringing his wheat to market in good condition and free from dirt or foul seed. 5. By the producer securing all that his wheat is worth as marketed by a system of inspection, grading, (locking and weighing that is honest and efficient to both buyer and seller and in a real competitive market. 6. By lower handling charges in country or terminal elevators. 7. By a selling system that is based on actual supply and demand and which renders efficient and honest selling service to the producer at moderate and reason- able cost. 8. By eliminating so far as possible the cost of placing the grain from the producer to the ultimate consumer, which in this case is the miller. Board of Control of State Institutions 23 Taking up these possibilities in their respective order. 1. The bettering of the quality of his wheat is a mat- ter entirely within the power of the individual producer and can therefore be eliminated from any discussion of the terminal elevator proposition. The state, through its agricultural agencies, has already endeavored to lend practical aid in this work. 2. The greater or less demand for his wheat is a mat- ter entirely beyond the control or regulation of the state or individual producer unless practically the entire product of the state could be received, stored and handled through a selling agency, established by the state in connection with a state owned and operated system of terminal elevators with sufficient capacity to handle a large percentage of the grain raised in the state, which varies from forty to over one hundred million bushels annually. This would be very difficult to do, for the reason that there are in operation now within the state hundreds of old line elevators that are doing considerable business, besides about an equal number of farmers' co-operative elevators. Many of those farmers' elevators have established connections with commission houses, who are handling the business to the satisfaction of the management of those elevators. The above mentioned systems are handling probably better than 80% of our total product and this being true this proposition would appear to be impracticable. 3. As far as this Board is advised no complaint of excessive freight rates on wheat shipments between points in North Dakota and the terminal grain markets has been made. 4. For the producer .to bring his wheat to market, either local or terminal, free from foreign matter, is also within the power of the individual farmer. That he fails to exercise this privilege is admitted, and as long as he does so this furnishes one point In the pro- posed undertaking to be given consideration. Just so long as the individual farmer fails to clean his grain on his own farm, it must be cleaned either at his local elevator or at the terminal, and in either case he is certain to be the loser. Tlfie question arises as to whether the state should clean the producer's grain and if so where it can best be done — whether at a point where the various railway lines leave the state on the eastern border, or at the terminal markets. In this connection a very important matter to be consid- 24 Report on Terminal Grain Elevators ered is the fact, first, tliat tlie delay in unloading and loading of grain for the purpose of cleaning in transit would result in a higher freight rate, which would prac- tically offset the saving of freight on dirt from the point of shipment to the terminal markets. In addition there would be the extra expense in unloading and loading. It would be practically impossible to establish any rules for fixing grades, which would have any bearing on the final grading at the terminal markets by the Minnesota or Wisconsin inspection department, or that would be satisfactory to the shippers on account of the shrinkage which would follow such cleaning. To us the system of establishing cleaning houses in the state, for the purpose of cleaning grain in transit to the ter- minal markets, is impractical and the only place where this work can be done to the advantage of the producer is on the farm, where the farmer can utilize the foul seed for feed, and eliminate the extra freight charge and expense of unloading and loading in transit. While any North Dakota terminal elevator at the Twin Cities or the head of the Lakes would be able to clean all grain shipped to it by North Dakota producers, and credit whatever value of the same to the shipper, it would not overcome the loss in freight charges thereon. Furthermore, it does not appear that the state would be justified in establishing and operating a system of terminal elevators at the Twin Cities or head of the Lakes for the sole purpose of cleaning grain which should have been cleaned on the farm or at the local country elevator, or at some other point within the State of North Dakota. There would have to be other and stronger advantages in such proposal before it could be advocated as a sound and practical proposition for the state to engage in. 5. Here the very important matter is the system or lack of system of inspecting, grading, docking and weighing of grain. If the wheat produced by North Dakota farm- ers is being sold under an efficient and honest system of inspection, there can be no complaint on that score. If it is not, then this would be another point in the pro- posed undertaking ^to consider. In this connection a very important matter to be considered would be as to whether some form of supervision by the state could be had over the inspection and docking at the local ele- vators where such a large percentage of the producers of the state are delivering and selling their cereals. In so far as the country elevator inspection is concerned, Board of Control of State Institutions 25 which is anything but uniform, it reduces itself prac- tically to the bias judgment of the local individual buyer, who is anxious to show a good profit for his company, as his job usually depends upon such a showing, and the willingness or the necessity on the part of the farmer to accept such grade and dockage as the buyer offers. Naturally and rightly the farjner wants every dollar his grain is worth, and if he receives it then after he has disposed of his grain, through his local elevator, he has no further interest as to what it grades or is docked or whether it goes to the mixing house, miller or into the terminal elevator as he has no further control over nor interest in it. In this transaction between producer and the buyer of the local elevator company, there is no third disinter- ested party to dock, grade or weigh the wheat or other cereals and thereby determine its actual weight or worth. If after a thorough investigation a practical sys- tem of inspectioh and grading could be had for country elevators with proper supervision, in our judgment it would eliminate 80% of the abuses now complained of by the farmers of this state. As to the inspection of grain at terminal points, the Board believes there is a lack of understanding among the producers of North Dakota, that if once cleared up will result in less dissatisfaction to all interested in the marketing of wheat. All grain consigned to the terminal markets or to public elevators at the Twin Cities or Duluth is inspected by the State of Minnesota. All grain consigned to public elevators or commission houses at Superior is inspected by the State of Wisconsin. In order to be thoroughly informed as to this inspection, the members of the Board have personally given it care- ful study and investigation; more particularly that of Minnesota, as most of the wheat from North Dakota is shipped to the terminal markets in that state. From these investigations the Board has no hesitation in say- ing that to the best of its knowledge and belief the producers of wheat in North Dakota, whose grain is inspected, graded, docked and weighed by the grain inspection department of the State of Minnesota, receive the consideration their grain is entitled to. From these thorough investigations we are unable to find that the wheat and other cereals shipped from this state are in any way being discriminated against and it is the opin- ion of this Board that if the inspection is in any way 26 Report on Terminal Grain Elevators unfair to the producers of this state (and we do not charge that it is) then it is equally unfair to the pro- ducers of South Dakota, Minnesota and other states shipping to those terminals. And in making this state- ment the Board is backed by the opinion of Government grain officials of Canada, who have advised us that the Minnesota state inspection is accepted and given first rank by the millers and importers of England. However, the attention of the Board has just recently been called to the fact that there are some complaints on the part of North Dakota shippers with reference to weights at the terminals. As to the justice of those complaints the Board is not now in a position to pass judgment. Although the Wisconsin state inspection is not so well known or established as that of Minnesota the Board is informed that it is very similar. At the same time it should be said that there are some criticisms to the effect that the Wisconsin system is not equal to that of Minne- sota. * For years past there has been agitation for Federal grain inspection, which if installed, would subject all grain consigned to public elevators in Minnesota and Wisconsin, as well as elsewhere, to inspection, grading, docking and weighing by officials of the United States Government. In other words, if such Federal grain inspection system should eventually be established by Congress, wheat shipped by North Dakota producers to public terminal markets at the Twin Cities, Duluth or Superior, would be inspected, graded, docked and weighed by the United States Government, instead of as at present by the States of Minnesota and Wisconsin. There has been opposition to this proposal of Federal inspection, especially by Minnesota officials and some of those engaged in the grain business. We are credit- ably informed that the Board of Trade of Duluth has gone on record as being in favor of Federal inspection, and many grain men in Minneapolis. The Minneapolis Cham- ber of Commerce, we understand, has opposed it as an organization. This opposition, so the Board is advised, is based upon the following claims: That the present Minnesota state inspection is honest and efficient, well established in this and foreign countries and is generally satisfactory to producers and millers when understood, and whatever complaints may have been made either justly or otherwise in the past as to its not being uniform throughout the year, that there is not now any just Board of Control of State Institutions 27 cause for such criticism. However, it is the opinion of the Board that Federal inspection installed on a prac- tical, efficient basis would give more uniform grades year in and year out and that there would be a general feeling of satisfaction among the producers in the knowledge that the Government was inspecting, grading, docking and weighing their grain. 6. Handling charges in country or terminal elevators. Were elevator charges for handling and storing grain less than they now are, the producer would of course receive that much more for his grain. There has been little com- plaint by those who have the facts, that these charges are excessive, as it is readily determined what actual cost for such service amounts to. There is legal regulation in regard to such charges in North Dakota country elevators, and the operation of farmers' co-operative local elevators show what this cost actually amounts to there. At all terminal elevators in Minnesota and Wisconsin these charges are regulated entirely by the state government, and are therefore set at what the Commissions of those states consider fair and reasonable. Should North Dakota establish a system of public terminal elevators in either or both of these states, its charge for handling and storing grain consigned to it by North Dakota shippers would also be regulated by the States of Minnesota and Wis- consin, and unless the State of North Dakota voluntarily reduced these charges at its terminal elevator, they would be identically the same as made by other public terminal elevators for the same service. It should be stated that in determining these charges the States of Minnesota and Wisconsin make them sufficient to cover actual cost of service, and any reasonable profit which they believe the operator of the terminal elevator is justly entitled to. 7. The actual selling end of grain is generally con- sidered the big factor of the grain business. While the present system of selling through the Chamber of Com- merce or Board of Trade has been assailed as unfair to the producer, dishonest as to system, monopolistic as to effect, it has also been upheld as being fair, honest, and offering the fullest competition. Neither side of the ques- tion has yet succeeded in convincing the public opinion that it is entirely right. It is claimed many of the selling abuses which it is admitted existed at one time have since been done away with. If this be true, continual agitation against the system has undoubtedly brought about this re- sult, either through better service by state grain commis- sions or otherwise. 28 Report on Terminal Grain Elevators Until a better system for selling grain is demonstrated to be feasible, it is more than probable that that now in use will be continued. If however, the present methods still contain abuses which deprive the producer of his just returns, constant agitation and publicity will no doubt remove them. If not, unquestionably the Federal Gov- ernment in the near future will establish Federal inspec- tion as well as fix elevator charges for handling and storage, which no doubt would cure all existing evils complained of, if such exist. In just what way a North Dakota system of terminal elevators would overcome any of the alleged abuses or return a better price to the producers of this state is not clear to this Board after making a full investigation; un- less practically the entire product of the state could be received, stored and handled by the state and sold through a selling agency established by the state. To carry out such a plan would first require terminal elevators with sufficient capacity to handle a large percentage of the North Dakota crop, which annually varies from 40,000 000 to more than 100,000,000 bushels. To build such elevators would require millions of dollars. To establish and operate a state selling agency in connection with such a system of terminal elevators would require an additional large sum of money. Without such selling agency, grain consigned to such terminal would eventually have to be disposed of through a commission firm, and in this case, as previously stated, the producers' wheat would have to stand the handling charges of the terminal elevators and the loss of premiums for track wheat. "With such state terminal elevators and selling agency built and ready for operation there would still be the hundreds of old line and farmers' co-operative elevators operating success- fully and generally satisfactorily, in the state. Further- more, in order to do this the State of North Dakota would be obliged, in practice, to operate these terminal elevators as private state owned elevators. They would then not be subject to or governed by the rules and regulations of the Minnesota and Wisconsin Commissions, which rules would require the North Dakota elevators, if public, to provide at all times certain percentages of their capacity for the shippers of Minnesota, South Dakota, and other states should they call for it. As private elevators also, grain consigned there by North Dakota shippers would neither be subjected to nor entitled to the advantages of state inspection. This asfnin would lead to further difficul- ties in selling as buyers would require this state inspec- Board of Control of Statf. Institutions 29 tion and grading as now established, unless Federal in- spection should supercede it. Inquiry of the Twin City millers in this investigation brought out the fact that they only purchased wheat in terminal elevators when track wheat cannot be had, for the reason that wheat in terminals is usually mixed by parties putting it in store, and is what is known to the trade as "line wheat" and further it carries a charge of one-half cent for loading it out and usually a switching charge by the railroad company. This condition, due to competitive buying by Minneapolis, eastern and interior millers, as well as mixers, has given the shippers the ad- vantage of a premium of 2% cents a bushel over the price paid for wheat in the terminal elevators. The millers also state that they would pay no more for wheat in a North Dakota state owned terminal elevator than they would for a like grade in any other terminal elevator. This being true it would mean that if a North Dakota farmer shipped his wheat to the terminal market and had it put in a state owned terminal elevator, he would lose the premium now being paid for track wheat and would also have to pay storage and handling charges, and even with a state selling agency established the handling cost could not be eliminated. 8. The question of lowering or eliminating any or all cost of placing the grain from producer to final consumer, which in this case is the miller, can best be solved, in the opinion of the Board, by a thoroughly organized, amply financed co-operative sys- tem of farmers' elevators, conducted on a practical basis and operating through its own co-operative selling agency. In making this investigation the Board consulted many farmers, business men, and legislators of our own state, grain men, millers, and state officials of Minnesota, Wis- consin and Canada, also such men of known financial and business ability as James J. Hill, E. P. Wells, President of the Russell-Miller Milling Company, formerly of North Dakota, Julius E. Barnes, one of the largest exporters in the country. Dr. Robert Magill, Chief Grain Commissioner for Canada, and many others. Practically none of these men could see any advantage for the producers of this state in a state owned terminal elevator, and most of them predicted financial loss to the state if such a system was inaugurated. Your Board in their investigations found no opposition to the proposition by either grain men or millers at the terminals, but they frankly stated that if North Dakota 30 Report on Terminal Grain Elevators wanted to furnish storage for the mills there could be no reasonable objection on their part. Mr. Hill as well as Mr. Wells was of the opinion that this was what the proposition would eventually amount to. It is the opin- ion of this Board that there is far less wheat exported from the three northwestern states producing spring wheat than is usually supposed, with the exception of Macaroni wheat. Mr. Barnes, a heavy exporter, places the amount of our exports at about five per cent. He says that after supplying the northwestern millers the greater portion of our surplus wheat goes to the eastern millers, who use it to mix with their winter wheat varie- ties in order to improve the grade of their flour. These eastern millers have their buyers on the Chamber of Commerce in Duluth and they are strong competitive buyers, which accounts to some extent for the premium of 2% cents which is being paid for track wheat over wheat in store of like grade. From the investigation the Board has made, both in this country and Canada, it believes the claim that mil- lers of this or foreign countries would pay a greater premium for North Dakota wheat in a North Dakota elevator than they now pay for the same wheat in other public terminal elevators, is without foundation. The same theory prevailed in that country and the Board is advised by the Canadian offlcials that in practice it is found to be erroneous. After a thorough investigation, in which every effort has been made to learn what if any advantages such a proposal might have, and for reasons herein given, it is the opinion of the Board that there is no sound, practical plan by which a terminal state owned and operated elevator erected in the Twin Cities, Duluth or Superior would in any way make it possible for the farmers of this state to get a better price for their grain, and that any investment made in terminal elevators located at any or all of these terminal markets would be a waste of the people's money as well as a humiliating disappoint- ment to the people of the state. However, should it be the judgment of the Legislative Assembly and the tax payers of the state, after mature deliberation, that the establishment and operation of a system of terminal elevators is a proper and desirable business proposition for the state to engage in, the Board recommends that any such system be established on a co-operative basis both as to the elevators themselves and the sellipig agency Board of Control of State Institutions 31 connected therewith. We recommend strongly again&t the expenditure by the state of any money for the erec- tion of new terminal elevators at any and all points, but if the state concludes to go into the undertaking at all we recommend that it rent or lease existing terminal elevators, if such can be secured at a reasonable rental, and thereby try out the scheme at the least possible loss to the state. In filing this report as provided by law, this Board recognises that it is possibly furnishing information not asked for under our instructions, but the proposition of establishing a system of state owned and operated termi- nal elevators, if of a sufficient capacity to accommodate the producers of the state, would involve an expenditure of such a large sum of money by the state, that we feel the fullest information should be given and that the con- clusions of the Board would not therefore be out of place. The expense in making this investigation has been small, and up to date has been paid out of the appropri- ation made for the purpose of conducting the regular expenses of the Board of Control. Since the foregoing report was drafted a proposition to establish a state owned elevator in the City of St. Paul has been brought to the attention of this Board, and also to a great many of the members of the Legislative Assem- bly by Mr. H. Greely who, it is said, represents the busi- ness interests of that city, and also the Equity Co-opera- tive Exchange. Inasmuch as the representatives of these interests is here for the purpose of giving full informa- tion on this important question, the Board feels that it is unnecessary for them to offer any suggestions or rec- ommendations relative to this particular proposal, as the members of the Legislative Assembly have either already secured or can get full and complete information from Mr. Greely direct, and thereafter take such action as in their judgment they think best. State Board of Control, R. S. Lewis, Chairman. F Brewster, J. W. Jackson. ■A'. • -' • • , * ill ■? N '"M ...J^^