THE RURAL BY LH- BAILEY / IRural Science Series EDITED BY L. H. BAILEY COOPERATION IN AGRICULTURE IRural Science Series The Soil. The Spraying of Plants. Milk and Its Products. Enlarged and Revised. The Fertility of the Land. The Principles of Fruit-Growing. Bush-Fruits. Fertilizers. The Principles of Agriculture. 15th Edition. Irrigation and Drainage. The Farmstead. Rural Wealth and Welfare. The Principles of Vegetable-Garden- ing. Farm Poultry. Enlarged and Revised. The Feeding of Animals. The Farmer's Business Handbook. The Diseases of Animals. The Horse. How to Choose a Farm. Forage Crops. Bacteria in Relation to Country Life. The Nursery-Book. Plant-Breeding. 4th Edition. The Forcing-Eook. The Pruning-Book. Fruit-Growing in Arid Regions. Rural Hygiene. Dry-Farming. Law for the American Farmer. Farm Boys and Girls. The Training and Breaking of Horses. Sheep-Farming in North America. Cooperation in Agriculture. PLATE I. — Packing-houses for Oranges. Chapters IV, VIII. A MoDKHN OH.\\<;K I' ACKINCi-HorsK. AN OUANGK PACKING-HOUSE. RIVERSIDE, CALIFORNIA. COOPERATION IN AGRICULTURE BY G. HAROLD POWELL GENERAL MANAGER OF THE CALIFORNIA FRUIT GROWERS' EXCHANGE FORMER ASSISTANT CHIEF OF THE BUREAU OF PLANT INDUSTRY AND FORMER POMOLOGIST IN CHARGE FRUIT TRANSPOR- TATION AND STORAGE INVESTIGATIONS, UNITED STATES DEPARTMENT OF AGRICULTURE Wefa Ifork THE MACMILLAN COMPANY 1914 All rights reserved COPYRIGHT, 1913, BY THE MACMILLAN COMPANY. Set up and electrotyped. Published April, 1913. Reprinted September, 1913; June, 1914. Norfaoot $rtBB J. 8. Gushing Co. — Berwick & Smith Co. Norwood, Mass., U.S.A. PREFACE THIS volume is intended as a discussion of the principles that underlie the organization and management of the Amer- ican cooperative associations in agriculture. The application of the methods of cooperation to the production, handling, distribution, and sale of farm crops and to other agricultural activities, is commanding the attention of farmers, legis- lators, and economic investigators throughout the United States and Canada. The American cooperative movement, even in the oldest cooperative organizations, is in the formative stage. The principles of cooperation are not generally understood, and few persons appreciate the difference between a cooperative organization formed for the benefit of its members, and a corporation formed for pecuniary profit. The so-called cooperative associations in the United States and Canada have usually been formed as corporations for profit, and do not differ in principle from the ordinary stock corporations, although an effort has often been made by the organizers to conduct them along cooperative lines. The development of the agricultural cooperation move- ment needs to be preceded in most of the states by legisla- tion that will permit the formation of non-profit cooperative associations or the formation of profit corporations that can be operated legally for the benefit of the members. The writer has discussed some of the legal questions in- volved, the financing and management of such organizations vi Preface as they have appeared to him as the- result of experience, and a general study of the cooperative question. These principles are then illustrated by showing how they are applied to certain agricultural crops, such as animal and plant improvement, the handling of grain and dairy prod- ucts, cotton and grain, the distribution and sale of crops, and the cooperative purchase of supplies. The application of the cooperative method to rural credit, irrigation, the telephone, and insurance is also briefly discussed. It is not attempted to cover the entire agricultural coop- erative movement in America in this discussion. There are thousands of cooperative societies in the United States and Canada, and an enumeration of their activities would make a volume far beyond the limits of this discussion. G. HAROLD POWELL. Los ANGELES, GAL., February 1, 1913. CONTENTS CHAPTEE I CHANGES IN INDUSTRIAL METHODS (PAGE 1) PAGK Changes in Labor Methods ........ 3 Readjustment in Agriculture has been Slow .... 4 Industrial Methods Difficult to apply to Agriculture ... 4 The Independence of the Farmer 6 Prosperity of the American Farmer 6 The Economic Loss in Rural Efficiency ..... 8 Dissatisfaction among the Farmers ...... 10 Efforts towards Organization ....... 11 Need of Better Business and Better Farming .... 13 Organization Methods still Experimental . . . 15 CHAPTER II FUNDAMENTALS IN COOPERATION (PAGE 18) The Unit must lie in a Restricted Area 19 Agricultural Organization must be Born of Necessity ... 21 The Organization should be Cooperative in Form ... 24 The Membership in a Farmers' Organization . . 25 The Voting Power of Members 27 The Membership Agreement ....... 29 A Citrus Fruit Membership Agreement, as an Illustration . 32 Management 36 Difficulties in Management 37 viii Contents CHAPTER III LEGAL FEATURES OF COOPERATIVE ORGANIZA- TIONS IN AGRICULTURE (PAGE 40) PAOB The Difficulty of organizing under Present Laws ... 42 New Legislation naeded 44 The Wisconsin Law ........ 45 The Nebraska Law ........ 46 The California Law . . . . .... 46 Principles to be included in New Laws 50 CHAPTER IV THE ORGANIZATION OF A FARMERS' COOPERA- TIVE ASSOCIATION (PAGE 52) Charter of a Citrus Fruit Association 52 The By-laws 55 The Federation of Cooperative Associations .... 64 Necessity of a Federation of Associations for handling Farm Products 65 Cooperative Organization of the Federation .... 67 Necessity of preserving the Individuality of the Associations 68 The Organization of a Federation ..... 70 Cooperative Associations and Public Policy Questions . . 73 The Citrus Protective League of California .... 75 CHAPTER V FINANCING A COOPERATIVE ORGANIZATION (PAGE 78) Citrus-fruit Organizations ........ 78 Annual Financing ......... 79 Difficulties in Financing 81 The Payment of Dividends -83 Contents ix CHAPTER VI BREEDERS' AND GROWERS' ASSOCIATIONS (PAGE 87) PAGE Cooperative Cow-testing Associations ...... 89 The Danish Example ........ 89 The Plan of a Cow-testing Association 91 Articles of Agreement in a Cow-testing Association ... 93 The Cooperative Breeding of Live-stock 94 Cooperative Cattle-breeding in Denmark . . . .95 Cooperative Cattle-breeding in the United States ... 97 In Wisconsin 98 Cooperative Cattle-breeding by the Federal Government, the State, and the Farmers in Minnesota . . 99 Cooperative Horse-breeding ....... 105 The Company System of Horse-breeding . . . 106 Cooperative Crop Improvement ....... 109 Organization for Crop Improvement Ill Corn-breeding Associations ....... 112 Plans of the Illinois Corn-breeders' Association . . 115 CHAPTER VII COOPERATION IN THE HANDLING, DISTRIBUT- ING, AND SALE OF FARM PRODUCTS, AS ILLUSTRATED IN GRAIN, DAIRY PRODUCTS, EGGS, AND COTTON (PAGE 120) The Farmers' Cooperative Grain Elevators ..... 122 The Grain-distributing System . . . . . .123 The Method of selling the Grain 124 Origin of the Farmers' Elevators 124 The Plan of a Farmers' Elevator Company .... 128 A Constitution and By-laws of a Farmers' Elevator Company 132 Cooperation in the Manufacture of Butter 135 Organization of a Creamery . . . . . . .137 x Contents PAOK Organization Agreement ...„».. 140 The Status of the American Creamery ..... 144 The Centralizer Creameries ....... 146 A Business System for Cooperative Creameries . . . 148 A Cooperative Dairy Federation in Minnesota . . . 152 The Creamery as a Center for Rural Improvement . . 153 Cooperation in the Distribution and Sale of Milk . . . 153 The Organization of Milk Producers ..... 166 The New York Dairymen's League ..... 159 The Egg Business . ....... 101 From the Country Merchant to the Packing-house . . 162 Some of the Remedies for the Egg Situation .... 164 Changes in the Methods of the Small Egg-buyer . . . 165 Buying Eggs by Quality, not by Count .... 167 Refrigerated Receiving Stations ...... 167 Care of Eggs at the Source of Production .... 167 Marketing Eggs through the Creamery 168 Advantages of this System of Handling Eggs . . . 173 Conclusion on Handling of Eggs through Creamery . . 176 Cooperation in the Handling of Eggs in Other Countries . . 177 Cooperation in the Cotton Industry ...... 182 Conditions surrounding the Cotton Industry . . . 182 The Cotton-distributing System 184 The Dissatisfaction of the Cotton Farmer . . . .185 The Farmers' Union 185 The Charter 186 Principles of the Union 186 Membership in the Union 187 Efforts of Growers to reduce the Acreage of Cotton . . 188 The Maintenance of Prices by Organizations of Cotton Pro- ducers .......... 190 The Effect of the Farmers' Organization on the Price of Cotton 191 Warehouse Policy of Farmers' Union .... 193 Economic Mistakes of the Cotton Growers .... 195 Contents xi CHAPTER VIII COOPERATION IN THE HANDLING, DISTRIBUTING, AND SALE OF FRUIT (PAGE 197) PAGE The Fruit-distributing System 198 Agencies of Distribution 199 The Broker 199 Fruit-distributing and Marketing Corporations . . 200 The Jobber 201 The Commission Merchant ...... 201 The Auction Company 202 The Warehouseman 203 The Retail Trade 204 Abuses in the Fruit Trade 206 The Handling of the Fruit Crop by Cooperative Associations . 212 Bad Handling and the Fruit-rots . . . . . .213 Cooperation in the Harvesting of Fruit 215 The Remedy for Decay in Citrus Fruits .... 216 Cooperation in the Grading and Packing of Fruit . . 218 Methods of insuring Uniformity in Grading and Packing . 220 The Hood River Apple-growers' Union .... 221 Constitution and By-laws ....... 222 The Central Packing- house 226 The Pooling of Fruit ' 227 Cooperative Cold-storage Plants 231 Cooperation in the Distribution and Sale of Fruit . . . 234 The Associated Methods of Selling Fruit . . . .235 A Small Association 236 A Large Volume of Business ...... 236 Perishable Fruit 237 Fruit with Long-keeping Qualities 238 The Citrus Fruits of California 239 Selling the California Citrus-fruit Crop 241 The California Fruit-growers' Exchange .... 241 The Local Associations . 242 xii Contents PAGE The District Exchange 243 The Central Exchange 243 Fixing a Price ......... 246 Present Cooperative Methods of Citrus Distribution . . 247 The Cooperative Distribution and Sale of Other Farm Products . 248 CHAPTER IX COOPERATION IN THE PURCHASE OF SUPPLIES (PAGE 250) The Organization of a Supply Company ..... 250 Method of selling Supplies to the Members ..... 252 A Fruit-growers' Supply Company 254 CHAPTER X COOPERATION IN IRRIGATION (PAGE 258) Progress of Cooperative Irrigation Enterprises .... 259 Methods of Organizing, Financing, and Operating Water Compa- nies in Southern California 261 CHAPTER XI RURAL CREDIT (PAGE 271) National Interest in Rural Credit ...... 272 Cooperative Credit Unions in the United States .... 274 The Jewish Credit Unions 274 The Cost of Credit to the American Farmer .... 277 The Individual Credit System 278 The Crop Lien 279 The Store Credit System 280 Bank Credit 282 The Need of a Better Rural Credit System 283 The Raiffeisen Banks 286 Organization and Management ...... 287 Contents xiii PAGE The Working Capital 287 The Loaning of Mone 288 The Federation of Raiffeisen Banks 289 The Schulze-Delitzsch Banks 290 The Working Capital 291 The Landschaften 291 The New Landschaften . 294 CHAPTER XII THE KURAL TELEPHONE (PAGE 299) CHAPTER XIII MUTUAL INSURANCE (PAGE 308) A Plan for a Mutual Insurance Company ..... 309 The Strength of the Mutual Insurance Associations . . . 311 State Mutual Associations 313 BIBLIOGRAPHY (PAGE 317) General References 322 Cow Testing and Breeding 324 Creameries 324 Dairying 324 LIST OF ILLUSTRATIONS Plate I. Packing-houses for Oranges . . . Frontispiece A Modern Orange Packing-house. An Orange Packing-house. Riverside, California. FACING PAGE Plate II. Orange Packing-house. Pasadena, California . 20 Plate III. Interior of Orange Packing-house. California . 40 Plate IV. Orange Packing-house and Equipment ... 60 Orange Packing-house. Redlands, California. Orange Grading-table and Sizing-machine. Plate V. Interior of Orange Packing-house. Showing Sizing- machines ........ 80 Plate VI. Electrical Orange Weighing-machine . . 100 Plate VII. Types of Citrus Fruit Packing-houses . . . 120 Lemon and Orange Packing-house. Riverside, California. Lemon Packing-house. Upland, California. Plate VIII. Lemon Packing-house. Santa Paula, California . 140 Plate IX. Lemon Washing-machines ..... 160 Plate X. Curing-tents for Lemons ..... 180 Lemon Curing-tents, Showing Fruit Stored in Boxes. Lemon Curing-tents, Showing Fruit Stacked in Trays. Plate XI. Lemon Grading and Packing ..... 200 Plate XII. Trucks for Use in Citrus Fruit Packing-houses . 220 Trucks Used in Movement of a Stack of Lemon Trays. Plate XIII. Oranges Exposed for Sale at Auction. New York . 240 Plate XIV. Buyers Examining Citrus Fruit at Auction. New York 260 Plate XV. Cooperative Creamery. Hutchinson, Minnesota . 280 Plate XVI. Farmers' Cooperative Grain Elevators . . . 300 xv COOPERATION IN AGRICULTURE CHAPTER I CHANGES IN INDUSTRIAL METHODS IN the last few decades, the industrial horizon of this country has been rapidly widening. Fifty years ago, the outlook of the American was bounded by his home and his community; his capital was small, his business interests were equally limited. But, during the period of the Civil War, mechanical invention was greatly stim- ulated and this was correlated with rapid progress in manufacturing and in foreign and domestic commerce. The telegraph, the telephone, the steamship, the modern locomotive, together with the Bessemer steel rail and the wireless telegraph, have displaced the personal mes- senger and the stage-coach and the sailing vessel, and have brought the whole world into instant communica- tion. The last generation has been primarily the age of the inventor, and not only of mechanical appliances, but of business methods as well. Combinations in all kinds of business have been formed, capital has been concentrated around gigantic undertakings, various systems of credit have been developed, and instruments of business devised to extend the influence and power of capital and of those 2 Cooperation in Agriculture who control it. These changes have been accompanied by equally striking modifications in the developing of the industries themselves. In the earlier period, the indi- vidual was self-sufficing. He lived and supported his family on the products of his labor. Then, as communi- cation was extended, social life and the industrial system became more complex, competition more acute, and individuals joined successively, until prevented in some cases by the courts, in partnerships, joint-stock com- panies, industrial pools, trusts, holding companies and mergers, each combination forming a system under which it was supposed at that time the evolution of industrial pursuits could best proceed. At the present time, mod- ern industry is completely dominated by large aggrega- tions of capital. Competition is being gradually sup- pressed and business thoroughly organized and equipped through the concentration of capital under a growing legal regulation for its development and protection. In consequence, the problems arising out of the concentra- tion of capital and the relation it should bear to com- petitors, to the state, and to the individual have become the leading questions of public policy. Under these conditions, the individual holds a new relationship to business and to society. Instead of living on the product of his labor as he formerly did, he lives on its profits. In place of transacting business man to man as his father did before him, he has become a more or less important part of the scheme of modern industrialism. He is no longer isolated. He is a link in the modern industrial and social chain with a corresponding influence and responsibility. Changes in Industrial Methods 3 The changes which have been noted have taken place more rapidly in the secondary industries such as lumber- ing, transportation, and ordinary commercial pursuits than in primary industries which, like agriculture, depend more upon the labor of the individual than upon the organization and arts of man. Capital has not been concentrated in agriculture ; it has instead accumulated in the towns and cities, where it has organized and feder- ated itself into trade and with legislation to develop to the highest extent its own interests. CHANGES IN LABOR METHODS These changes have affected the laboring man as vitally as they have the capitalistic interests. The la- borer cannot deal as an individual with organized capital and adequately protect himself, for under present indus- trial conditions, the barrier between his employer and him- self is almost insurmountable. The capitalization of industry, therefore, has forced the laboring men to organize into labor unions, trades unions, and industrial unions, and to amalgamate or federate these separate units into larger central organizations, the purpose of which is to protect the interests of the members in dealing with their employers, to develop favorable labor legislation, to protect themselves against unjust laws, and to bring about a relationship between themselves, their employers, and society which will enable them and their families to share more fairly in the general prosperity to which their labor contributes. Like the concentration of capital, the organization of labor has almost eliminated free competition from its ranks and has been carried to a point 4 Cooperation in Agriculture where its relations to capital and to society have become a grave question of public policy. READJUSTMENT IN AGRICULTURE HAS BEEN SLOW The American farmer has adjusted himself more slowly to these industrial and social changes than either capital or labor. The reasons for this are partly inherent in the man who works on the land and partly in agriculture itself. The farmer is both a capitalist and a laborer and usually not a specialist in either. His capital is compara- tively small. He is seldom skilled in the art of dealing with men or with modern industrial methods ; he is not primarily a business man. He is more or less isolated. Compare him with the capitalist or the laborer and it will be seen that his vocation makes him more self-de- pendent than either. His daily routine centers around his family and the upbuilding of the home, rather than around the operations of other people or the industrializ- ing of his farming operations. He is naturally conserva- tive. The average individual farmer who is able and intel- ligent can succeed at all times without concerted action with other farmers, while the success of the individual laborer or the small capitalist in later days has been more difficult of attainment unless strengthened by thorough organiza- tion and the federation of similar interests. INDUSTRIAL METHODS DIFFICULT TO APPLY TO AGRICUL- TURE The average farmers are not even specialists in farm- ing. They produce a variety of general crops, each having Changes in Industrial Methods 5 to be handled and marketed through different agencies. The supplies which they use are variable and are secured from different sources. It is only when they become specialists in a crop in which a large community is in- terested, like apples, oranges, tobacco, potatoes, or cotton, and have to develop special facilities for the handling and distribution of the crop, that a group of farmers have a common purpose comparable to the aims of a large manu- facturer or to those of a trade or industrial union. Under these conditions, the farmers do have common problems to meet. They are confronted with similar questions of public policy, they purchase similar supplies, they seek similar markets, they have to face the same ques- tions of production, of transportation, of distribution, and of sale. They are thereby placed in a position where their business lends itself to organization in order that methods may be improved, production cheapened, and that there may be brought about a better handling, dis- tribution, and marketing of their crops and an improve- ment in their relations with other industries. It is, there- fore, a difficult matter to apply to agriculture in general such business methods as have been developed in the secondary industries, or such as have contributed to the progress of the American laborer. It will be shown in later chapters that the methods of organizing capital and labor are not always adapted to the organization of rural problems and that the progress of the American farmer, in so far as it springs from the development of better busi- ness methods, must follow the adoption of practices that can be applied to the business management of the farm and to the organization of agricultural industries. 6 Cooperation in Agriculture THE INDEPENDENCE OF THE FARMER There are conditions among farmers other than those already mentioned that make the organization of their economic relationships difficult of accomplishment, not the least of which is the independence of the farmer him- self. For generations, the tiller of the soil was self-suffic- ing and was bred and trained to depend on his own efforts. As a result of his heredity, his experience, his environ- ment, and of his necessities, he is slow to delegate authority over his interest to any one. Dealing with complicated economic problems or with men has not been a part of his inheritance or of his experience, and, not being skilled in these arts, he underestimates the grade of ability needed to manage a business agricultural organization with which he may become identified, nor is he inclined to cooperate with others in solving common problems. He is likely to be suspicious of the business dealings of his neighbors. In the past, these difficulties have prevented the forma- tion of many agricultural associations and have wrecked others that have been formed ; though these conditions are gradually improving as agriculture becomes more specialized and commercialized, as the farmer becomes more experienced in business matters, and as the social and economic relations of the farmer grow more complex. PROSPERITY OF THE AMERICAN FARMER As a class, the American farmers have been very pros- perous in the last twenty years. They have been reap- ing the rewards of better farming, and of a prosperity Changes in Industrial Methods 7 that has been general. As Professor Bailey says in "The State and the Farmer," good farmers are better off to-day than they ever were before. The prosperity has not always been uniformly distributed, either geographically or among the farming industries, but on the whole Ameri- can agriculture has moved steadily forward, helped to a better understanding of its problems by the state and federal governments, protected by laws that give the farmer a fairer chance in dealing with organized capital, and stimulated by a variety of forces that have been work- ing on the whole group of questions, agricultural, eco- nomic, political, social, and moral, which have come to be known as the rural problem. Under these conditions* the effective organization of farming or of agricultural industries has been well-nigh impossible. To persist, an agricultural organization must be the child of necessity and must crystallize around a vital economic question. It must be primarily an organization for industrial pur- poses, not a society of altruistic idealists formed solely on the principles of universal brotherhood. Its reasons for being must be deep-rooted in the necessity of improv- ing and cheapening cultural methods, of developing better business, of improving the systems of handling, distributing, and of selling the products of the farm, and of strengthen- ing its relationships with society as a whole. The desir- able ideals of mutual helpfulness are more quickly reached, even if indirectly, during the development of the practical business organization. They have a vital force behind them and an influence on rural development such as is seldom attained in farmers' organizations formed for other purposes. 8 Cooperation in Agriculture THE ECONOMIC LOSS IN RURAL EFFICIENCY Notwithstanding the prosperous condition of agricul- ture, the fact remains that a tremendous loss in rural effi- ciency results from the lack of organization among farmers. The tiller of the soil is still meeting single-handed the problems that confront him. As an individual, he is endeavoring to deal with large public policy questions. He has not an even chance in handling that part of his business which lies outside the production of his crops. He purchases supplies in small quantities under an expensive and objectionable credit system. Every- thing he buys — food, wire, nails, twine, fertilizer, transportation, the telephone — is purchased from or- ganized capital, often operating as an unregulated, preda- tory monopoly. Everything he sells — cattle, milk, wheat, poultry, eggs, fruit — is sold to organizations of capital, which also may operate as a predatory combina- tion ; or he may consign his produce to middlemen who, as dealers in the same products, are competitors of the farmers ; to speculators in farm products, or to commission merchants whose operations as semi-public agents are generally entirely unregulated. These remarks are not intended as a general indict- ment of the agencies which handle the products of the farm. It is a statement of a part of the rural problem which has been a vital social and economic issue in more or less acute form ever since it has been necessary to dis- tribute the surplus of the farm to the consumers in town and cities. It is essential to the prosperity of American agriculture and to the welfare of the country that the Changes in Industrial Methods 9 distribution of farm products shall be done by agencies that specialize and equip themselves to perform this particular service. Any other system would lead to an unequal distribution of products and to economic chaos. The distributing agencies have usually not been organized by the producers themselves. They are composed of individuals, firms, or corporations who assume the risks of distributing the surplus supplies of the farm and who bridge the stream between the producer and the consumer. They are the local dealers, the transportation agencies which carry the products to the towns and cities, the brokers, the commission men, jobbers, auction companies, warehousemen, and the retailers, peddlers, and store- keepers who sell the produce to the consumer. As long as these agencies distribute the farm crops uniformly throughout the season at a reasonable cost considering the risks and the investment in the distributing facilities, and as long as they handle their business so that there is an equitable sharing in the profits, they are economically desirable from every point of view. The average farmer is not often in a position to distribute his own crops di- rectly to the consumer. He has neither the capital to assume the risk, nor the knowledge requisite to develop a far-reaching mercantile agency, which requires large amounts of capital and a highly specialized organization. When he steps outside of his sphere as a producer, the average farmer does not often succeed except in the special agricultural industries which have been developed by men of unusual experience and ability. But when the farmer stands by himself in dealing with all of the agencies of distribution, he is at a distinct disadvantage in bargain- 10 Cooperation in Agriculture ing and in protecting himself against aggression. The experience of the present time shows that these agencies, when left unchecked, often become predatory and exploit both the producer and the consumer at the expense of the legitimate share in the nations' prosperity to which each is entitled. Under these conditions, the economic loss to agriculture retards the best development of country life. DISSATISFACTION AMONG THE FARMERS The producers are not unmindful of the position in which the organization of all kinds of industry has placed them. The adjustment between the producer, the trans- portation agencies, the many kinds of middlemen and the consumers is a subject of endless conflict and is a leading feature of the high cost of living and of other present- day problems. Through all the adjustment of the past, there has appeared a rural discontent decreasing or in- creasing simultaneously with the prosperity of the country. There has been a deep-seated conviction among the farm- ers that in the development of our modern industrial methods, the agricultural industries have had their effi- ciency impaired, that the systems of distributing farm crops as well as the sale of farmers' supplies are so handled that the individual farmer who acts alone pays the highest price for what he purchases and receives the lowest price for what he sells; while the distributing agencies, the railroads, the middlemen, and the retailers receive a maximum return on their labor and capital, or at least have organized the distributing system in such a compli- cated and extravagant way that the producer is prevented Changes in Industrial Methods 11 from sharing in the general prosperity to the extent that he feels his capital and labor have contributed. EFFORTS TOWARDS ORGANIZATION This conviction on the part of the farmer has been a source of endless controversy in the past and is now an acute public question. It has crystallized from time to time in different efforts to regulate by law some of the injustices from which the producer thinks he suffers. Soon after the Civil War, it took the form of a widespread agitation, especially in the Mississippi Valley, against the granting of rebates and the charging of extortionate discriminating transportation rates. In one form or another, this agitation has continued to the present time. It has been a leading factor in the passage of the present interstate commerce laws and in railroad legislation in the states, in the Farmers' Alliance Movement, the Populist Movement, in the Granger laws in the West and Middle West, in legislation to regulate public service and private corporations, in the recent tariff discussions, in the consideration of the high cost of living, in num- berless state and federal investigations, and in various political campaigns. The farmers have always been ready to invoke the law to save themselves from the fate of modern conditions. They have endeavored to protect themselves from the abuses of the time by seeking the protection of governmental authority, rather than through the organization of their interests for better business methods and for the mutual safeguarding and develop- ment of their interests. For years, the rural classes have felt that there is too great a difference between the price 12 Cooperation in Agriculture which the producer receives for his product and that which the consumer pays. It has been shown by Secre- tary Wilson 1 that when the consumer buys food for a dol- lar, the producer receives about fifty cents, the other half dollar representing the costs and profits of distribution. This enormous addition to the cost of farm products, equaling the total cost of production plus the farmer's profit, is the price which the nation pays to the present agencies of distribution. Since the beginning of commercial agriculture, there has been an agitation against the abuses of the distributing system. Sometimes corrective legislation has resulted, again it has been followed by the formation of associa- tions of farmers through which supplies may be purchased or the crops distributed and marketed. Such efforts of the rural classes to correct the injustices which they have had to face have been continuous but not systemati- cally directed nor organized. The Order of the Patrons of Husbandry, formed in 1867, the Agricultural Congress in 1870, the Farmers' National Congress in 1880, the Farmers' Alliances about 1875, the Brothers of Freedom formed in the South in 1882, the Farmers' Union, the Agricultural Wheel, the Farmers' Mutual Benefit Asso- ciation, the Western Alliance, the Patrons of Industry, including both laborers and farmers, the New England League, the National Farmers' League, the Citizens' Alliance, and finally the People's party formed between 1880 and 1892 were organized to bring about better rural economic conditions by influencing legislation and to regulate the industries with which agriculture comes in 1 Report of the Secretary of Agriculture, 1911. Changes in Industrial Methods 13 contact. An excellent presentation of this phase of rural activity has been made by Dr. Coulter.1 NEED OF BETTER BUSINESS AND BETTER FARMING The things most needed to bring about a better agri- cultural condition, as pointed out by President Roosevelt in connection with the Country Life Commission, are better business methods, better farming, and better living. The solutions of these questions depend on the farmer himself, aided by state and federal legislation. Their attainment means a further readjustment of the activities of the farmer to present social and industrial conditions. It means that rural methods of thought, rural education, and the business of the farmer must be slowly reorganized so that agriculture will not suffer unduly in its contact with the organized industries. It means that the pur- chase of the things used on the farm, the distribution and the sale of farm crops, and the handling of rural public policy questions must be organized on principles similar to those that have contributed to the present high state of efficiency of capital and labor. It means that the farmer must give more attention to his relations to the community, that farmers must work together, that their common interests must be united in a force strong enough to bring a healthy constructive influence into the upbuilding of a better country life and sufficiently powerful to stand on the same level with every interest with which it comes in contact. It will never be possible, nor would it be desirable, to 1 " Organization among the Farmers of the United States," J. L. Coul- ter, Yale Review, 1909. 14 Cooperation in Agriculture industrialize agriculture to the extent that the secondary industries have been industrialized. The fundamental aim of the farm, as ably emphasized by Dr. Carver in his " Principles of Rural Social Life," is to establish an estate where a vigorous family can be developed and per- petuated. The farm is not primarily a money-making unit. It must furnish an income sufficient to enable the family to enjoy a social life and to have enough for intel- lectual and aesthetic pleasure, but the operations of the farm and the business connected with it must be cen- tered around and be made a part of the family develop- ment. Any movement that through over-commercializa- tion of the farm weakens the building of the home as the fundamental aim is unsound and in the end will prove a loss to the strength and to the best traditions of country life. How far then can the farmer go in organizing agriculture along modern industrial lines? To what extent does agriculture lend itself to business organization? What are the principles of organization best suited to agricul- tural industries? Which are the agricultural industries that are capable of organization? What are the facts that have caused some of the agricultural organizations to succeed, and what are the rocks on which most of them in the past have been wrecked ? How can the methods of marketing, the problems of cooperation, and rural public policy questions be handled in relation to the farmers as a class? These are some of the questions that the farmers all over the country are asking at the present time. They are problems which students of rural economics are considering, which public men are discussing widely, Changes in Industrial Methods 15 and which agitators of the agricultural class are endeavor- ing to answer in their efforts to organize the farmers for class purposes. ORGANIZATION METHODS STILL EXPERIMENTAL To any one who has had experience in agricultural or- ganizations of the business type, it is clear that the whole question of rural economic organization is still in the experimental stage. There have been thousands of busi- ness organizations formed by farmers in the past to pur- chase supplies, to handle farm crops, to convert them into manufactured products, to distribute and sell them, and to bring about a better rural condition generally. Many of these associations are being formed at the present time, and there is every indication that American agricul- ture is just now entering an unusually active period of industrial and social organization. Few of these organi- zations have been successful, and it is probably not over- stating the case to say that still fewer have been founded on principles which if generally adopted would help in the solution of the rural economic and social problem. It is generally true that the so-called farmers' business organizations have not been formed primarily to improve the industrial relations of the farmer. They have usually combined political questions, social and legislative prob- lems, and business enterprise. Many of them have been formed by impractical enthusiasts with high motives but with little business experience, desiring to reform every one except themselves, to wage war on their neighbors who do not affiliate, to fight every competitor, and to found the organization on enthusiasm, altruism, and gen- 16 Cooperation in Agriculture eral discontent. It is a common fault that they have aimed too high to be useful. Many of them have been formed ahead of their time through the efforts of oppor- tunists when there was no real call for organization or when the farmers were too prosperous to hold together. Many have been managed by incompetent local men who have been unsuccessful in business or who have been selected by the farmers because of evidence of local leader- ship rather than for business qualities, and, finally, the great majority of the organizations have been managed by totally incompetent, low-salaried men because the farmers have not realized that a business organization to succeed depends primarily on a manager possessing a high order of business and organizing ability. Such or- ganizations have had a short, violent existence and have died as every business undertaking must when born pre- maturely or when placed in the hands of inexperienced, incompetent leaders. It would be unfair to overlook the splendid efforts of many of those who, in the past, have tried to organize the farmers under a better business system. Many of these enthusiastic men have set forth principles that underlie the most successful organizations of the present time. They may have been in advance of the necessity for organizing. They may have been ahead of the eco- nomic and social ideals of the people whose condition they tried to improve. Their ideas may have been crude and impractical, but they scattered seeds among the rural classes which have been growing and developing more perfectly and which are now reaching the harvest time. Every movement that seeks to reorganize and to establish Changes in Industrial Methods 17 new industrial systems must grow through gradual evolu- tion. Every new movement must have its enthusiasts who hitch their wagons to the stars but who leave the working out of details to a future generation. In the following chapters, an effort is made to point out the principles on which successful industrial organiza- tion among farmers is likely to rest, the legal difficulties of organization, the principles of federation, the obstacles in the way of organization, and the agricultural industries in which business organization is most likely to succeed. CHAPTER II FUNDAMENTALS IN COOPERATION UNDER present economic conditions in America, it is a fundamental principle that a successful industrial organi- zation among farmers must be founded on a special in- dustry, such as cotton, tobacco, milk, butter, poultry, small fruits, truck crops, peaches, apples, or citrus fruits. Farmers who produce general farm crops for which there is a steady demand and a ready market do not always have a common motive for holding together, especially if they are fairly prosperous. If they can sell their prod- uce without difficulty, or do not have to develop special markets or marketing systems, they may be satisfied with conditions as they are. Up to the present time, it has not been possible for American farmers who grow a num- ber of general farm crops to organize for business purposes except in rare instances to supply local markets. The marketing of each product follows well-established lines and these are firmly intrenched in the hands of established marketing agencies, with which few organization managers have sufficient experience or skill to compete. On the other hand, the special industries like those mentioned in the preceding paragraph have to meet special problems of production, of crop handling, and of marketing. In a special industry, the risk is greater, the stake is larger, the attraction is for men with more than 18 Fundamentals in Cooperation 19 the average resourcefulness and initiative. These men have a common purpose, and they are naturally better fitted to meet it. In a dairy section, the farmers are interested in the testing of cows, in the manufacture of cheese, in the sale of milk, in the purchase of feed, or in the establishment and maintenance of a creamery. In an apple section, the growers are interested in the standardi- zation of grades, in uniform packing, in a central packing- house or storage plant, in the purchase of supplies for spraying, for the packing of the fruit or for other purposes. In the citrus industry, growers in California have or- ganized to purchase or manufacture the supplies used in the groves and packing-houses, to build central plants where the fruit of the growers is assembled for packing, to develop markets and to equalize and effect economies in distribution, to reduce the number of middlemen, to handle questions of public policy relating to the industry and systematically to upbuild the industry in other ways. Potato growers, cotton planters, cranberry growers, or other special producers have common problems confront- ing them, which they are naturally fitted to grasp collec- tively but which the individual producer would be unable to meet successfully alone. THE UNIT MUST LIE IN A RESTRICTED AREA It is fundamental that the unit of each agricultural industrial organization formed to distribute and sell farm crops or for other business purposes must lie in a compara- tively small area. The members must be well acquainted with each other, their aims must be similar, and they must grow products of similar quality and character if 20 Cooperation in Agriculture they are to succeed when associated with one another. It is equally important that the membership be a stable one and that the farm lands are not frequently changing hands, a condition which often operates against the suc- cess of the cooperative movement in the newer sections of the country. If the products vary widely on account of differences in the soil, in climate, or other environmental conditions, the grades are not uniform and the producers cannot easily be held in a common organization. The efforts that are frequently made to have a single organiza- tion cover a wide territory are, therefore, not likely to succeed. It is desirable from every point of view that each rural community and each individual should retain its individuality to the greatest possible extent, that it should not have local pride and ambition stifled by too general a mixture with other sections, and that it should be encouraged to build up a local reputation for its prod- ucts that distinguishes it from other communities. The vitality of the country, as Professor Bailey has forcefully pointed out, depends on local and individual initiative, and any effort towards organization that fails to recognize this principle is fundamentally unsound. There have been many attempts to amalgamate the growers of a single crop in different sections into one large organization just as the Knights of Labor formerly attempted to amalga- mate different laboring men into one central organization. None of these efforts have succeeded. The apple-growers of one section may be encouraged to organize to prepare the fruit for market and for other purposes that are local in character ; the growers of another valley a few miles distant where the varieties are similar but the style and Fundamentals in Cooperation 21 finish of the fruit different should be led to form a local organization for the same purpose. For the same reason, the growers of every other local section or in different parts of the same section where the fruit is different in character should organize and develop their own local business problems. Later, as a matter of economy and business efficiency, these different associations may feder- ate and organize a central body to act as an agent in mar- keting the fruit of each association or to furnish the facili- ties for marketing, to purchase the supplies used by all, and to handle these problems that are common to all alike. But each association should preserve its local character by selling its product under a brand that is the exclusive property of that association, thereby holding and develop- ing the local pride and reputation of that section. AGRICULTURAL ORGANIZATION MUST BE BORN OF NE- CESSITY The reason for an industrial organization among farmers must lie in some vital service which it is expected to per- form, if it is to have virility enough to live in the face of the competition to which every new farmers' organiza- tion is subjected. A farmers' business association cannot be formed without competing with agencies already es- tablished. If it is a serious business undertaking, the forces of competition will be directed towards crushing it ; it will be viciously attacked by its competitors ; in- sidious suspicions of all kinds which are apt to influence the average farmer will be circulated regarding it ; it may be crippled by the railroads through quiet discrimina- tion in the furnishing of cars or in the extending of trans- 22 Cooperation in Agriculture portation facilities to its competitors, or by some other influence over which its competitors have control ; and it is likely to fail at the start in the face of the fire which it will have to meet unless it is founded on the bed rock of necessity. Among farmers, who under existing condi- tions are already prosperous, the need of business organi- zation is not usually felt, even though the costs of market- ing and the extravagant profits of the middlemen or the railroads might be greatly reduced. They must feel the pressure of need before they can launch a successful busi- ness association. When the farmers buy their supplies at reasonable prices, and sell their products readily at a good profit, they do not feel the necessity of organiza- tion. It has been the experience of the past that they must feel the need of getting together to meet a crisis in their affairs, and the realization of the need must spring from within and not be forced on them from without by the enthusiasm of some opportunist who seeks to unite the farmers on the principle that organization is a good thing. American agriculture is strewn with the wrecks of associations that were the outcome of high motives and impractical enthusiasm. It will continue to be filled with derelict associations as long as they are formed by professional organizers, by middlemen who seek to control the products of a community, or by impractical farmers who affiliate to fight some evil but who fail to form on a broad, constructive basis for the upbuilding of the busi- ness side of their industry. To unite successfully, a group of farmers in the past have had to feel the effect of hard times, or of oppression by the railroads, a helpless- ness on account of a combination among those who buy Fundamentals in Cooperation 23 their products, or of those from whom they purchase supplies. They must have had big obstacles to overcome, such as long distances to transport their products, inad- equate transportation facilities, unreasonable freight rates, a perishable product to market, or expensive oper- ating costs. In short, if an organization is to be success- ful, the investment of the farmer must be threatened by existing social and economic conditions before he can overcome his individualism sufficiently and can develop a fraternal spirit strong enough to pull with his neighbors in cooperative team work. This is especially true in the older parts of the country where diversified farming is more largely practiced. If he is already successful, he has been slow to embark on the complicated sea of co- operative business. The point of view of the farmer is being gradually readjusted by scientific education and experience, and in time he will unite with his neighbors to bring about better farming, better business methods, and a richer country life. Then it will be possible to inaugurate a new order of industrial agriculture, and a new race of farmers will grow up like those who are settling in the foothills and valleys of the newer western states. Intelligent cooperation among farmers may accomplish all of these things and make for progress in a community such as no unorganized agricultural industry can foster. But successful cooperation develops through a gradual evolution, the mainspring of which, at least in its child- hood, must be grim necessity. If it is born prematurely, it starts with a weak constitution and expires in the first encounter with adversity. It must be formed by farmers who realize that agriculture is passing through a slow 24 Cooperation in Agriculture evolution in its adjustment to modern social and eco- nomic changes, and that the business of the farmer must be handled collectively rather than individually if the farmer is to share equitably in the increasing prosperity which the better organization of all kinds of industry has brought to the country. THE ORGANIZATION SHOULD BE COOPERATIVE IN FORM There are two systems under which a farmers' business cooperative association may be formed. It may be in- corporated as a non-profit corporation where the laws of a state provide for corporations of this character; or it may be formed as a corporation for pecuniary profit with a limitation placed upon the rights of the stockholders and the methods of distributing the surplus earnings, the method of regulating the rights of the stockholders and the surplus earnings being defined by the statute, or the right to regulate them being conferred by the statute on the corporation through the by-laws of the association. If the association is formed as a corporation for pecuniary profit where state laws permit, the capital stock should receive but a limited rate of interest, usually not more than the customary interest rate, each stockholder should generally have only one vote with no proxies, or the votes may be proportional to the amount of product contributed by each member; no one stockholder should hold more than a small percentage of the stock without the consent of the corporation; and the net proceeds of the sales of products should be distributed pro rata on the products contributed or on the purchases of each member. If formed as a corporation without pecuniary profit, Fundamentals in Cooperation 25 stock certificates are not issued and membership is evi- denced by a certificate of membership. In this case, each member usually has one vote or the voting power may be proportional to the product contributed, the customary in- terest may be paid on the capital invested in the corpora- tion, arid, after operating expenses, a reserve fund suffi- ciently large to meet debts and losses and a fund covering depreciation are set aside, the surplus is then distributed to the members in proportion to the amount of business transacted through the organization, either in the pur- chase of supplies, in proportion to the amount of produce contributed by each, or in proportion to other service ren- dered. In the non-profit corporation or in the corpora- tion for profit, the stock or the membership should not be transferable except under rules legally defined by the corporation. THE MEMBERSHIP IN A FARMERS' ORGANIZATION A producers' organization should be composed exclu- sively of farmers who are acquainted and who have con- fidence in each other. If the organization includes those with whom he has business relations but who are not them- selves producers, it is in danger of losing its distinctive cooperative features, and the duration of its existence is problematical. Many farmers' associations are formed through the efforts of local bankers or merchants, or by outside jobbers or commission merchants. Associations formed in this manner may be well organized and may be successfully operated for a time if the policies and manage- ment lie in the hands of the producers. In some of the fruit-growing sections, a broker desiring a position as man- 26 Cooperation in Agriculture ager has organized the growers. An established commis- sion firm has accomplished the same end because it could more readily handle a large business through one channel than with each individual farmer. On the other hand, they are often formed by local business men who have no desire to share in the immediate profits and whose sole desire is to promote the cooperative method in order to bring about a better industrial condition among the rural classes. Organizations that are formed in this way may help a local situation temporarily, but it is unwise for a group of farmers to place themselves in a position in which a marketing, financial, or any other agency can determine its policy or influence or control its management. It has been the experience of the successful farmers' business organizations that its policy and management, the voting power, and the direction of its business operations must rest exclusively in the hands of the producers, otherwise the organization is likely to pass into the control of those whose interest lies in the dividends on the capital stock, rather than in a desire to improve the farmer's condition by the distribution and sale of crops or the purchase of supplies along cooperative lines. It is therefore fundamental that the control of the mem- bership in a farmers' organization should be fixed by rules legally laid down by the directors of the organization rather than rest upon the mood of the individual members or on rules that have no legal basis. Membership in a non-stock organization should be evidenced by a certifi- cate of membership ; in a stock corporation, by a stock certificate. Membership in a non-stock corporation should not be assignable to any other person, nor should the Fundamentals in Cooperation 27 purchaser or any one else who succeeds to the property rights of a member be entitled to membership except under rules legally fixed by the directors of the associa- tion. It has often happened that the transfer of stock from a producer to another person, an act which cannot be prevented when the association is formed as an ordinary stock corporation for pecuniary profit, has resulted in the transfer of the control of the organization to those who may be opposed to the continuance of the organization, or the organization may be controlled by former stock- holders who have sold their land and are no longer en- gaged in agriculture. These difficulties and methods of avoiding them will be more fully set forth in a subsequent chapter. THE VOTING POWER OP MEMBERS As a general principle, the most desirable form of or- ganization is the industrial democracy in which each member has an equal voice in the management and shares proportionally in the benefits and risks with every other member. This type of organization, like the different divisions of American government, is founded on equality in the rights and responsibilities of membership. The basis of the organization is the individual member, a num- ber of whom have joined together to accomplish a mutu- ally common purpose. This is very different from the principle of the stock corporation formed for pecuniary profit. In the latter, the responsibility and voting power and profits of the member are proportional to the amount of capital invested by each. In the stock corporation, capital is the basis of the organization and of its control. 28 Cooperation in Agriculture In the cooperative association, the controlling factor is men; in the other, money. The "one man, one vote" principle of organization is best suited when the interest of each member in the association is approximately equal to that of every other one. Under these conditions, each member contributes equally to the investment necessary for operation, each has an equal voice in the management of the business, and all share pro rata in the advantages and the risks. The object of the organization is to serve the members and to distribute the earnings on the basis of the member's business. The "one man, one vote" principle, however, is not always adapted to industries in which the amount of the product contributed by the members varies widely. In this case, the voting power, property rights, and interests of its members may be unequal and the members may contribute to the investment in the proportion that the product of each member bears to the total product handled by the association, or in proportion to the acreage of each member. Under these conditions, the voting power, property rights, and interest of each member may be in proportion to such contribution, or in the proportion that the acreage of each member bears to the total acreage which contributes to the association, or proportionally in other ways. Among many earnest advocates of the cooperative method, the "one man, one vote" idea is held as a sacred fundamental principle to which there should be no exception. It is an application of ideal demo- cratic principles to business transactions. This is the usual method in the foreign cooperative societies, and as a general principle, it should usually be adopted in America. This Fundamentals in Cooperation 29 limitation has been incorporated in the laws of some of the states which provide for the formation of cooperative associations, notably in Nebraska, Minnesota, and Wis- consin. But experience in some of the most successful American non-profit cooperative business associations, like the organizations of citrus fruit-growers in California in which the property interests of the growers are widely variable, has shown that the grower who markets $100,000 worth of fruit through a cooperative association will not consent, nor should he be expected to stand on the same basis of responsibility in the management of the organiza- tion or in liability as a fellow grower who contributes not more than $5000 worth of fruit. Experience has shown also that the voting power of the members may be equal with a reservation that it may at any time be pro- portional to the product or acreage contributed, with a limit placed on the voting power of large producers, with- out weakening the fundamental principles that distinguish a cooperative non-profit corporation from an ordinary stock corporation formed for pecuniary profit. THE MEMBERSHIP AGREEMENT It is fundamental that the members of a farmers' co- operative organization be held together by a contract or agreement, or by a binding provision in the by-laws to be signed by every member. Voluntary membership is suicidal to a cooperative business organization. The suc- cess of the cooperative movement depends, in the final analysis, on the steadfastness and cooperation of the mem- bers. Their support must be in the nature of a strong conviction that the cooperative principle as a business 30 Cooperation in Agriculture system is right, and their faith and loyalty must be large enough to hold them together in the face of temporary adversity or of the insidious efforts of the opponents of the cooperative method to disrupt the system. Without this loyal support, a board of directors or a manager cannot succeed in the development of an efficient business or- ganization. It is a fact that in many sections, many of the farmers have not shown loyalty to cooperative asso- ciations formed to distribute and sell their products. They have no interest in the general rural movement. They are willing to have their neighbors form organiza- tions and assume all of the responsibilities connected with their development and maintenance. They prefer to sell their products to buyers whenever they can and to have a cooperative association in the neighborhood as a house of refuge through which their crops can be sold whenever they are unable to dispose of them to better advantage in any other way. They know that a coopera- tive association may prevent the buyers from forcing the producer to sell his crop at an unreasonably low price, but they are interested in it only as a means of getting more money for their crops from year to year. There are many other well-meaning farmers who believe in the cooperative movement as a means of giving stability to the crop-marketing system. They do not antagonize it ; in fact, they encourage it in every way and would give it direct support if its stability were in danger. But they will not identify themselves with it because they prefer to act independently while accepting all the advantages it confers on the industry with which they are connected. As a business precaution, a contract or agreement be- Fundamentals in Cooperation 31 tween the association and its members is essential to the development of a stable cooperative enterprise. Unless otherwise provided, the agreement should give the asso- ciation the exclusive right to handle the products of its members, or exclusively to supervise or execute or regulate such functions for the members as it is organized to per- form. The idea of the cooperative organization should be broadly democratic. Each member should be allowed to exercise the fullest discretion regarding the production of his crops, and the handling of such questions as do not conflict with the fundamental principles of the organiza- tion. On the other hand, the association must know definitely what it is expected to do, including the volume of business it is expected to transact, and with that in view, it should have an agreement with its members setting forth in detail the relations and responsibilities existing between each member and the organization. The agreement or the provision in the by-laws should provide that an assessment be levied against every mem- ber in lieu of liquidated damages whenever its provisions are broken. The membership agreement is the founda- tion stone on which the stability of a farmers' cooperative business association is reared. Without it no association can hold its membership together when competing in- terests become active, nor can it attain the degree of stability that is essential to a business undertaking. Ex- perience has shown that those associations are likely to fail that depend on the honor of the members alone to hold them together with no binding legal obligation in addition. In some of the California citrus fruit organiza- tions, the membership agreement provides that twenty- 32 Cooperation in Agriculture five cents per package shall be assessed against every package of fruit sold outside of the association as liqui- dated damages sustained by the association which has in- curred expenses to provide for the selling and marketing of the fruit. In some of the farmers' cooperative grain elevators, the agreements provide that the producer may market his crop outside of the association by paying to the association a commission of two per cent or more of the price received outside. The legality of such special requirements has been called into question in some of the courts when these requirements operate as a penalty rather than as a liquidation of damages. In a recent decision in Iowa affecting the right of a farmers' coopera- tive society to oblige all members selling hogs or produce to any other individual or company to pay into the treas- ury of the company five cents a hundredweight, the court permanently enjoined the association from enforcing such a rule. It held that the association must enter into the open market in seeking business the same as other con- cerns and that the enforcement of the rule as provided in its by-laws compelled any other firm doing business in the same territory to pay to it ten cents more per hundred- weight than the farmers' association. It thereby acted as a restraint of trade. A Citrus Fruit Membership Agreement, as an Illustration The following is a copy of a uniform crop agreement between the members and many of the associations that are affiliated with the California Fruit Growers' Exchange. This organization represents six to eight thousand growers, who have formed more than one hundred local associa- Fundamentals in Cooperation 33 tions through which the fruit is prepared for shipment to be marketed through the agents provided by the cen- tral organization. This agreement shows some of the essential features that should be included in the contract between the members and the association in an organiza- tion formed for the distribution and sale of farm products. The contract may be a separate document or it may be incorporated in the by-laws of the organization. UNIFORM CROP AGREEMENT THIS AGREEMENT, Made the _ day of A.D. 191-, between the — Association, a cor- poration incorporated under the laws of the State of California, and having its principal place of business at in said State, and affiliated with the , a corporation incorporated under said laws for the purpose of marketing California citrus fruits, the party of the first part, and the undersigned citrus fruit-growers of , said State, the parties of the second part. WlTNESSETH : 1. That, for and in consideration of the sum of one dollar, the receipt of which is hereby acknowl- edged by each of the second parties, and of the Sale and covenants and agreements herein contained, each Delivery of the second parties hereby sells and conveys, and of Fruit. agrees to pick, haul, and deliver to the first party, at its packing-house at , in said State, for the purpose of packing, selling, and marketing, all the citrus fruits now growing upon his land and premises, and all that, during the term of this agree- ment, may be grown upon his lands and premises, or any other lands or premises owned by him and situated in the County of _ , said State, at such time or times, and from time to time, and in D 34 Cooperation in Agriculture such quantities, as the first party, or its agent, may direct. 2. The first party agrees to receive, pack, sell, Packing and and market all of said fruit whenever a market may Marketing, be found for the same, which, in the judgment of the first party and in accordance with its rules and regu- lations, shall justify such selling and shipment. 3. The first party agrees to pay to each of the second parties the amount received for his said Proceeds. fruit, less its regular charges for packing, shipping, selling, and marketing the same. 4. If any of the second parties shall, in good Withdrawal faith, sell his said lands, or any part thereof, he shall of Land. be released from this agreement as to all lands sold and conveyed, upon giving notice in writing thereof to the first party. 5. This agreement shall continue in full force Term of and effect from the date hereof until November 1st Agreement, of the year of the date hereof, and for a further term next thereafter of five (5) years. 6. Any of the second parties to this agreement may be released therefrom and terminate and end Suspension the same as to him, by filling a written notice of his of Agree- desire to be so released, with the party of the first ment. part, during the first fifteen (15) days of August of any year during the term of this agreement. 7. The by-laws of the first party and the contract between the first party and its local exchange and the contract between such local exchange and the _ shall be parts of this agreement and By-laws. shall be binding upon each of the second parties except in those particulars in which it is expressly herein stipulated to the contrary. 8. The packing, selling, and marketing of the said Rules and fruit shall be done in accordance with the rules and Regulations, regulations of the first party now or hereafter adopted and observed by it. Fundamentals in Cooperation 35 9. Each of the second parties fully understands that the purpose, among others, of this agreement, is to maintain and to increase to its greatest effi- ciency the present cooperative fruit-selling and mar- keting agency known as the , whose stockholders are the representatives of various sub- exchanges, and the stockholders of which said sub- exchanges are the representatives of the various and numerous fruit associations of the State of California, of which the first party is one ; and that Purpose. to accomplish this purpose it is necessary that each of the parties of the second part shall strictly and fully comply with and perform the stipulations of this agreement on his part, and therefore, each of the second parties expressly stipulates and agrees that he will not sell or otherwise dispose of his said fruit to any person or corporation other than to said first party, as herein provided ; and that in case he shall fail, refuse, or delay to pick and deliver his said fruit to the first party, within five (5) days after demand therefor, the first party shall have the right, at its option, at any time or times thereafter, and from time to time, to enter into the possession Possession, of his said premises and to pick his said fruit, or any part thereof, and take the same to the packing-house of the first party, and pack, sell, and market the same, all at his cost and expense, which said cost and expense shall and may be retained by the first party out of any monies received from the sale of any of his fruit. 10. The actual damages which will be sustained by the first party because of the failure or refusal of any of the second parties to pick and deliver his said fruit as herein provided, and the further detri- ment and injury to the first party because of the effect of said breach upon the and its efficiency, and the expenses to which the first 36 Cooperation in Agriculture party will be put, and the damage caused by out- lays incurred and to be incurred by it in providing means for selling and marketing the said fruit, a~e impossible now to estimate or fix, and, therefore, the same are estimated and agreed upon as twenty- five cents (25f*) for each box of fruit grown or sold, Liquidated which sum shall be allowed in any action brought Damages. by the first party to recover damages for the breach of this agreement by any of the second parties, should the first party elect, as it may elect, to bring such action. IN WITNESS WHEREOF, the said corporations have each here- unto caused its corporate name and seal to be affixed by its Presi- dent and Secretary duly authorized by resolution of its Board of Directors, duly passed and adopted, and all other parties have hereunto signed their individual names and affixed their individ- ual seals. —Association. By . President. By Secretary. Downing _acros. . owning acres. MANAGEMENT The success of a cooperative organization depends on the loyalty and earnestness of the members and on the efficiency of the management. As usually handled, the powers of a cooperative association are vested in a board of directors who manage and control its affairs through officers or agents appointed by it and subject to its ad- vice and direction. A cooperative business organization Fundamentals in Cooperation 37 cannot be handled successfully by a board of directors. The commission form of government without a respon- sible leader cannot be applied to it. It requires a man- ager who is competent to assume the general direction of its business. Like any other successful manager, he must possess business ability of high order, sterling integ- rity, and tact and judgment in dealing with men and affairs. The manager selected may be a man of adminis- trative experience, or he may be selected and developed from the membership. The latter policy is frequently followed in the formation of these associations. This, however, is often a dangerous experiment, and innumer- able cooperative associations have been wrecked as a result of the inexperience and incompetence of the aver- age producer who assumes the duties of a general business manager. Difficulties in Management A cooperative organization is more difficult to manage than an ordinary corporation. In the latter, the stock- holders do not often take an active interest in its manage- ment because they are not experts in the business of the corporation. They select a manager and hold him re- sponsible for the development and execution of their policies, but when a farmers' organization is formed, the farmer is an expert in its affairs to a greater or less extent and he may feel that he is capable of handling the organi- zation, or, at least, of giving active advice regarding the details of its methods. This trait is a valuable asset in a farmers' organization provided the manager is big enough and broad enough and has sufficient skill to utilize it ; and 38 Cooperation in Agriculture herein lies the vulnerable spot in the average farmers' cooperative business association. There are two extremes in the methods of managing a cooperative organization of farmers : one is the method in which the manager be- comes an arbitrary dictator in developing and executing the policies of the association similar to the method in many stock corporations ; in the other, the directors es- tablish the policies and execute them through a clerical assistant. Either system is almost certain to fail in the end. Neither is founded on principles that are adapted to a farmers' cooperative organization. Between these two extremes lies the successful method of management. The manager who succeeds is he who holds the confidence of the directors and the interest of the members, who utilizes the suggestions of the directors and of the members and who shapes them into a working policy, who acts on matters of policy only after the ap- proval of the directors, and who, at the same time, takes the initiative in the development of a progressive, con- structive business policy for the directors to adopt. On the other hand, the manager who fails to hold the confi- dence of the directors or the members, who becomes a dictator of the policies and thereby drifts away from the spirit of the organization, or who is merely a clerk to carry out the undeveloped business policies which a board of directors acting alone is likely to develop will invariably fail. Again, from the standpoint of the association itself, no cooperative organization can succeed if the directors are unwilling to place its business management in the hands of a strong, aggressive, thoroughly experienced, Fundamentals in Cooperation 39 well-paid man and to carry out all of its policies through him alone. Whenever a director or member assumes the duties of the manager either openly or by indirection, the association is bound to face a serious internal situa- tion. Of all the different factors that have been con- tributory, no single factor, unless it is disloyalty of the members themselves or the meddling of members in the duties of management, has operated so strongly against the success of farmers' business associations as the low- salaried, inexperienced, incompetent managers selected by the directors to handle these organizations. This position is not a place to be filled by a popular local leader who has often failed in business, or who has been only moderately successful. There are many association man- agers of this type. They are "good fellows," but they often stand in the way of real progress in the cooperative movement because they have none of the elements of leadership or do not possess convictions of a kind that lead to the upbuilding of the cooperative method. The organization must meet on every hand the competition of organized capital. It has large questions confronting it. The influence of the manager, next to the loyalty of the members, exceeds all other influences, and the suc- cess of the undertaking depends upon his skill and ability in developing, with the directors and members, a con- structive business policy that is able to meet these condi- tions as they arise. CHAPTER III LEGAL FEATURES OF COOPERATIVE ORGANI- ZATIONS IN AGRICULTURE A COOPERATIVE organization is one that conducts its operations for the benefit of its members. The voting power of the members is equal or proportional to the amount of business transacted through the association. The distribution of its earnings is based upon the amount of business transacted for each member, upon the amount of property bought from or sold to the members, or in proportion to other service rendered by each member. Its operations are conducted at cost ; all the surplus earn- ings are distributed pro rata to those who have used the facilities of the organization in the conduct of their busi- ness operations, after operating expenses, depreciation on property, a reserve, and the usual rate of interest on the capital invested in the property have been deducted. A cooperative organization differs fundamentally from the usual stock corporation formed for profit in that that capital invested in the latter is the basis of administration, control, and of the distribution of surplus earnings. In the former, the basis of control is the membership. The stock corporation for profit performs its function in order that the capital invested by the stockholders may earn a dividend. As organized in the United States, a coopera- 40 Cooperative Organizations in Agriculture 41 tive association may or may not have capital stock. If formed as a stock corporation for profit by farmers and managed under the principles of a stock corporation, it is not different from any other capital stock corporation. If, however, it is formed as a capital stock corporation, it may still be cooperative if the law under which it is incorporated defines the methods of voting, the transfer of stock, the limitation in membership, and the distribu- tion of surplus earnings on cooperative principles, or if it permits the members through its charter and by-laws to manage its affairs along cooperative lines. In a coopera- tive organization formed as a capital stock corporation, the capital invested as already pointed out should earn the usual rate of interest, and after operating expenses, depreciation, and a reserve are deducted, the earnings are distributed wholly or in part in proportion to the business transacted through the corporation or in proportion to other service rendered by each member. From the legal standpoint, there has been little attempt by the states to define a cooperative organization, nor is it permissible under the laws of many of the states to limit the rights of members or to define the distribution of the surplus earnings along the lines set forth in the pre- ceding paragraphs. As a general rule, any organization formed by farmers is likely to be called cooperative, though it may be incorporated as a stock corporation for profit, as a partnership, or as a non-profit corporation without capi- tal stock. In the absence of legal definition, it is there- fore impossible to secure comprehensive data covering the extent of the so-called cooperative organizations in the United States. 42 Cooperation in Agriculture THE DIFFICULTY OF ORGANIZING UNDER PRESENT LAWS Under the corporation laws of most of the states, it is generally impossible to organize a business agricultural association on a non-profit cooperative basis. The method of handling an organization must conform to the laws of the state. They must be consistent with the federal statutes and with the articles of incorporation. The laws that govern an organization for pecuniary profit have been enacted primarily to meet the needs of capital, not those of agricultural non-profit corporations. The laws re- lating to non-profit corporations usually cover religious, fraternal, social, scientific, educational, benevolent, or charitable institutions, or other similar associations. The laws governing the formation of membership corporations or partnerships are not adapted to the formation of agricultural non-profit cooperative organiza- tions. The money contributed by each member to es- tablish and maintain the business of these membership corporations or partnerships may be fixed by mutual agreement among the members. The money required for operating expenses in many of the farmers' organiza- tions is raised by withholding certain percentages from the products marketed and not by assessment on the capital contributed by each or by proportional assess- ments of the members. These laws are therefore not adapted to the organization and management of associa- tions formed on the cooperative plan. In stock corporations formed for pecuniary profit, the voting power of the member is proportional to the number of shares held by each member, though in some states Cooperative Organizations in Agriculture 43 the legislatures have placed a limit on the number of votes that each stockholder may cast. This is a right fixed by the statute. The right to sell and transfer the stock is incident to the ownership. It also is a statutory right and not subject to the control of the corporation, though the corporation may have the first option to buy the stock whenever a member desires to sell. The ordinary cor- poration law is therefore inadequate to meet the require- ments of the farmers' cooperative organization. In these associations, it may be desirable to make the voting power of members equal, or proportional to the product contrib- uted, or to the acreage, or to the service rendered by each member. The membership in these associations is confined exclusively to producers and should not be trans- ferable except under rules legally provided by the associa- tions. These restrictions are non-enforceable under the usual stock corporation laws. Many of the so-called farmers' cooperative organiza- tions have been formed under the stock corporation laws of the different states. The control of the membership therefore becomes impossible unless legally provided otherwise, and there is no way in which a stockholder can be separated from the corporation when he withdraws. He may sell his farm and continue as a member until he sells his stock. He can dispose of it to any one who will purchase it, though many associations provide that the stock of a withdrawing member shall first be offered to the association, a provision which is of no value when the association is not financially able to buy the stock ; or, if he retains it, he may become identified with a rival organization and still be entitled to know all about the 44 Cooperation in Agriculture business of the former organization, since the stockholder; as a general rule, has the right to inspect the books of the corporation, if it is done for a specified and proper purpose. As a result of the withdrawal of members through the sale of the farms or in other ways and the transfer of stock, the control of cooperative associations organized under the general corporation laws in different states has often passed into the hands of rivals in business and of non- producers. In most of the states, there is no legal way in which this result can be avoided when farmers' or- ganizations are formed as stock corporations for pecuniary profit. The organization formed for pecuniary profit may, on the other hand, inflict a hardship on the stockholder who is no longer a producer by assessing the stock, which assess- ment he would legally be required to pay, but the benefits of which he could not enjoy, because he would no longer market his product through the organization. NEW LEGISLATION NEEDED To meet the needs of the farmers' business cooperative organization, new legislation is needed in most of the states which will permit the formation of corporations under which business may be conducted on the cooperative plan. Laws of this kind have already been enacted in several of the states, notably, California, Wisconsin, Nebraska, and Minnesota. In England, the cooperative trading associations are organized under " The Industrial and Provident Societies' Act," and the cooperative credit societies under "The Friendly Societies' Act." Cooperative Organizations in Agriculture 45 The Wisconsin Law In Wisconsin, a law was passed in 1911, Chapter 368, Laws of 1911, which provides for the formation of "a cooperative association, society, company, or exchange, for the purpose of conducting agricultural, dairy, mercan- tile, mining, manufacturing, or mechanical business on the cooperative plan." It "may buy, sell, and deal in the product of any other cooperative company heretofore organized or hereafter organized" as a cooperative asso- ciation. The law provides that "no stockholder in any such association shall own shares of a greater par value than one thousand dollars ... or be entitled to more than one vote." It provides that the directors shall apportion the earnings, subject to revisions by the asso- ciation at any time, "by first paying dividends on the paid- up capital stock not exceeding six per centum per annum, then setting aside not less than ten per centum of the net profits for a reserve fund until an amount has been accu- mulated in said reserve fund equal to thirty per centum of the paid-up capital stock, and five per cent thereafter for an educational fund to be used in teaching cooperation, and the remainder of said net profits by uniform dividend upon the amount of purchases of shareholders and upon the wages and salaries of employees, and one-half of such uniform dividend to non-shareholders on the amount of their purchases, which may be credited to the account of such non-shareholders on account of capital stock of the association; but in productive associations such as creameries, canneries, elevators, factories, and the like, dividends shall be on raw material delivered instead of on 46 Cooperation in Agriculture goods purchased. In case the association is both a selling and a production concern, the dividends may be on both raw material delivered and on goods purchased by the patrons." The law provides that no corporation or asso- ciation doing business for profit shall be entitled to the use of the term "cooperative" as part of its corporate or business name unless it has complied with the provi- sions of the act. In Nebraska, a law, Senate File No. 88, defines coopera- tive associations and gives cooperation a definite legal status. The law says, "for the purpose of this act, the words 'cooperative company, corporation, or association' are defined to mean a company, corporation, or associa- tion which authorizes the distribution of its earnings in part or wholly, on the basis of, or in proportion to, the amount of property bought from or sold to members, or of labor performed, or other service rendered to the cor- poration." It differs from the general incorporation law of Nebraska by providing that every cooperative corporation has the power "to regulate and limit the right of stockholders to transfer their stock ; and to make by-laws for the management of its affairs, and to provide thereon the term and limitation of stock ownership, and for the distribution of its earnings." The California Law In California, a law has been enacted relating to the incorporation, organization, management, and coopera- Cooperative Organizations in Agriculture 47 tion of agricultural, viticultural, and horticultural non- profit associations. The law provides that : — "Such association shall not have a capital stock, and its business shall not be carried on for profit. Any person or any number of persons, in addition to the original incorporators, may become members of such association, upon such terms and conditions as to membership, and subject to such rules and regulations as to their, and each of their, contract and other rights and liabilities between it and the member, as the said association shall provide in its by-laws. The association shall issue a certificate of membership to each member, but the said membership, or the said certificate thereof, shall not be assigned by a member to any other person, nor shall the assigns thereof be entitled to membership in the association, or to any property rights or interests therein. Nor shall a pur- chaser at execution sale, or any other person who may succeed by operation of law or otherwise to the property interests of a member, be entitled to membership, or be- come a member of the association by virtue of such trans- fer. The board of directors may, however, by motion duly adopted by it, consent to such assignment or transfer and to the acceptance of the assignee or transferee as a member of the association, but the association shall have the right, by its by-laws, to provide for or against the assignment of membership certificates, and also the terms and conditions upon which any such transfer or assign- ment shall be allowed." The California law states that, " whether the voting power and property rights and interests of each member shall be equal or unequal, and if unequal the articles 48 Cooperation in Agriculture shall set forth a general rule or rules applicable to all members by which the voting power and the property rights and interests, respectively, of each member may and shall be determined and fixed, but the association shall have power to admit new members who shall be entitled to vote and to share in the property of the association with the old members, in accordance with such general rule. This provision of the articles of incorporation shall not be altered, amended, or repealed except by unanimous written consent or the vote of all the members." Under the California law each association may by its by-laws approve — " The amount of membership fee, if any, and the amount which each member shall be required to pay annually, or from time to time, if at all, to carry on the business of the association. " The number and qualifications of members of the association and the conditions precedent to membership and the method, time, and manner of permitting members to withdraw, and pro- viding for the assignment and transfer of the interest of mem- bers, and the manner of determining the value of such interest and providing for the purchase of such interest by the associa- tion upon the death, withdrawal, or expulsion of a member or upon the forfeiture of his membership, at the option of the association. " Permitting members to vote by their proxies, and determin- ing the conditions, manner, form, and effect thereof." Each association shall also have the power — " To appoint such agents and officers as its business may re- quire, and such appointed agents may be either persons or cor- porations ; or admit persons to membership in the association, and to expel any member pursuant to the provisions of its by- laws ; to forfeit the membership of any member for violation of any agreement between him and the association, or for his viola- tion of its by-laws. Cooperative Organizations in Agriculture 49 '' To purchase or otherwise acquire, hold, own, sell, and other- wise dispose of any and every kind or kinds of real and personal property necessary to carry on its business, and to acquire by purchase or otherwise the interest of any member in the property of the association. " Upon the written assent or by a vote of members represent- ing two-thirds of the total votes of all members to cooperate with any other cooperative corporation or corporations for the cooperative and more economical carrying on of their respective businesses, by consolidation as provided in section 653 i of this code, whereupon the effect of such consolidation shall be the same as declared in said section ; or upon resolution, adopted by its board of directors, to enter into all necessary and proper con- tracts and agreements, and to make all necessary and proper stipulations and arrangements with any other cooperative cor- poration or corporations for the cooperative and more eco- nomical carrying on of its business, or any part or parts thereof ; or any two or more cooperative corporations organized under this title, upon resolutions, adopted by their respective boards of directors, may, for the purpose of more economically carrying on their respective businesses, by agreement between them, unite in employing and using, or several associations may separately em- ploy and use, the same methods, means and agencies for carry- ing on and conducting their respective businesses." In some of the states, an effort is now being made to reorganize on a non-profit basis some of the farmers' asso- ciations that were formerly organized under the stock corporation laws. The reorganization presents many difficulties. Two general methods are being followed in bringing it about. When legally possible to do so, it is effected by amending the articles of incorporation under which the association was originally formed along the lines desired. When the articles are not subject to amend- ment, the corporation has to be dissolved, a new corpora- 50 Cooperation in Agriculture tion is then formed on a non-profit basis, and it may take over the property and interests of the former corporation. PRINCIPLES TO BE INCLUDED IN NEW LAWS Those who are interested in the cooperative movement should have the corporation laws of each state examined to determine whether their provisions permit the organiza- tion of farmers' associations on the cooperative plan. If the laws are found to be inadequate, new legislation may be enacted embodying the fundamental features set forth. The present corporation laws of many states may be used as a basis for a new law. If this policy is followed, the cooperative corporation should be given under the new law the right to regulate and limit the right of stock- holders to transfer their stock, and to make by-laws for the managements of its business, to regulate the limitation of stock ownership, and to provide the method of dis- tributing its surplus earnings. Whether these provisions shall be set forth in the law, as they have been to a greater or less extent in Wisconsin, or left for the corporation to provide in its by-laws as they have been in Nebraska, is a detail to be considered in each state. If a new law is to be enacted to cover a non-profit, non-stock corporation, the features of the California law, together with the articles of incorporation and by-laws given on other pages, will be suggestive. Whatever the form of organization, it should be remembered that to be cooperative, the aim of the association should not be pecuniary profit. The capital stock and dividends should therefore be limited, if it is a capital stock corporation ; Cooperative Organizations in Agriculture 51 the methods of distributing the surplus earnings should be under the legal control of the members, or should be defined by the statute : the dividends on stock, if paid at all, should usually not exceed the customary rate of in- terest ; after a reasonable reserve is retained, the basis of distributing the remaining surplus should be proportional to the product contributed or to other service rendered by each member ; and the voting power of the members should be equal, if possible, or proportional to the amount of product contributed by each member or to other serv- ice rendered. CHAPTER IV THE ORGANIZATION OF A FARMERS' COOP- ERATIVE ASSOCIATION THE first step in organizing a cooperative association is to secure a charter from the state, following the method prescribed by the law under which the charter is secured. The application for a charter, which is generally made to the Secretary of State, usually sets forth the name of the proposed association, its general nature and purpose, the term for which it is to exist, the place of business, the number and names of the directors, the amount of capital stock, and such other matters as may be required under the law. CHARTER OF A CITRUS FRUIT ASSOCIATION In order to show some of the features to be provided in a charter, the following articles of incorporation set forth what is included in the charter of some of the non- profit cooperative citrus fruit marketing organizations in California. Provisions of a similar nature, though of course varying in details for different kinds of business, will need to be incorporated in a charter taken out for any business cooperative corporation. 52 Organization of an Association 53 ARTICLES OF INCORPORATION OF THE ASSOCIATION OF ., CALIFORNIA. We, the undersigned, a majority of whom are citizens and residents of the State of California, have this day voluntarily associated ourselves together as an incorporation under the laws of the State of California providing for the incorporation of Agricultural and Horticultural non-profit cooperative associa- tions, and we hereby adopt the following Articles of Incorpora- tion : FIRST, The name of the said incorporation shall be = ASSOCIATION. SECOND, The purpose for which it is formed is without profit and without capital stock to transact the business of receiving, 'curing, packing, and marketing oranges, lemons, and other citrus fruits grown by or under the control of the members of this as- sociation in the vicinity of and tributary to the packing-house of this association at . , California ; and inciden- tally thereto to buy, own, mortgage, sell, or lease sufficient real estate for the proper transaction of its business, to erect thereon a packing-house and all other buildings appurtenant thereto : To acquire, own, hold, sell, assign, or hypothecate any stock or bonds of any other incorporation which may operate in connec- tion with this corporation or its members either in furnishing orchard or packing-house supplies ; marketing its products or affiliated in packing operations. And after deducting actual cost of operation to distribute the net proceeds of all fruit received, handled, and sold among its members pro rata according to the amount, variety, and grade of fruits furnished by its members respectively under such system of pools as may be from time to time established by the Directors. THIRD, The place where its principal business will be trans- acted is , California. 54 Cooperation in Agriculture FOURTH, The term for which it is to exist is fifty years. FIFTH, The number of directors of this corporation shall be _ who shall continue to hold office until their suc- cessors are chosen and qualified ; and the names and residences of those selected for the first year and until their successors shall have been elected and accepted office shall be of _, California. of _, California. SIXTH, The voting power and the property rights and interests of its members shall not be equal, but on the contrary members will contribute to the investment necessary for operation in the true proportion that the number of bearing acres of citrus or- chards owned or controlled by each member respectively bears to the whole number of bearing acres from which citrus fruits are delivered or engaged to be delivered to this association any time during the year such memberships are issued ; and the voting power, property right, and interest of each member shall be in the proportion of such contribution, and under this rule this association shall have power to, from time to time, admit new members who shall be entitled to vote and to share in the prop- erty of this corporation the same as the old members. SEVENTH, A certificate of membership shall be issued to each member of this corporation which shall not be assignable or en- title the assignee to any voting power, property right, or interest except as may be provided by the by-laws of this corporation. IN WITNESS WHEREOF, We have hereunto set our hands and seals this day of 1911. (SEAL) (SEAL) State of California County of On this day of , 1911, before me, _ a Notary Public in and for the county of resid- ing therein, duly commissioned and sworn, personally appeared Organization of an Association 55 known to me to be the persons whose names are subscribed to the within instrument, and they acknowledged to me that they executed the same. In witness whereof, I have hereunto set my hand and affixed my official seal the day and year in this certificate last above written. Notary Public in and for said County, California. THE BY-LAWS After the charter is secured the cooperators are ready to organize and arrange the method of transacting their operations. The incorporators, stockholders, or members meet and adopt a set of regulations for the conduct of the business. The by-laws must be consistent with the state and federal constitutions and statutes and with the pro- visions of the charter itself. The following by-laws include most of the provisions generally set forth in such regulations for a citrus fruit organization. They are adapted to the non-profit citrus fruit marketing organization in California. They con- tain a contract similar in scope to the general crop agree- ment already cited. BY-LAWS OF THE ASSOCIATION We, the undersigned members of the Association, constituting a majority of all the members and having more than a majority of all the votes of said Association, do hereby adopt the following new by-laws of said corporation : 1. A certificate of membership shall be issued to each member, 56 Cooperation in Agriculture who thereunder shall have as many votes at all meetings as he has bearing acres of citrus orchards from which the fruit is being marketed through this Association. The number of such acres shall be fixed by the Board of Directors from time to time as may be necessary or proper and indorsed upon the margin of the mem- bership certificate respectively and a record thereof kept in the books of the corporation. Each member will pay an initial fee of One Dollar for each of such bearing acres, and will further from time to time contribute his pro rata share of all sums required for packing operations, to be paid either in cash or by deductions from fruit sales as the Directors may determine, but all voting power of any member shall cease when he parts with the control of the orchard for which such certificate was issued. 2. Such certificates of membership shall not be assignable, and the assignment thereof shall not transfer to the assignee any voting power, property right, or interest in this corporation except when transferred in connection with the bona fide sale and to the purchaser of the orchard for which it was issued. 3. Any member of this corporation may be expelled by mem- bers representing two-thirds of all the votes of the corporation for any reason which may to them seem sufficient at any general or special meeting, providing the interest of such member in the assets of the corporation be appraised by the Board of Directors and tendered in gold coin to such member within sixty days, conditioned only upon the return and cancellation of his certifi- cate of membership — and upon such expulsion all right of such member in said corporation ceases. 4. This corporation will be affiliated with the in the marketing of its fruit, and will avail itself of the marketing facilities of the and participate in its manage- ment through such representatives as may from time to time be authorized. 5. All deductions which have heretofore been made or which may be hereafter made from sales of fruit to meet subscriptions to the stock of the or other corporation fur- nishing packing-house or orchard supplies for the membership, shall be treated as a packing charge ratably on all boxes of fruit Organization of an Association 57 packed during the year such subscriptions were or will be re- spectively paid. The debit balance of such stock investment shall be inventoried each year as packing-house supplies, and all principal or interest repaid shall be ratably credited to the boxes packed each year as repaid respectively. 6. The Board of Directors may fix the boundaries of the territory tributary to the packing-house of this Association from which fruit will be received and packed, but after a member has been accepted no change shall be made in boundaries which will exclude him without his consent until his property right and interest in the corporation has been appraised by the Board of Directors and the value thereof so found paid to him in gold coin on surrender of his membership certificate. ANNUAL MEETINGS 7. The annual meeting of this corporation shall be held at the packing-house on the second Saturday in September of each year at the hour of 9 o'clock A.M. The Secretary shall mail to each member a notice of said meeting at least two weeks prior to the date thereof. The President of the Board of Directors shall preside at the annual meeting of members ; in case of his absence the Vice President shall preside, and in case of the absence of both, the members shall select a Chairman to preside for the time being. At this meeting Directors shall be elected, who shall serve for one year, or until their successors shall be elected and quali- fied ; and such other business shall be transacted as may prop- erly come before the meeting. In the election of Directors, or the transaction of any other business, each member shall have as many votes as he has acres of bearing orchards marketed through this Association. Proxies may be voted by any member or representative of a member, authorized in writing to do so, such authority having first been filed with the Secretary. Special meetings of the members may be called by the Board of Directors at any time by mailing notices to each member at 58 Cooperation in Agriculture least one week previously thereto, and one-third of the resident members shall constitute a quorum to do business at any meeting of members. At any such meeting, by a majority of all votes, the office of any Director or Directors may be declared vacant, and the meeting may at once proceed to elect Directors to fill such va- cancies. DIRECTORS' MEETINGS 8. The Directors shall hold a meeting immediately after the adjournment of the annual meeting, or not later than one week thereafter and organize by electing one of their number President and one Vice President. They shall also elect a Secretary and Manager, and designate such bank or banks to act as Treasuries as they may see fit. The Directors shall hold regular meetings on the last Tuesday in each month, at the hour of 1.30 P.M. at the packing-house. Special meetings of the Board of Directors may be called by the President at any time, at least one day's notice thereof being given by verbal or written notification. DUTIES OF DIRECTORS 9. The Board of Directors shall have general management of the affairs of the Corporation, authorize all expenditures, make all contracts, and constitute the governing power of the Corpora- tion in all matters of business. They shall elect a foreman, and such other employees as they deem necessary to the proper carrying on of the business of the Corporation, shall fix their salaries, and define their duties. The Board of Directors shall enter into such business relations with the Fruit Exchange or other organiza- tion forming a part of the _ , for the marketing of fruit and such other matters as they deem necessary to best pro- mote the interests of this Corporation, and may adopt such rules and regulations with reference to the officers and members of this Corporation in the handling and marketing of their fruit as Organization of an Association 59 they shall deem best to promote the objects for which this Cor- poration is created. Nothing in this article shall be so taken or construed as to authorize any other organization to incur any debt or obligation on behalf of or which shall be binding on this Corporation, with- out the full consent of the Board of Directors of this Corporation. In case of damage from any cause to any crop, the Directors may exclude such orchard, in whole or in part, from participat- ing in the benefits of this Corporation. In which event the grower may market such rejected fruit to the best advantage, either through this Corporation on his separate account or other- wise. BOOKS AND ACCOUNTS 10. The Directors shall cause proper books to be kept, show- ing the amount of fruit delivered by each member, and the va- riety and grade thereof. The books and correspondence of the Corporation shall be in the name of the Corporation, and each member shall have access to said books and correspondence on any business day during ordinary business hours.' A suitable office shall be maintained at the packing-house, which shall be the office and headquarters of the Corporation. MEMBERSHIP 11. Any bona fide grower of citrus fruits properly tributary to the packing-house of this Association, who shall sign the contract hereto appended, may become a member of this Corporation by contributing his pro rata share of the operating investment in accordance with the Articles of Incorporation. All growers signing said by-laws and contract thereby become members of this Corporation for the entire period for which it is incorporated, subject to the privilege of withdrawal as provided for in Article VII. No new members shall be received into the corporation after the fifteenth day of November, during the disposal of the present crop of each year, except in the case of new purchasers of groves, who may become members with the consent of the Directors. 60 Cooperation in Agriculture DUTIES OF MEMBERS 12. It shall be the duty of all members of this Corporation, and they hereby agree, to sell and market their citrus fruit through the agency of or by means provided and directed or by the agency or agents selected and employed by this Corporation only, and no member shall be at liberty to sell, market, or consign his citrus fruits through or by any other agency than such as are directed and provided or selected and employed by this cor- poration. In case any member of this Corporation does otherwise sell, market, or consign his said citrus fruits, his voting power and interest in this Association is forfeited, and he shall immediately pay to the Treasurer of this Corporation the sum of Twenty-five (25) cents for each and every packed box of commercial weight so sold, marketed, or consigned during the remainder of such fiscal year as liquidated damages ; it being impracticable and extremely difficult to fix the actual damages suffered by this Corporation. In default of such payment, the same may be recovered by action in any court having jurisdiction, in the name of this Corporation as plaintiff. Every member selling or shipping fruit through or by means established or authorized by this corporation, shall pay such equal brokerage per box as may be found necessary to create such a revenue as will defray all expenses necessarily incurred in the conduct of the business of the Corporation. It shall be the duty of all members to see that their fruit is picked and handled in as careful a manner as possible, and all fruit shall be delivered to the packing-house on conveyances with easy springs. Any fruit handled in a careless manner or con- trary to the above rule shall be subject to rejection. And when by a majority of votes the members have adopted cooperative picking of fruit, each member shall have his fruit picked by the Association at such times and in such quantities or proportion as the Board of Directors may direct. PLATE IV. — Orange Packing-house and Equipment. Chapters IV, VIII. OKANCJK PACKING-HOUSE. RKDLANDS, CALIFORNIA. CHANGE GKADING-TABLE AND SIZING-MACHINE. Organization of an Association 61 WITHDRAWALS 13. Any member may withdraw his citrus fruit for any year by filing a notice in writing with the Secretary of this Corporation during the first fourteen days in September in any year, stating that he withdraws his citrus fruits from the control of the Cor- poration for the next ensuing year. The Secretary shall present this notice within ten days from the receipt thereof to the President, who shall immediately sign and deliver a release to the applicant for such withdrawal ; and the record of said withdrawal shall be made in the books of the Corporation. No member shall be permitted to withdraw who shall be indebted in any manner to this Corporation, or have its property in its possession, until such indebtedness shall have been fully paid, or such property restored to the Corporation. GRADING AND MAKING PAYMENTS 14. Picking orders shall be given out pro rata as nearly as possible. Each variety of fruit shall be graded according to quality, and each member shall receive credit for the number of pounds delivered of each variety and grade that may be estab- lished, and receive pay for the same on the basis of what all fruit of similar grade has been sold for, in the particular pool in which his fruit was delivered, less expenses. The net proceeds of sales shall be distributed pro rata from time to time as fast as the returns become available. FUNDS 15. The funds of the corporation shall be deposited upon their receipt by the Secretary with the bank or banks designated as Treasuries, and shall only be paid out on warrants signed by the President or Vice President and the Secretary. BRANDS 16. A brand or brands shall be established which shall be placed on the end of each box of fruit. All boxes shall have 62 Cooperation in Agriculture marked thereon the name and grade of the fruit therein. The brands together with the books and correspondence shall be the property of the Corporation. POOLS 17. The Board of Directors shall have authority to determine into what pools deliveries of fruit shall be divided, both of oranges and lemons. Members may express their preference in the annual meeting, and the Directors will be guided thereby, but may change same when in their judgment it becomes advisable for the best interests of the Corporation. LEMONS 18. Members having facilities for curing lemons and who in the judgment of the packing foreman are properly curing the same may have the option of delivering the same in any month irrespective of the time of picking ; provided, however, that should there be a demand for lemons beyond the supply in the curing house, the manager may call on each member so holding fruit for his pro rata share to supply such demand. 19. Members holding lemons shall be required to furnish the manager at the end of each month a statement showing the num- ber of boxes picked during said month. LEMON POOLS 20. The Board of Directors shall be given the option of making monthly or semimonthly lemon pools, each pool constituting a transaction by itself ; but in all cases before the same comes into effect, the members shall be notified one week in advance. 21. No fruit shall be marketed by this Corporation that does not come through the ordinary channels of membership, and no member shall be allowed to purchase fruit outside of and market it through this Corporation. 22. The expense of curing, packing, and marketing lemons shall be kept separate and distinct from all other citrus fruits. Organization of an Association 63 23. These By-laws may be amended or altered by a vote of two-thirds of all votes at the annual meeting, or at any special meeting called for that purpose. 24. Nothing contained in these By-laws shall be construed to interfere with bona fide sales of orchard property, together with the fruit thereon, and any purchaser of such property may at his option, upon signing the by-laws and contract and either purchasing the certificate of the former owner or contributing his pro rata share of the operating investment, have the same membership rights as the original member. 25. On all questions as to the interpretation of these By-laws, the decision of the Directors shall be final, unless rescinded at a general meeting of the Corporation. 26. All By-laws other than the foregoing are hereby repealed. CONTRACT We, the undersigned, growers of citrus fruits, being desirous of having our fruit handled in a manner substantially as set forth in the above by-laws, do, for such purpose, hereby severally constitute and appoint the , California, a Corporation organized under the laws of the State of California, our sole agent to pack and sell all citrus fruits which may be grown on our respective orchards, during the entire period of membership in said corporation. We and each of us do further agree that all expenses incurred by said Corporation in handling and marketing said fruits shall be paid out of the proceeds of the sale of said fruit pro rata, according to the amount of fruit furnished by each of us respectively, and we and each of us agree to accept for the crop our pro rata share of the net proceeds of the sale of fruit furnished by us, after deducting the cost of packing, selling, and other necessary expenses. Nothing herein contained shall be construed to interfere with bona fide sales of orchard property. Any and each of us who will otherwise dispose of the merchantable fruit grown on the property hereby contracted, during the period of this contract, shall pay to the Corporation the sum of Twenty-five (25) cents for each and every packed box (VI of commercial weight so sold, mMrkctcd. or consigned, MS liqtii- (l.'ttol d.'itnjifcres. -'is provided in the foregoing lly-l.'i.\\s. which :in hereby m;ule ;v purl of this contr:icl. 'I'HK KKOKHATION OK < 'OOI'KK ATI \ K ASSOCIATIONS The business of a cooperative association can be carried on more economically and effectively when a number of them frder.'ile into :i coopcr.'il ive union \\liich reiiresiMils llieni in handling Hie problems Ihnl ;u-(< eoiunioii lo (hem .-ill. I'Voin the business standpoint , I he advuntngo Ihal the cupitulisl derives from I he een( r:ili/:i.l ion of lur^e nniounls of c.'ipit.'il inlo corporations e.-ui be obl.-iini'd l>y the producer l>y I!H> federntion of cooperative associations in a central democratic orgaiii/,:i.lion. The federation can develop a comprelieiisive marketing system; it can reduce tin1 cost of production, of preparing the products for shipment , and 1 he distribution and sale of t he products. Such a cooperative union should be democratic in prin- ciple and not autocratic. It should represent centralized cooperation. It handles the questions that ailed the local associations as their representative or agent, and it can perform this function more economically and elli- eiently because the expense of comprehensive manage- ment is prohibitive in a small association. I, ike the large corporation, a central cooperative union representing a number of associations has a larger influence than a small group of farmers \vorking alone in dealing with trans- portation, legislative, and other public policy questions, in the purchase of supplies, the distribution and sale of products, in the development of markets, and in prevent- Organization of (in Association 05 ing the; enormous WHS tow of fie;re;e> mid unrestrained com- petit/ion. The; principle! of federation may be; earrie;d us fur HH th<; problems of mi industry warrant. The farme-rs of H locality cmi group (JieniKelves into local organizations, the-se; in turn can federate into district associations which handle! the; e:e>mmem problems of the local organizations, and the; district associations in turn may federate into large ;r e:e;ntral cooperative unions which represent the dis- trict associations in handling the; larger questions and the? marketing policie-s for the entire; industry. This system of cooperative federations is already in operation in the; citrus industry in California, and it, is the eommem method abroad e>f handling the; etex'ipcrative; e:re;elit systems, the associations for the- distribution and sale; e>f farm products, ami othe-r cooperative enterprises. N ('WWII]! of a Federation of A HRocicttiona for J1 (nulling Warm Products A federation e>f associations is especially ne;e;ele:el te> hanelle the; distribution and marketing of farm e:mps and to pre>te;e:t the; prexlue;e;r in the; pure;hase; of supplier. There; is a tendency urnemg t,hose; whe> hamlle; the: cemiinem necessities of life; to e>rgani/e; in sne;h a manner as te> re;- strict comj)(ititie)n, to re-gulate; t,he; sale; e)f prexluce;, and the; prieie paid to producers, anel to contrejl the; price:s that the consumers have; to pay. It has be;e;n shown by an investigation of the Attorn<;y-general of New York State; * 1 Report of tho Attorney-gonoral in tlio MuUnrof Milk Investigation, Senate Dormnotit ND. 4.r>, 1010. 66 Cooperation in Agriculture that the control of the milk supply of New York City is in the hands of a few large corporations and associations of milk dealers, that the price which the New York State dairyman receives for the milk does not often exceed the cost of production and sometimes falls below the produc- tion cost, and that the price which the consumer pays for bottled milk and milk in other forms has been generally and arbitrarily raised at different times in the past. It has been shown also that the large dealers in milk have used coercive methods to prevent independent dealers or any other agency that might improve the condition of the dairyman from establishing a milk trade in the city of New York. The wheat and corn growers of the Central West faced a similar condition a few years ago as a result of the arbitrary action of the line elevators and independent elevator companies who coerced the railroads and the re- ceivers of grain to the extent of making it impossible for an individual grower to market the crop except under conditions which they dictated. The individual producer of beef or pork is in the same condition as a result of the meat industry having passed into the hands of a few large corporations which are in position to dictate the price of live-stock. An individual grower cannot cope with a situation of this kind. A small association can adopt rules of grading and can standardize and economize in preparing the product for market, but it cannot develop a comprehensive system either to meet competition or to develop markets, nor can it handle the general problems that affect an industry in a larger way, though it can manage these questions more effectively than the individual who acts alone. Organization of an Association 67 When several associations have been formed to handle the product of an industry, like potatoes, apples, milk, butter, poultry, citrus fruits, or cotton, the associations in each special line can organize a marketing agency to provide the marketing facilities for them all. This agency can develop markets for the associations by advertising or in other ways ; can furnish daily information on the condi- tions of the markets to all of the associations ; it can take the necessary steps to meet unfair business competition and act as an agent in securing supplies, in handling the transportation, legal, and other general questions that affect all of the associations alike. Cooperative Organization of the Federation The central federation should be organized on coopera- tive principles, and the dominant feature in its manage- ment should be cooperation and not centralization. The membership of the federation is composed of the associa- tions, and each is represented on its board of directors. Each association preserves its own freedom and individual- ity but they join together under a legal form to promote the business interests of the industry. The federation may be formed on a non-stock basis or with limited capital stock and with the fundamental cooperative principles as set forth in the preceding pages included. No divi- dends greater than the customary rate of interest should be paid on the stock. The federation should perform its functions for the associations at cost. The money needed for operating expenses should be raised by assessing a fixed amount per unit of material sold, or by an arbitrary retention of a fixed percentage on the gross sales. The 68 Cooperation in Agriculture surplus earnings at the end of the season are prorated proportionally to the associations, or deficits are met by proportional assessments. Necessity of Preserving the Individuality of the Associa- tions While there must be a complete unity of management, it is fundamental that a central federation shall be formed so as not to destroy the initiative and individuality of each locality or of different groups of farmers who may be asso- ciated for a common purpose in the same locality. It may permit a large individual producer to market his produce through it, the central agency handling the prod- uce of the individual grower on the same basis as it handles the produce of the associations. In this way, a large grower who would otherwise dispose of his crops as an individual will often become identified with the coopera- tive movement. He will reap its benefits and will give to it his experience and advice. The central agency should not attempt to consolidate or amalgamate the growers of the different associations into one central body, nor should it dictate or control the policies of the local organizations. The local organizations must be preserved with a large amount of freedom and individuality. To amalgamate farmers into one large central organization will kill local pride and ambition. It is fundamentally wrong in prin- ciple. On the other hand, it is sound public policy to preserve the local associations by federating those that are formed for the same special purpose into a cooperative central agency through which their respective businesses Organization of an Association 69 may be carried on more economically, while yet retaining their local freedom and individuality. The central organization, however, should cooperate with the district and with the local associations in build- ing up the cooperative spirit among the members. It should assist in the organization of new associations or district divisions by helping secure the charter, constitu- tion, and by-laws and in such other matters as tend to perfect the organization. It should cooperate with the local associations in establishing the most approved methods of management, of accounting and other details of operation. It should be given authority by the di- rectors to place experts in the field to help in the standardi- zation of the handling, grading, and preparation of farm products for market, so that there may be established standard grades that have a definite meaning with the trade, and it should have the authority to advise and assist the local associations in every way that builds up the cooperative movement. It has been found in European countries that the cooperation of central organizations with the local asso- ciations has been a leading factor in the successful es- tablishment of the cooperative method of conducting business. The experts sent out by the central body be- come a strong educational factor among the cow-testing, cattle-breeding, butter-making, egg-shipping, and crop- distributing associations. It is the only practical method of standardizing the grading and preparation of the farm products for market, because the local associations when left to themselves vary widely in the efficiency of manage- ment and cannot attain that uniformity in their products 70 Cooperation in Agriculture that is essential if the central agency is to develop the most reliable and comprehensive marketing plan. The Organization of a Federation In some of the states, central agencies have been formed under the laws which permit the consolidation of corpora- tions formed for pecuniary profit. The laws of most of the states do not provide for the consolidation of coopera- tive associations into central federations which operate on cooperative principles. The right to form these cen- tral agencies should be incorporated in the laws of every state. If the organization is formed to bring about the advantages of the cooperative plan, it may operate with a reasonable degree of satisfaction even under the form of a stock corporation for profit. Usually, however, these central agencies are formed as stock corporations for pecuniary profit, and, like any other corporation of this type, the stockholders are primarily interested in dividends rather than in the general welfare of the farmer. To illustrate, an organization has recently been formed to act as an agent for individuals and for associations in selling fruit and vegetables. Prominent fruit-growers have become directors, under the supposition that it is formed as a cooperative organization. In reality, it is a stock corporation formed among the fruit-growers by men whose object is to make money by handling the growers' products. The majority of the stock is held by the officers who organized it and who were former fruit- dealers. The voting power of the stockholders is pro- portional to the amount of stock held. Therefore, the promoters control it. Dividends are declared and paid Organization of an Association 71 out of the surplus profits as often and at such times as the board of directors may determine. It sells and dis- tributes the fruit at a cost of 5 per cent on the gross sales. It has no contract with the growers, and, like many others, it is a loosely formed organization promoted by dealers who are interested, not in fruit-growing, but in stock dividends, surrounded by a glamour of cooperation, operating primarily for pecuniary profit and under the absolute control of the exploiters who organized it. It is not to be inferred from these statements that all of the corporations formed to handle farm products for pecuniary profit have been without benefit to the producer. In many sections the farmers are not ready for the co- operative method of conducting their business. Under these conditions, a corporation for profit controlled by the producers may be formed and may bring to the farmer a larger return for his crops than he would have gained had he attempted to market them alone. In some in- stances, these corporations have successfully marketed the crops of a community and at the same time have paid dividends on the capital stock of 20, 30, and even 50 per cent to the grower-stockholder, the dividends aris- ing from profits made on supplies sold to the members and from the surplus above operating expenses when the corporation operated on a fixed percentage of the gross sales. On the other hand, many corporations have been formed by the trade to distribute and market farm products for the producer. In some, the stock is owned jointly by the trade and by the producers as individuals or by associations of producers. These latter organizations are usually 72 Cooperation in Agriculture organized and managed by the trade, and the producers are included as a means of giving them better standing among the farmers. These organizations may help a local situation temporarily, but they can have but one ending, either the producers or the trade will eventually gain control and operate the corporation for their special benefit. It is an impossible condition for the trade and the producers to manage a marketing corporation jointly. Their interests are antagonistic, and the final outcome is a divorce of the two interests or the absorption of one by the other. A striking example of this kind was an at- tempt made by the citrus fruit-growers' organizations and the speculative shippers of California a few years ago to form an agency through which all of their products should be distributed and sold. The plan was ambitious, the agency was formed, and at the end of a year and a half it was dissolved because it was fundamentally unsound to attempt to amalgamate these antagonistic interests in one general organization. Similar efforts are being made at the present time in other industries, and they will con- tinue to be promoted in the future by either the producers or by members of the trade who are unable to handle a marketing situation alone ; such efforts Avill not solve the business problems of rural life, their ultimate effect is likely to retard the cooperative movement and the development of an industry. We desire to convey in these remarks the fact that these growers' and shippers' organizations formed for pecuniary profit are not organized on the cooperative plan. Their aim is to handle the dis- tributing business a little more economically and efficiently than the individual can do alone and earn enough to make Organization of an Association 73 a profit on the capital invested. The degree of success depends on the character of the men who organize and manage them. If the stockholders are composed largely of growers, the organization is likely to be conducted with some of the cooperative features included, but if it is com- posed of fruit-dealers and shippers who have little interest in the production of crops, then, like any other corpora- tion, the primary object is to handle the farmers' business in such a way as to bring to the capital invested the larg- est possible return. Under these conditions, the coopera- tive organizations may be systematically exploited by those who represent them in the marketing of their products. The cooperative method of conducting business is growing rapidly in favor in the United States. It is dis- cussed widely by educators, legislators, and by the public press. Already there are many signs that the stock cor- porations promoters are laying plans and are at work to induce the farmers to organize so that their business may be handled more effectively by those who are interested in their formation. These movements need to be scanned carefully before the producer identifies himself with them. If they are formed as money-making projects for the pro- moters, they will not help the American farmer reorganize his business operations in a way that will promote the solution of the rural economic problem. Cooperative Associations and Public Policy Questions One of the grave dangers that confronts a cooperative organization is the temptation to take part in partisan political questions. There are many enthusiastic farmers who try to commit their organizations to candidates for 74 Cooperation in Agriculture office, or to one phase or another of a controversial ques- tion. There are also many skillful politicians who en- deavor to secure the support of the farmers' organiza- tions in the interest of either measures or men, and, in the heat of a political campaign the members of an organi- zation, who as individuals are interested in practical politics, often use every effort to secure the indorsement of the association of the measures or men in which they are interested. An organization formed by the farmers for industrial purposes should not indorse candidates for office or take part in a movement that is primarily political. There may be public policy questions of an economic nature, such as the tariff, railroad rate legislation, and other legis- lative questions that affect the welfare of the industry, on which it may be advisable for an organization to express its judgment or to take an active part in the shaping of the public policy affecting it. But even on these ques- tions, a farmers' organization formed for industrial pur- poses should be slow to act and should only express it- self when a vital issue is involved. There are members in every farmers' organization of widely different shades of political conviction. It is a common practice of the opponents of the cooperative method to endeavor to have an association commit itself on a political question or to indorse a candidate for office in order to create dissension among the members. Any such action on the part of an association is sure to create dissension and in the end to disrupt an organization. A cooperative organization that is formed to distribute farm products or to purchase supplies or for any other Organization of an Association 75 special purpose should confine its efforts in that direction. A distributing organization, for example, cannot handle the public policy questions that affect the industry outside of the marketing problems without more or less friction with other similar organizations. There is usually a strong rivalry among these associations, and it is difficult to secure the cooperation of all of the organizations in an industry in handling a general question which affects them all alike. If an attempt is made to handle a public policy question through any one of the existing distrib- uting organizations, an agricultural industry is almost sure to fail in an effort to meet and solve the transporta- tion questions, the state and national legislative questions and other public policy matters that affect it. The Citrus Protective League of California The California citrus industry has formed a volun- tary organization known as the Citrus Protective League to handle the public policy questions that affect the in- dustry as a whole. A brief discussion of this League will indicate the opportunity for organization along these lines. The League represents about 90 per cent of the shippers and shipping organizations in all parts of the state in handling such questions as railroad rates and transportation problems, customs tariffs and other gov- ernmental relations, state and federal legislation that applies directly to the citrus business, and all other ques- tions of a general nature that affect the upbuilding of the industry, except the marketing of the fruit. The citrus industry of California represents $150,- 000,000 to $200,000,000 capital invested. Ten to fifteen 76 Cooperation in Agriculture thousand growers cultivate the fruit, 100,000 people depend on it for a living, and from 15,000,000 to 20,000,000 boxes valued at 20 to 35 million dollars are shipped annu- ally from the state. The industry is very highly spe- cialized. None other in agriculture is held together by larger common interests or is brought in closer contact with organized business on every hand and has larger public policy questions confronting it. The League makes it possible for all of the shippers and growers to stand together in handling the general questions that affect the industry and through which they may cooperate in the general upbuilding of the industry. It avoids all questions that lie within the province of the established marketing agencies. It keeps away from political questions. It vigorously defends the growers and shippers whenever their interests are jeopardized by legislation, by unjust railroad rates, or by other public policy relations. It develops a constructive policy for the improvement of the cultural practices of the growers and of the fruit-handling methods of the shipper and then secures the cooperation of the state and federal agencies best adapted to the investigation and upbuilding of these lines. The League is a unique organization among the agricultural industries of America. It is applying the methods that have contributed so much to modern in- dustrial progress to the problems of the orange and lemon grower. It is a voluntary organization formed by grow- ers, shippers, and shipping organizations. It is sup- ported by funds raised by general assessment based on the number of cars of fruit shipped by each member dur- ing the preceding year. Organization of an Association 77 The work of the League has had a far-reaching effect on the industry. It has brought about reductions in the freight and refrigeration rates on citrus fruits that have saved the producers millions of dollars, the reduction of 10 cents per hundred pounds in the orange rate in 1907 adding more than four million dollars to the income of the growers in the five years following. It secured through Congress an equalization of the tariff duty between oranges and lemons by securing an increase in the duty on lemons equal to the difference in the cost of producing the lemons as compared with the oranges, the duty on lemons now being 1^ cents per pound and on oranges 1 cent per pound. It brought about a change in the federal regu- lations regarding the determination of decay in imported fruit which has protected the California industry against unfair competition, and it has secured the cooperation of the state and federal governments in the investigation of the nutrition troubles in citrus groves, in the study of citrus by-products, and in other questions that affect the upbuilding of the industry. CHAPTER V FINANCING A COOPERATIVE ORGANIZATION THE financing of a farmers' cooperative organization may be handled in several ways. The most common methods of raising money to establish a non-profit asso- ciation are the assessment of members, membership dues, and a contribution by each member in the proportion that his acreage or product bears to the total acreage or product handled through the association. After the charter is secured and the organization is formed, the usual method of securing money to erect buildings or to supply the equipment needed is to give a corporation note to a bank as security for a loan, and then to repay the bank with money raised in any of the ways already noted. If the organization is incorporated as a stock corporation for profit, the funds may be raised by the sale of stock, by adopting the method described above, or by a combina- tion of both methods. CITRUS-FRUIT ORGANIZATIONS The citrus-fruit marketing associations in California, though desiring to operate on the cooperative plan, were nearly all formed under the stock corporation laws, be- fore the non-profit agricultural association law was enacted. A brief review of their methods will be suggestive. 78 Financing a Cooperative Organization 79 These associations each required a packing-house and equipment costing from $10,000 to $40,000 in which to prepare the fruit for shipment. They were usually organ- ized with a capital stock varying from $10,000 to $50,000. The stock was issued in shares of $1 to $5 each, and was sold to citrus-growers only. Each grower could buy stock at the rate of one or more shares per acre, depending on the rule laid down by the directors. In other asso- ciations, the number of shares an individual could hold was often limited in amount. The land on which the packing-house was built was purchased or was sometimes leased from the railroad alongside of which the house was erected. The paid-in stock furnished part of the money with which to supply the facilities. In addition, the corporation secured funds from a bank by giving a corporation note as security and repaid the bank through a period of years by withholding certain percentages from the sale of fruit. These organizations, though stock associations, were not organized for pecuniary profit, and no dividends are paid on the stock. When the association is formed as a non-profit corporation, the money needed to build and equip the packing-house is secured on a corporation note and repaid by withholding a certain percentage of the proceeds of the sale of fruit, or by assessing each package sold, a definite amount. ANNUAL FINANCING In either the stock or non-stock corporation, the money needed to pay the operating expenses during the first few weeks of the season, including the purchase of supplies and the payment of labor, is usually secured from the banks 80 Cooperation in Agriculture on corporation notes and is repaid from the proceeds of the first shipments of fruit. Sometimes it is taken from a reserve fund accumulated for this purpose. The money needed by the cooperative organization or by stock cor- porations to cover operating expenses throughout the season is usually provided by retaining a certain percent- age of the gross amount realized for the produce, or a fixed assessment per package or per weight or other unit of measure may be fixed and retained by the association. In the fruit-distributing organizations, the amount re- tained varies from 5 to 10 per cent of the gross sales. If the sale takes place on the owner's farm, the amount retained by the association may be smaller. If the oper- ating expenses are provided by retaining a fixed amount per package, per hundredweight, per bushel, or other unit, the amount to be retained is arbitrarily fixed by the direc- tors from time to time. After paying out the operating costs including rent, insurance, brokerage, reserve, and other expenses, the surplus earnings are paid as stock dividends in a stock corporation, or are prorated to the fruit of each member in proportion to the fruit shipped in a cooperative organization. In some of the associations that have been incorporated as corporations for profit, a certain proportion of the surplus is first paid as dividends to the stock, and the remainder is prorated to the members in proportion to the business transacted. This latter system is followed in many organizations which have been obliged to organize as stock corporations for pecuniary profit but which desire to operate on the cooperative plan. Some of the stock organizations make a profit on the supplies furnished the members, on the money loaned to o PL, o a. Financing a Cooperative Organization 81 the members, and on other financial transactions, and in this way increase the stock dividends, the reserve ac- count, and the amount prorated to the members. DIFFICULTIES IN FINANCING In a section where the cooperative plan is not an es- tablished method of conducting business, it is sometimes difficult to finance a new cooperative organization. Ex- cept in a few sections, the cooperative method is new to the banker. The organizations are often formed by irre- sponsible or inexperienced farmers who do not inspire business confidence, and who are not entitled to liberal credit consideration. They are often attacked by their competitors, who may influence the banks in which they are interested not to extend credit. Under these condi- tions, the banks naturally pursue a conservative course, corporation notes are not always acceptable as security for loans, and the responsible directors of the associations may be required to give personal notes as additional security. As soon as the cooperative plan is successfully established, the banks and other business institutions rec- ognize that the method adds stability to agricultural credit. The personal notes of the directors are then no longer required for security, and the corporation note takes its own place as the most common form of associa- tion credit security. Another serious credit difficulty that the cooperative association often meets is the in- ability of the banks to loan more than a certain proportion of their capital stock to any one corporation. In Colorado, where the limit is 10 per cent, the associations often have 82 Cooperation in Agriculture difficulty in securing enough credit at the beginning of the season to properly transact their business. One of the most serious difficulties that the farmers' cooperative association has to overcome is to fix a method of raising money to provide buildings and equipment that is fair and equitable to all of the members. For example, a packing-house with equipment may cost $20,000. If the money needed to pay for the investment is raised by retaining a percentage from the sale of produce, the grower who has a poor orchard, who cultivates poorly, whose trees arc young or whose yields for any other reason are light, contributes proportionally less to the investment than the grower whose yield of fruit is heavy. After the house and equipment are paid for, the young orchards or light-bearing orchards may increase in productiveness. The owner then secures the benefits of the permanent facilities out of proportion to his contribution for their provision. If the basis of assessment is the acreage of each member, the grower whose orchards have recently come into bearing or are in light bearing pays propor- tionally more for the permanent investment than the man whose trees yield heavily and who ha$ a greater use of the packing-house. If the money is raised by the sale of stock, the difficulties in relation to the control of the membership already described are encountered. These difficulties, while sometimes serious, are not grave enough to prevent the successful financing of associations by farmers who are convinced of the value of the coopera- tive method of conducting business. Financing a Cooperative Organization 83 THE PAYMENT OF DIVIDENDS There are several methods used in the distribution of surplus earnings in farmers' organizations. In the asso- ciations that have been formed as stock corporations under the ordinary corporation law for pecuniary profit, the earnings may be apportioned entirely to the stock ; or, if the corporation desires to operate for the benefit of the members, it may pay a fixed dividend to the stock- holders, set aside a reserve fund, and a fund to cover depreciation, and then distribute the balance of the sur- plus to the members in proportion to their shipments or dealings with the corporation ; or, the corporation may decide to pay no dividends on the stock, and distribute the entire surplus in proportion to the dealings of each member with the association. When the association is a non-profit corporation, the operations are conducted at cost, and the entire surplus, after a reserve fund is set aside, is prorated to the members in proportion to their dealings with the association. The payment of high dividends on the capital stock has caused the downfall of many farmers' organizations that are formed as stock corporations, though they may conduct many of their operations on cooperative principles. These organizations are not cooperative, though they may include some cooperative features. They are stock com- panies organized and managed by farmers. The stock- holders retain a proportion of the surplus earnings for money-making purposes or to compensate them for the risk of investing their capital just as is done in any other stock corporation. In some of the farmers' elevator 84 Cooperation in Agriculture companies, the stockholders are sometimes paid a dividend of 100 per cent. In some of the fruit-distributing organi- zations, the stockholders have been paid dividends of 10, 20, 30, or even 50 per cent on the capital stock. In others which combine some of the cooperative features, they pay to the non-stockholders who ship through the organization one-half or one-third as much, more or less, as the stock dividends ; or the distribution of the surplus earnings may be made in other ways. In one fruit-distributing organization that is formed as a stock corporation, but which shares some of the earn- ings with the non-stockholders and operates partly on the cooperative plan, the shipper is charged 7 per cent on the gross proceeds for operating expenses. It is pro- vided that ' the capital stock shall be paid a 6 per cent dividend, that a reserve fund shall be accumulated, and if a further amount is available for distribution, it shall be divided as follows : " 75 per cent amongst all growers or growers' organizations who have signed contracts and shipped consistently with this exchange during the sea- son when this dividend has been earned, based propor- tionally on the gross amount realized by the fruit of such shippers ; and 25 per cent to be a further dividend on paid-up stock." It is also provided that no stockholder shall hold more than ten shares of stock, or a total of one thousand dollars. This organization has been one of the most successful of the stock corporations which operate partly on cooperative principles. The trouble that arises over the payment of dividends is usually with the members who hold a small amount of stock, and with those who utilize the marketing facili- Financing a Cooperative Organization 85 ties as contract shippers, but who are not stockholders in the organization. These shippers are likely to become dissatisfied when they learn that a large surplus earning has been accumulated above the cost of operation. The payment of high dividends reduces their proceeds and enriches the growers who have money invested in the organization but who may not have contributed to its success except in the original investment. Another danger in the stock corporation is that the farmers be- come dissatisfied after receiving liberal dividends on their stock when business conditions are such that a dividend cannot be declared. The stock corporation that has had to organize for pecuniary profit can still bring to its mem- bers many of the advantages of the cooperative plan by refusing to pay dividends on the stock as most of the citrus-fruit associations do, or at least by paying a stock dividend not in excess of the customary rate of interest. Any other policy unless carefully guarded is likely to be followed by a loss in the confidence and support of its members and by the ultimate failure of the association. A farmers' organization that has been chartered under the corporation laws for pecuniary profit stands on a dangerous foundation because the temptation is always great to pay large dividends on the stock when surplus earnings have been accumulated. An organization that is formed on this basis under the guise of the cooperative plan may prove a menace to the solution of the agricultural problem. If it operates for profit, it is likely to discourage a legitimate cooperative movement. The average farmer has not sufficient information to discriminate between the different kinds of organizations, and he is apt to judge 86 Cooperation in Agriculture all cooperative efforts by the abuses of the organizations that are not formed on the cooperative plan. An organiza- tion that is formed as a stock corporation primarily for pecuniary profit and which does not operate to some ex- tent for the benefit of its members should be debarred by the statute from using the term "cooperation" or "cooperative" in connection with its corporate name. If, as a stock corporation, it is successful and helps the farmers who are stockholders or the contract shippers solve the problems of distribution and sale, it deserves to live, but it should not be allowed to secure the support of farmers under the supposition that it is an organiza- tion formed on cooperative principles. The cooperative method of transacting business is radically different from the usual stock corporate method. The object of the former is not primarily to declare dividends. It is formed to build up and improve the industry through the appli- cation of business methods which are carried on at cost, the earnings all going to the producer. The basis of one is capital, and a leading motive is the dividends which the capital earns ; the cooperative method has personal effort joined with the efforts and products of others, all working in union to make better farming possible by giving the farmer the largest possible return for his labor and for the risk he takes in the conduct of his business. CHAPTER VI BREEDERS' AND GROWERS' ASSOCIATIONS THE cooperative method of conducting the business side of agriculture may be applied in a greater or less degree to the different phases of production ; to the manu- facture of the products of the farm, such as butter, cheese, wine, oil, and similar products ; to the handling, sale, and distribution of farm products ; to the purchase of supplies, such as fertilizers, machinery, spraying, and packing material ; to rural credit ; and to miscellaneous services which touch the farmer, such as irrigation, the telephone, insurance, and electric power. This division of the efforts of an association is arbitrary and somewhat artificial, because any one of these functions may be handled singly, or more than one function, like production and sale and the purchase of supplies, may be combined in one asso- ciation. The cooperative method has reached its most effective development in the handling and marketing of farm prod- ucts and in the purchase of supplies. These efforts affect the farmers' pocket book ; they influence the business methods of agriculture visually, while the benefits that spring from other lines of activity can often be seen only through their indirect effect on better farming or better business methods. There has been less cooperative effort in crop production and in the incidental features already 87 88 Cooperation in Agriculture mentioned than in handling and marketing and in the purchase of supplies. The cooperative method may be applied to several phases of agricultural production. Its most practical application lies in the improvement by associated rather than individual effort of crops and animals and in the protection of crops against insect pests, fungous diseases, and injurious temperatures. It may also be applied to some of the details of crop production such as the pruning of trees, the irrigation of the land, to the fumigation of trees, or other cultural features which may be handled for the individual members by a crop-marketing or sepa- rate organization. All of these problems can be met effec- tively by progressive farmers, but their efficiency in an industry can reach a high plane only when a group of farmers organize to apply the best-known agricultural methods to an industry as a whole. The individual farmer, for example, can fumigate or spray his trees for scale insects, and if all of the growers in his locality prac- tice fumigation voluntarily, the trees of a community may be kept free of the pest. But there will be the widest variation in the methods of fumigation, and this will re- duce the average efficiency of the whole operation. On the other hand, a cooperative organization formed by the growers of a community to handle the fumigation or spraying problem collectively brings about greater econ- omy in work and a uniformity in the application of methods which is rarely realized through the efforts of the individual fruit-growers or by contractors who fumigate or spray the trees for the growers. Incidentally, the value of prop- erty increases in such a community, because the orchard Breeders' and Growers' Associations 89 of every grower is more productive, more attractive, and more profitable. The spirit that leads the people to meet these rural problems collectively rather than individually is quickened in such a community with a resulting impetus to every movement that leads to a better country life. In order to set forth the manner in which the coopera- tive method may be applied to the production and im- provement of crops and animals, a discussion of a few types of successful cooperation along these lines will follow. COOPERATIVE COW-TESTING ASSOCIATIONS Every progressive dairyman understands that there is a wide variation in the amount of milk and in the quan- tity of butter-fat produced annually by the different cows in the herd. He can reduce the question to an exact basis by weighing the milk regularly, determining the proportion of butter-fat with a Babcock tester, and by keeping a record of the amount of food consumed by each cow. In this way, he can eliminate the unprofitable cows, and increase the efficiency of his herd. This is profitable to the dairyman, but few will adopt the plan individually. What the dairy industry needs is the appli- cation of the methods of the progressive dairyman to all of the cows of a community so that the entire industry can be raised to the level of the most successful individual. The Danish Example The practical way to accomplish this end was shown by a little group of dairymen in Vejen, Denmark, in 1895. These dairymen, twelve in number, owned 300 cows. 90 Cooperation in Agriculture They associated themselves together and employed a tester whose business was to test the cows of each member twice a month. He kept a record of the milk, determined the butter-fat, and weighed the feed consumed by each cow. The dairymen thereby knew which cows returned a profit, which barely paid expenses, and which were supported at a loss. The Danish farmers eliminated the unprofitable cows, bred from the best, developed the cooperative method of handling the dairy industry in other ways, and by adopting the cooperative plan as a system of conducting their business have made Denmark the most progressive dairy country of the world. Twenty- five years ago the Danish cow averaged 112 pounds of butter-fat ; now her annual average is twice that amount, while the average yield of milk per head, including heifers, is often 750 to 800 gallons per cow. In 1911 there were 530 of these cow-testing associations in that little country, supported mainly by the farmers and receiving in addition a grant of $30,000 to $35,000 from the Danish government for their advancement. The Danish farmer buys feed in the United States, pays transportation charges to his country, maintains his herd on high-priced land, and com- petes successfully with the American dairyman in the English market. All of the leading dairy countries of Europe have adopted the cooperative cow-testing plan, and the movement has recently been spreading in the dairy sections of the United States, especially in the dairy states of the Central West. In 1910, there were more than 200 of these associations in Canada, and in 1911, there were nearly 100 associations in the United States. Breeders1 and Growers' Associations 91 The Plan of a Cow-testing Association The plan of a cow-testing association is simple. It is usually organized around a creamery. Each association contains 13 to 26 members owning 300 or more cows, the former number if each herd is to be tested twice a month ; the latter, if once a month. The members pay from SI to $1.50 annually for the testing of each cow. The association employs a tester who is a specialist in the dairy industry and who gives the dairymen expert ad- vice aside from the testing of the cows and pays him from $50 to $100 a month. He spends a day with each herd, provided it does not contain more than 40 cows, and he may test more than one herd in a day if they are small and not too distant or too widely, separated. The official tester weighs the milk once a month or oftener, night and morning, determines the amount of milk and butter-fat produced and the quantity of hay, roughage, and grain consumed by each cow. He deter- mines the cost of keeping the cow each month by multiply- ing the result of each test by 30. At the end of the year, the farmer knows approximately how much butter-fat each cow has produced, and what it has cost to produce it. The tester leaves a record of the herd each month with the dairyman, showing the cost of feeding and the production of each cow. He keeps a detailed permanent record in the test book of the association. This book he takes with him. It is open to the inspection of every member of the association. The value of a cow-testing association to a dairy com- munity is incalculable. It leads to more economical 92 Cooperation in Agriculture feeding, better herds, and better general management. It is the only practical method that has been adopted by which the herds of a locality can be systematically im- proved. Purely as a business matter, every farmer ought to determine whether his cows are profitable or not. The method of cow-testing has been advocated among the dairymen for years, but comparatively few individual farmers have adopted it. The farmer is usually too busy to make a systematic test of his herd, and unless the tests are continuous and systematic, they are worthless. The cooperative plan, however, is thoroughly practical. It furnishes a striking example of a method by which a great industry can be built up by the adoption of a co- operative plan where the individual has failed. The next step in the cow-testing association is the pur- chase of a high-grade bull to be used in the improvement of the herds of a community. The tests determine the unprofitable cows. These the dairyman eliminates. It fixes the most profitable animals in the herd. These the dairyman breeds to high-grade bulls and thereby improves the standard of the cows in the entire community. The plan is simple and practical. Combined with the co- operative creamery, the cow-testing association and the cooperative ownership of high-grade bulls form a nucleus through which the cooperative method of conducting business can be applied more effectively to the dairy industry than to most of the special agricultural industries of the United States. Breeders' and Growers' Associations Articles of Agreement in a Cow-testing Association The cow-testing association may be incorporated on the cooperative plan, or it can be handled through the mutual agreement of its members without legal incorpora- tion. A number of these organizations may be federated, as in Denmark, and the whole movement handled more systematically. The following provisions contain the essential features of a cow-testing membership agree- ment. The association should also provide the customary by-laws covering the officers and their duties, the board of directors, membership, dues, amendments, and the time and place of holding meetings. Whereas, Dairy Testing Association has been organized for the principal purpose of providing means for the cooperation of its members in weighing and testing the milk of their cows periodically and for the improvement of their dairy interests, and whereas, it is proposed by said company to engage a suitable person for that purpose as soon as enough subscriptions are obtained to warrant said association to engage such person, we, the undersigned members of said association each for himself and not one for the other, severally agree to pay the sum of one dollar ( minimum charge) a year for each cow set opposite our respective names to said association for that pur- pose. Said fees to be paid in quarterly installments in advance, the first payment to be made as soon as such person is engaged by said association. Each one of us also agrees to furnish board and lodging for said person for at least one day each month and convey him to his next place of work. Said person shall not work Sundays, but shall have board and lodging over Sunday at the place where he is working Saturday. 94 Cooperation in Agriculture THE COOPERATIVE BREEDING OF LIVE-STOCK The cooperative method furnishes a practical way by which high-grade animals and the different breeds of stock of a community can be improved and developed. Little systematic effort has been made by the farmers of the United States to improve the different kinds of live-stock. Individual breeders have built up high-grade herds and have improved different breeds, but American farmers as a whole have not been affected by these efforts. To be productive of results, animal-breeding must follow well-defined lines. The breeders must understand the fundamental principles of animal improvement, and then the farmers must be organized before community breed- ing can be undertaken. These qualifications or the abil- ity to apply these principles in animal breeding are not possessed by the average farmer. Under the cooperative method, a systematic breeding plan can be adopted, the method organized and systematized under a common leadership, herds tested and weeded out, male animals owned collectively, and the herds and breeds of a com- munity improved and developed with the same degree of efficiency that the successful individual breeder attains. The cooperative breeding work can be organized around the creamery and the cow-testing associations, or, when the aim is to develop definite qualities in animals, such as milk-producing qualities in cows, or a certain conforma- tion or ability to lay on flesh for meat-producing purposes, the movement may be organized independently. Breeders' and Growers' Associations 95 Cooperative Cattle-breeding in Denmark The cooperative animal-breeding plan was first de- veloped in Denmark, when in 1874, a cattle breeders' association was formed to keep pure and improve the Jutland breed by the use of pure-bred bulls. Twenty years ago the movement spread rapidly, and the local associations began to federate in order to have the work of the societies done according to a uniform plan, and to handle more efficiently the general problems that affected all alike. Five years ago, there were more than a thousand of these cattle breeders' associations in Denmark, owning 1300 bulls and having a total membership of 26,000. The membership includes the smallest farmers and peas- ants as well as the landed proprietors. The federated associations employ an expert whose duty it is to advance the interests of the cattle breeders' associations and the test associations by attending meet- ings and fairs, helping the associations select the cows and bulls for breeding purposes, helping organize associations, keeping the herd books, and by assisting the individual members in every possible way. The membership of an association averages about twenty-four. One or more bulls are purchased by the association at the ratio of one bull to fifty to seventy-five cows, the bulls being kept by the different members who submit the most favorable bids. The cows worthy to be bred to the bull are selected by a committee, the data on which the selection is based resulting from the milk, butter, and cost-of-maintenance tests and from the pre- vious breeding of the animal. 96 Cooperation in Agriculture The money required to purchase the bull and for other association purposes is paid in by the members in propor- tion to the number of cows each has registered in the asso- ciation. The annual expenses are provided by membership fees, service fees, the premiums at fairs, and by government aid, the latter amounting to an annual average of about $40 for each association bull and $67 for each cow-testing asso- ciation that conforms to certain regulations prescribed by the government as a condition to receiving state aid. In 1909, the Danish government appropriated $136,000 to assist the breeders' and cow-testing associations. In 1909, there were in Denmark 270 horse-breeding societies with 21,500 members, 1259 cattle-breeding so- cieties with 31,300 members, 253 pig-breeding societies with 6430 members, and 102 sheep-breeding societies with 850 members ; receiving in total about 400,000 crowns from the state. In Germany there were 2000 cooperative dairy societies in 1908 with a quarter of a million members, and a large number in Austria, England, and other European countries. The influence of the cattle breeders' associations on the Danish dairy industry is set forth by Rasmussen l as follows : - "1. By organization and cooperation it became pos- sible for the smaller farmers to obtain a rapid improve- ment in their herds, which otherwise would practically have been impossible ; "2. They have constantly and forcibly demonstrated to the farmer the value of a pure-bred bull of recognized family in the improvement of the herd ; 1 Bulletin 129, Bureau of Animal Industry, U. S. Department of Agri- culture, Cattle Breeders' Associations in Denmark. Breeders' and Growers' Associations 97 "3. The herd books and records kept by the associa- tion have taught the farmer to appreciate the value of a pedigree in the selection of breeding animals ; "4. By cooperating with the cow-test associations and agricultural societies it has become possible to employ many cattle experts, who not only have acted as educators and advisers, but to whom is due the credit for the uni- form and systematic way in which this work is carried on throughout the country. "The important part played by the breeders' associa- tions in the improvement of cattle is quite noticeable at the fairs and shows. A few years ago the greater por- tion of the animals exhibited, especially bulls, belonged to individual farmers owning large herds. To-day, not only do more bulls in the show rings belong to the breeders' associations, but these most frequently carry off the high- est honors. By means of these associations, a large num- ber of the smaller farmers who could not afford to keep or buy a high-priced bull for a few cows have had an equal opportunity for improving their herds, as well as equal chances at the shows, with the farmers who own the large herds. Furthermore, they have added greatly to the interest taken in the shows and fairs, as each member of an association takes a personal interest and pride in having his association bull successfully meet the often very keen competition." Cooperative Cattle-breeding in the United States The cooperative breeding method is beginning to be applied to a limited extent to the improvement of breeds in the United States, especially in Wisconsin, and to a 98 Cooperation in Agriculture small extent in other dairy states. In the state of Maine, there are several cooperative breeders' associations formed around the pure breeds of cattle and also for the purpose of developing a better high-grade dairy stock. In Wisconsin. — In 1910, Humphrey l gave an account of thirty-one community associations in Wisconsin, in- cluding more than one thousand breeders, organized to produce and improve high-grade and pure-bred dairy cattle and to establish a reputation for a community as a breeding center. The first organization was formed in Wisconsin in 1906, when a dozen young men formed what is now known as the Waukesha Guernsey Breeders' Association. It is the object of each association to produce and im- prove high-grade and pure-bred cattle of the breed around which they are organized. The cows of each member are bred to pure-bred bulls of the breed represented by his association. Each member is to care for his herd in the most approved manner ; he must cooperate with the members in the purchase and use of the pure-bred bulls, in the sale of surplus stock, and in the promotion of the dairy interests of his community. These associations keep a herd register in which the animals of each member are entered. They adopt methods of protecting the members against fraud and against the spread of disease among the cattle, such as contagious abortion. They adopt cooperative methods of insuring the bulls, and they seek aid from the state and federal governments in the 1 Bulletin 189, Community Breeders' Associations for Dairy Cattle Improvement, the University of Wisconsin, Agricultural Experiment Station. Breeders' and Growers1 Associations 99 general promotion of their object. These organizations may also act as agents for the members in buying feed and other supplies. They may assist in the distribution of farm crops, develop markets for the stock and products by advertising, and develop better business methods for the individual in a variety of ways. It has been the experience in Wisconsin that an asso- ciation should not be too large. Rather there should be an association for each breed in each community, or at least in each county. The formation of a number of associations leads to a healthy rivalry among them that is a distinct advantage to the dairy industry. These associations may be federated as they are in European countries. Cooperative cattle-breeding by the federal government, the state, and the farmers in Minnesota. — In Minnesota, the cooperative breeding of milking shorthorns was un- dertaken in 1907 by the United States Department of Agriculture and the Minnesota Experiment Station in cooperation with the owners of ten herds of shorthorn cattle. The aim of this effort is outlined by Handschin * as follows : — " First, the reestablishing of profitable milking qualities in the shorthorn, combined with the conformation and ability to lay on flesh and make a good beef carcass when the animal is sent to the block. "Second, the working out of a practical system of cooperation and community breeding that can eventually 1 " Cooperative Breeding of Milking Shorthorns in Minnesota," by W. F. Handschin, of the American Breeders' Association, Vol. 6, p. 301. 100 Cooperation in Agriculture be adapted to all classes of live-stock and make progress in animal breeding more rapid and sure through the fol- lowing means : — "By reducing the cost, where the herds are small and conveniently located, by using sires jointly ; "By making the most of the comparatively few high- class sires that are produced in any breeding project ; "By conserving the proven sires and using them as long as they can do service, changing them from one group to another to prevent unwise close breeding; "By creating community centers in certain classes or breeds of pedigreed live-stock and attracting buyers to these communities, thus insuring better markets for the animals produced." The Minnesota plan, which may also be applied to the different kinds of animal-breeding, is of interest in showing the method that has been adopted there to bring about practical cooperative breeding work. The United States Department of Agriculture, the State Experiment Station, and the owners of the herds have formed an organization known as a circuit council. This council is composed of one representative from each of these organizations. It has charge of the breeding operations, and it devises means for raising funds to purchase sires outside of the organiza- tion. The council employs a specialist who visits each herd in the circuit at least once a month for the purpose of testing the cows for milk and butter-fat, to assist in the selection of the breeding animals, and to give the owner expert advice in every possible way, the members agree- ing to follow the directions of the expert when approved by the council. The Department and the Experiment Breeders' and Growers' Associations 101 Station defray the expenses of the Circuit Council, and the salary and expenses of the expert. They also secure information as to where suitable breeding animals can be found and advice in the selection of the animals. They defray the cost of transportation of the sires that are purchased, and the cost of transferring bulls within the circuit in order that the exchange of desirable sires may be encouraged. They also furnish the apparatus and in- struments necessary for testing the cows for milk produc- tion and butter-fat. The owners of the herds agree to provide at least five cows from families having good milk- ing records, and to purchase one or more bulls, subject to the approval of the council. The plan is further elaborated by Handschin, who says : — "The president of the association, together with a representative of the United States Department of Agri- culture, and a representative from the State Experiment Station, constitute the executive council, which makes all necessary regulations regarding the purchase, sale, mating, selection, and management of animals on the circuit. "The executive council also employs a circuit superin- tendent who, under the direction of the council, advises and directs the general management of the herds, keeps records of feed consumed, milk produced, and breeding power of the animals in the circuit. "The circuit superintendent spends two days a month with each cooperator. During this time he weighs the milk produced by each cow, and takes a composite sample from which butter-fat determinations are made. From these, and the record of daily weights kept by the coopera- 102 Cooperation in Agriculture tor, the annual records of milk and butter-fat production are computed. "The general plan of operation is to list all cows of desirable conformation and bred along milking lines. Using the yearly records of production as a basis of selec- tion, all cows that do not milk profitably are discarded. All cows listed are bred to sires owned by the Experiment Station. These have been selected from herds that have been systematically bred and selected for a combination of profitable dairy production and a desirable conforma- tion from the beef standpoint. That is, they are the produce of dams that have yearly records of from 10,000 to 18,000 pounds of milk and 400 to 600 pounds of butter- fat, and combined with this the ability to lay on flesh when dry and attain weights from 1400 to 1600 pounds when in good flesh. What the breeding power of these sires will be, cannot be foretold at present. The two crops of calves on the circuit are a promising-looking lot. "All heifer calves from approved dams are raised and will be tried out at the pail when they come into milk. The bull calves are raised to 8 to 10 months of age, when they will be divided into three classes : reserved, approved, and rejected. All of those rejected will be sold for slaughter, those approved will be sold to breeders in the usual way, and those reserved will be kept for use on the circuit. The sires reserved for the circuit may be offered for sale to other members of the association, used to supply the new herds taken into the circuit, sold to outside breeders with options to repurchase, or 'farmed' out to approved breeders until needed on the circuit. In this way all of Breeders' and Growers' Associations 103 the best females are kept on the circuit, and all of the good sires produced are kept available at any time in case their individual development or the performance of related animals warrant using them. "The Experiment Station also maintains a small herd of which complete records have been kept since 1907. Their annual production has ranged from 6000 to 8400 pounds of milk and 200 to 320 pounds of butter-fat. "Two years' records of production are now complete for the other herds on the circuit. They have ranged from 4500 to 9000 pounds of milk and 150 to 400 pounds of butter-fat. The increased yields during the year just closed for the outside herds indicates that with better management the average production for the whole cir- cuit will be materially increased. "Up to date about 35 cows which are considered good enough for foundation stock have been selected. Judg- ing from performances to date, they should make from 6,000 to 10,000 pounds of milk and 200 to 400 pounds of fat, with good care. "Most of them milk persistently for 9 to 10 months or within 2 months or less of calving. These cows range in size from 1200 to 1500 pounds when mature. Some of the best milkers that have had to be discarded for non- breeding or other causes have sold at 4 to 5 cents per pound and brought from $60 to $65." THE RULES OF THE CIRCUIT COUNCIL The rules of the circuit council are as follows : — "1. Circuit animals shall be divided into three classes, as follows : — 104 Cooperation in Agriculture " (a) Certified animals, authorized to be used in breeding within the circuit. " (6) Registered animals, not entitled to use in breeding within the circuit, but recommended for registration in the American Shorthorn Herdbook. " (c) Disqualified animals, of inferior individuality or breeding and not worthy of use for breeding purposes. "2. All animals classified as certified or registered animals shall be registered by breeders in the American Shorthorn Herd- book at their own expense. "3. Disqualified animals shall be sold for slaughter only. "4. Bulls shall be purchased by the individual members of the Association as needed and subject to the approval of the circuit council. Such bulls shall be retained by the purchaser only as long as desired for use on cows entered in the Association, and members of the Association shall have a 15-day option on all such bulls at not to exceed the original purchase price before sale can be made outside of the Association. "5. No bull in the circuit shall be used on cows outside the circuit. "6. No bull shall be used to excess. "7. No service fee shall be charged for any bull in the circuit. "8. No animal or animals shall be entered or used in the cir- cuit which have reacted to the tuberculin test made by a compe- tent veterinarian. "9. All cattle on farms whose owners desire to enter the As- sociation shall be tested for tuberculosis by a competent veter- inarian, and no one shall be allowed to enter the Association until such test shows his cattle to be free from tuberculosis. "10. No tuberculin shall be injected at any time into cattle in the circuit or covered by the provisions of Rule 9, except by an official veterinarian appointed by the circuit council. "11. No febrifuge shall be administered to cattle tested for tuberculosis under these rules for ten days before or ten days after such test. "12. The circuit council will drop summarily any cooperator attempting in any way whatsoever to render the tuberculin test Breeders' and Growers' Associations 105 ineffective, by injecting tuberculin, giving febrifuges or by other means. "13. No animal shall be sold outside the circuit without the consent of the circuit council. "14. The circuit superintendent (a) shall not be a member of the circuit council ; (6) he shall have no financial interest in Shorthorn cattle ; (c) he shall have full charge under the agree- ment between the Secretary of Agriculture, the Director of the Minnesota Experiment Station, and the Cooperative Circuit Association, shall, in consultation with the owners of the animals, direct all matings of circuit animals and the rotation of bulls throughout the circuit ; (d) he shall keep in touch with the work by regular and frequent visits to each herd in the circuit, accord- ing to instructions of the council ; (c) all his books, records, and accounts shall be open to the inspection of the council and the members of the Association ; (/) he may employ experts with the approval of the council ; (n company rather than to make a profit for the grower. The principle of depending on a large number of speculative buyers who purchase the fruit in California, to give the producer a fair price for the fruit and at the same time develop a comprehensive system of distribution that will take care of the increasing crop, is unsound from the economic point of view. It was tried in the early days of the in- dustry and failed. The present system insures uniformity in the distribution of their crops through the United States and Canada and uniformity in the shipments throughout the year. It gives stability to the business of the fruit jobber in every market of the United States, o c/5 UJ O Handling, Distributing, and Sale of Fruit 241 making it a merchandizing rather than an uncertain speculative business. The present system is the leading factor that insures the stability of the citrus industry and protects the two hundred million dollars that are invested in the groves and packing-houses. Selling the California Citrus-fruit Crop The California orange and lemon crop now equals nearly fifty thousand carloads, or twenty million boxes. There are more than twelve thousand growers engaged in the culture of the fruit. Probably three-fourths of them are organized into cooperative associations, sixty-five per cent of which are federated into the California Fruit-growers' Exchange. These associations build a packing-house in which the fruit of the members is assembled, graded, packed, and made ready for shipment. The methods under which these organizations operate will be under- stood by a brief description of the principles underlying the exchange system. The California Fruit-growers1 Exchange The California Fruit-growers' Exchange is an organiza- tion which acts as a clearing house in providing the facili- ties through which sixty-five hundred growers distribute and market their fruit. The exchange system is built on three foundation stones : the local associations of growers, through which the fruit is prepared for market ; the dis- trict exchanges into which the associations of a community are federated and which act as clearing houses for the local associations; and the central exchange, which provides agents through which the district exchanges in coopera- 242 Cooperation in Agriculture tion with the associations distribute and market the fruit for the growers. The local associations, the district ex- changes, and the California Fruit-growers' Exchange are organized and managed by the growers on a non-profit cooperative basis, each of them operating at cost, and each distributing the entire net proceeds to the growers after operating expenses are deducted. The Local Associations. — There are a hundred and fifteen local associations in the California Fruit-growers' Exchange. These associations are formed by the growers of a community, the membership including from forty to two hundred members and on the average about five hundred acres of groves. The growers usually organize as a corporation without profit under the laws of Cali- fornia and issue stock in proportion to the bearing acreage, to the number of boxes shipped, or in equal amount to each grower. The association usually owns a packing- house alongside a railroad where the fruit of the members is assembled, graded, pooled, packed, and prepared for ship- ment, these operations being done at cost prorated on the number of boxes shipped by each grower. The associa- tions are managed by a board of directors and a manager, and are conducted exclusively for the benefit of the grow- ers. They accumulate no profit and declare no dividends. The fruit is generally pooled each month, or sometimes a pool includes the entire season, each grower receiving his proportion of the proceeds received for each grade handled during the pool. Occasionally the association handles the fruit for each member individually. Many of the associations pick the fruit, and some of them prune and fumigate the trees for the members. The associations Handling, Distributing, and Sale of Fruit 243 have brands for each grade of fruit, and when a carload is ready for shipment it is marketed in cooperation with the district exchange of which the association is a member through the agents and facilities provided by the Cali- fornia Fruit-growers' Exchange. The District Exchange. — The local associations have formed seventeen district exchanges. These exchanges are corporations without profit, with nominal capital stock, each association in the exchange usually owning one share and having one member as its representative on the board of directors. There may be one or more district exchanges in a community depending on the num- ber of local associations and the local conditions. The function of the district exchange is to act as a clearing house in marketing the fruit in cooperation with the associations through the facilities provided by the Cali- fornia Fruit-growers' Exchange, and to act as the medium through which most of the business relations between the exchange and the local associations are handled. It is the duty of the district exchange to order cars and to see that they are placed by the railroads at the various packing-houses, to keep a record of the cars shipped by each association with their destinations, to inform them- selves through the California Fruit-growers' Exchange of all phases of the citrus-marketing business, to place the information before the associations, to receive the returns for the fruit through the central exchange, and to return the proceeds to the associations. The Central Exchange. — The California Fruit-growers' Exchange is a non-profit corporation under the laws of California formed by the seventeen district exchanges with 244 Cooperation in Agriculture a capital stock of ten thousand dollars. The Exchange is managed by a general manager ; it has a board of seventeen directors, one representing each district exchange. The function of the California Fruit-growers' Exchange is to furnish marketing facilities for the district exchanges and associations at a pro rata share of the cost. The exchange places bonded agents in the principal markets in the United States and Canada, defines the duties of the agents and ex- ercises supervision over them. It gathers daily information through them of conditions in each market and furnishes it daily in bulletin form to the associations. The exchange makes prompt accounting of returns which are sent to the shippers through the office of the district exchange. It takes care of all litigation that arises in connection with the marketing of the fruit, handles all claims, conducts an extensive advertising campaign to increase the demand for citrus fruit, develops new markets, and performs such other functions as are set forth in the contracts between the central exchange, the district exchanges, and the associations. At the end of the year the central ex- change levies an assessment against each district ex- change for a pro rata share of the expense on a basis of the number of boxes shipped. The exchange declares no dividends, and it does not buy or sell fruit or any other commodity, and exercises no control either directly or indirectly over their sale or purchase. Its function is to provide the facilities for the distribution and market- ing of the fruit for those shippers that wish to avail themselves of them. Under the exchange system every shipper reserves the right to regulate and control its own shipments; to use its own judgment as to when and Handling, Distributing, and Sale of Fruit 245 in what amount it shall ship; to what markets it shall ship and the price it is willing to receive; reserving the right of free competition with all other shippers, including other members of the same organization uncontrolled by any one. The agent in the market acts directly under the order of the shipper, who determines the price at which each car shall be sold outside of the auction markets and all other matters connected with its disposition, the Cali- fornia Fruit-growers' Exchange acting as the medium through which orders pass from the agent to the shipper, but never selling a car or determining the price at which it shall be sold. The exchange is a broadly democratic organization in which the growers exercise control over all matters. The membership in the exchange is voluntary ; a grower may withdraw from an association at the end of the year, an association may withdraw from a district exchange, and a district exchange may withdraw from the central exchange, these relations being set forth in the various contracts that hold the members together. There is no attempt on the part of the central exchange to regulate shipments or to influence prices. In this connection its function ends in keeping the associations informed daily regarding the shipments from California, the general movement and market conditions in the different marketing points, and in furnishing such other information as will allow the growers through their associations and district exchanges to de- cide these questions for themselves. One-third of the entire shipment is sold in the auction markets, and the remainder at other points through unrestricted competi- tion. There is no uniformity in price in the different 246 Cooperation in Agriculture brands, because the fruit in each section, on account of soil and other local differences, has an individuality of its own, and every brand sells on its own merits. There are in addition to the California Fruit-growers' Exchange about forty independent cooperative associa- tions and individual grower-shippers, which, with the exchange, handle eighty-five per pent of the citrus-fruit crop. The independent cooperative associations conduct their operations along the same general lines as outlined above ; except that they market through brokers in the market, all of the business transactions being handled direct or by an agent who represents them in all of their business transactions. In addition to these associations and independent grower-shippers, a small proportion of the fruit is handled by speculative buyers or is shipped through agents to Eastern firms on consignment. Fixing a Price There is a tendency in farmers' cooperative associations to fix the price at which the entire crop shall be sold, or the price for a period in advance, or for the different grades of produce. They are induced sometimes to regulate the output, divide the territory, and to follow other practices that restrict competition and regulate prices. These prac- tices or any others that tend to regulate the price or to restrain or regulate trade conditions are likely to bring an association in conflict with the state and federal stat- utes that have been enacted to prevent combinations of any kind that act unreasonably in the regulation of prices or in restraint of trade. Such practices when followed by manufacturers have been declared illegal by the courts. Handling, Distributing, and Sale of Fruit 247 Present Cooperative Methods of Citrus Distribution As long as the country is prosperous and the present method of distribution and sale takes care of the increase in production, the producers will be satisfied to continue the methods now in operation. As the fruit business increases, and it is likely to double in volume in the next fifteen years, it may be necessary for the growers' asso- ciations to still further develop the methods of distribu- tion so that the fruit may be placed in the consumer's hands at a cost nearer that which the producer himself receives. The system which has been adopted by the citrus-fruit growers has brought about economies in the purchase of supplies, in preparing the product for ship- ment, and in the cost of selling the fruit ; it has secured lower freight rates, reduced the losses from bad debts ; it has standardized the physical handling of the fruit, the grading and the packing, and has thereby given the con- sumer a better product ; it creates a demand for oranges and lemons by advertising, and it distributes the product uniformly to the wholesale trade throughout the year and throughout the country. This uniformity in distribution has increased the demand for citrus fruits and has resulted in a lower retail price to the consumer and gives a larger proportion of the retail price to the producer. The co- operative method sometimes doubles the net returns to the grower without affecting the price which the consumer has to pay. There is a wide difference between the price which the producer receives from the wholesale trade and the price which the consumer pays for citrus fruits, a recent investigation by Secretary of Agriculture, Wil- 248 Cooperation in Agriculture son,1 showing that when the consumer buys oranges by the dozen, the producer receives only twenty per cent of the retail price, whereas he receives 59.3 per cent when the purchase is by the box. It has been shown by the Committee on Markets, Prices, and Costs of the New York State Food-investigating Commission in 1912, that the cash margin between the wholesaler's cost and the retailer's selling price of a dozen lemons is 122.2 per cent over the wholesale cost ; bananas, 135.2 per cent ; Baldwin apples, 116.2 per cent; and Florida oranges, 40 per cent. Before the California citrus growers systematized these operations, the cost of handling and packing the crop was nearly double the present cost. The crop then was a specu- lative product and was controlled by speculative dealers rather than by the producers. There was a wider varia- tion in the wholesale price of both oranges and lemons. Now the retail price of oranges is usually lower than the retail price of apples, and the orange has been transferred from a luxury to a staple article of diet. THE COOPERATIVE DISTRIBUTION AND SALE OF OTHER FARM PRODUCTS The cooperative method of conducting the business of the farmer may be applied to other branches of agricul- ture not already discussed in the foregoing pages. The vegetable growers of the East and of the Southwestern states have cooperative organizations ; the walnut grow- ers, the lima-bean growers, the celery and cauliflower growers, the raisin and dried-fruit interests of California, are organized to a greater or less extent, the potato grow- 1 Report of Secretary of Agriculture, 1910, p. 22. Handling, Distributing, and Sale of Fruit 249 ers of Maine and of the Delaware, Maryland, and Virginia peninsula, and the growers of different kinds of fruit in the Northwest, the cantaloupe growers of Colorado, the rice growers of Louisiana, and growers of other products have associated under various forms to act for them in the distribution and sale of their products through co- operation rather than through individual effort. The cooperative method is already in operation among the live-stock shippers of Minnesota, and it is applicable uni- versally to the distribution and sale of live-stock and of live-stock products in every part of the United States. The principles that have been discussed can be applied to the cooperative distribution of all kinds of farm crops and of manufactured products, though, of course, the de- tails of organization and of operation will need to be varied to meet the peculiar conditions in each industry. CHAPTER IX COOPERATION IN THE PURCHASE OF SUPPLIES ONE of the most important functions of a cooperative association is to purchase the supplies used on the farm and in the handling and marketing of the crops. The association may act as a merchant by buying the supplies and selling them to the members, or as a clearing house through which to secure favorable quotations from manu- facturers and wholesale dealers, acting for the members in placing the orders with the dealers who supply the dif- ferent kinds of materials and in collecting the money from the members for the same. It may also become a manu- facturer of such supplies as box material and other kinds of finished lumber, or it may operate a plant for the mix- ing of fertilizers. Under either method a well-managed supply company should be able to furnish fertilizers, coal, lumber, nails, twine, spraying materials, tools, and ma- chinery at a lower cost than the farmer pays when he buys them from the local merchant at the prevailing retail prices. THE ORGANIZATION OF A SUPPLY COMPANY The supply company may be formed as a department of a cooperative association already organized to distrib- ute and sell the farm crops, as is often done in connection with cooperative creameries, grain elevators, and fruit- 250 Cooperation in the Purchase of Supplies 251 growers' associations, or, if the volume of business is large enough, it may be organized as a separate cooperative corporation. The supply companies are usually formed as stock corporations, though sometimes they are organized on a non-profit basis. They may be formed under the ordinary stock corporation laws and still include the es- sential features of a cooperative association by limiting the amount of stock to be held by a member, by requiring that shares of stock shall be non-transferable until after they are first offered for sale to the association, by adopt- ing the "one man, one vote" method of administration, by restricting the dividends to be paid on capital stock to a nominal rate of interest, and by distributing the remaining net profits according to the amount of patronage of each member, after setting aside an amount for depreciation on the property, a fixed interest on the capital stock, and a reasonable reserve fund. A supply company occupies a somewhat different posi- tion than a distributing association. The former has to provide capital before it can purchase the supplies for its members. In the latter the capital required is for operating expenses and for buildings and equipment, and these expenses are provided as the business progresses by retaining certain percentages from the sale of the prod- ucts. It is therefore desirable to organize a supply com- pany as a stock corporation with a capital sufficiently large to be used in conducting the business, or to be used as security in providing such capital as is needed, defining the policy of the corporation through its charter and by- laws so that it may be operated for the benefit of the mem- bers and not exclusively for the stockholders. Some of 252 Cooperation in Agriculture the supply companies sell materials to members who are not actually stockholders and at the end of the season distribute one-half as much of the net earnings to the mem- bers as they distribute to regular stockholders. METHOD OF SELLING SUPPLIES TO THE MEMBERS There are two methods of selling supplies to the mem- bers of a cooperative association. In one they are sold at the actual cost of the supplies with an estimated per- centage added to cover the cost of operation, interest, reserve, and depreciation. In the other, the prevailing retail market price is charged for each article, and the profits are divided among the members at the end of the year in proportion to the trade of each after the reserve, the interest on the capital stock, and the depreciation are deducted. In some cases the profits made on supplies are the principal source of the dividends to the stock- holders of a cooperative farmers' organization. The charging of the regular retail price is generally to be preferred in the sale of supplies. It protects the local dealers against ruinous price cutting which they must do if the cooperative association sells the supplies at cost ; it protects the wholesale dealers and manufacturers who are more likely to give favorable quotations when they know that their goods will not be sold at less than the prevailing retail prices ; it tends to increase the membership among the non-members who learn of the dividends received by their neighbors ; and the dividend at the end of the year has a peculiarly favorable psychological influence on the cooperative members which does not occur when Cooperation in the Purchase of Supplies 253 the equivalent of the dividend is distributed over the pur- chases throughout the year. In fact, without the dividend at the end of the year, the member may not know whether the benefit that the association is supposed to confer is a tangible thing or not. There are certain dangers in the dividend system that need to be frankly recognized. Members of a cooperative association are likely to acquire the dividend habit and to be greatly dissatisfied when dividends are not paid. There is then a temptation on the part of the incompetent managers who are afraid of losing their positions when a dividend is not declared to purchase a lower grade of supplies and to raise the price here and there in order to create a dividend. When the dividends are fairly handled the dividend represents the actual savings to the members who deal through a coop- erative association. The system of selling supplies to the members at cost is not often practiced by cooperative associations. Many of the manufacturers and wholesale dealers refuse to quote favorable terms to associations that sell in this manner, because it eventually reduces the retail price which the local dealers charge to the level of the wholesale cost price of the association. As soon as this condition is brought about, the members of the association gain no financial benefit, and the association is likely to lose the support of its members. In the handling of fertilizers that cost forty dollars a ton at retail, but for which the retail dealer pays thirty seven and a half dollars a ton, the fertilizer manufacturers may refuse to sell at wholesale cost to a cooperative association that sells the fertilizers to its members at that price because the comparison of prices 254 Cooperation in Agriculture in the community will eventually force the local merchant to sell the fertilizer at actual cost. A FRUIT-GROWERS' SUPPLY COMPANY A better understanding of the scope of a producers' supply company may be obtained by reference to the articles of incorporation of a company in California that furnishes fruit-growers' supplies. ARTICLES OF INCORPORATION OP THE WE, THE UNDERSIGNED, the majority of whom are residents of the State of California, do associate ourselves for the purpose of creating a corporation under and according to the laws of the State of California. To that end we do declare — First : That the name of said corporation is, and shall be Second : That the purpose for which it is formed is to manu- facture, buy, sell, and deal in supplies of every Idnd or nature necessary or incidental to the packing, shipping, and marketing of fruits and fruit products, and all other agricultural products ; To buy, sell, lease, and otherwise acquire and dispose of prop- erty, real, personal, or mixed, in any state or territory of the United States or in any foreign country, and to mortgage or hypothecate the same, and to execute deeds of trust, or other instruments, as security for the payment of any indebtedness or obligations issued by this company ; To purchase, lease, or otherwise acquire and dispose of timber lands, timber rights, water and water rights and mill sites in any state or territory of the United States, or in any foreign country ; To buy, sell, mill, and deal in timber and timber products ; Cooperation in the Purchase of Supplies 255 To buy, sell, mill, and deal in paper and paper products ; To acquire, hold, operate, and dispose of land, buildings, ma- chinery, ships, vessels, privileges, wharf franchises, and other franchises ; To erect buildings and machinery and to construct wharves ; To carry on a general wharving business and to operate mills and machinery for the manufacture of lumber, paper, paper pulp, packing-house supplies, and all other articles and materials of every kind or nature necessary or incidental to the packing, shipping, and marketing of fruits and fruit products, and all other agricultural products ; and to do all and every business necessary to, and connected with, a general packing-house supply business, lumber business, manufacturing and wharving business ; To buy, build, operate, lease, or otherwise acquire and dispose of tramways, electric railways, steam railways, and wagon roads for the purpose of transporting supplies and manufactured ar- ticles incidental and necessary to the purpose of this corporation ; To buy, build, operate, or otherwise acquire and dispose of telephone and telegraph lines incidental and necessary to the purpose of this corporation ; To manufacture, buy, sell, and deal in all supplies and articles necessary for carrying on the purpose of this corporation ; To act as agent or factor in buying, selling, and dealing in supplies of every kind necessary and incidental to the packing, shipping, and marketing of fruit, fruit products, and all other agricultural products ; To acquire by purchase or otherwise, and dispose of the same, the business, rights, property, and good wills of any person, firm, association, or corporation conducting a business similar to the business of this corporation ; To acquire, by purchase or otherwise, hold, sell, assign, trans- fer, mortgage, pledge, or otherwise dispose of, the shares of the capital stock of, or any bonds, securities, obligations, or other evidences of indebtedness created by any other corporation or corporations of the State of California, or any other state or any territory or in any foreign country, and while the owner of such, to exercise all rights, powers, and privileges of ownership, that 256 Cooperation in Agriculture an individual might exercise, including the right to vote upon the stocks and other securities ; To aid in any manner, any corporation or association of which any bonds or other securities or evidences of indebtedness or stock may be acquired or held by or issued, in the interest of or at the instigation of this corporation, and to do any acts or things designed to protect, preserve, improve, enhance, the value of, or to make guarantees in respect to the value of any such bonds or other securities or evidences of indebtedness or stock. Third : That the City of — — , County of — and State of California, is the place where its principal business is to be transacted. Fourth : That the period of its existence shall be fifty (50) years. Fifth : The number of directors shall be fifteen (15) and the names and residences of those who are appointed for the first year are as follows : — Sixth : The amount of its capital stock is Five Hundred Thou- sand ($500,000.00) Dollars, divided into fifty thousand (50,000) shares of Ten ($10.00) Dollars each. Seventh : There has been One Hundred and Fifty ($150.00) Dollars of the capital stock actually subscribed, and by the fol- lowing named persons, in the number of shares and amounts set opposite their names : — NAME NUMBER OF SHAKES AMOUNT The supply company is organized as a stock corpora- tion, though it conducts its business primarily in the interest of the members. The stockholders are a large number of cooperative fruit-growers' associations. It Cooperation in the Purchase of Supplies 257 operates two general departments, one a manufacturing department and the other a material supply division. In the former department it leases timber lands, operates mills, and manufactures box material used in the ship- ment of fruit ; in the latter, it furnishes supplies used in the packing-houses and in the orchards. The supplies which it manufactures are furnished at the cost of the material and of manufacture, which includes charges for depreciation and maintenance of the manufacturing de- partment, plus six per cent, on the assets and capital de- voted to or invested in the department. The supplies used in the orchards are sold to the members at the cost of the supplies. In 1911 this fruit-growers' company delivered more than twelve million boxes to its members, and three hundred and forty-seven thousand dollars' worth of orchard and other packing-house supplies. These materials repre- sented five thousand individual orders and a net saving to the growers on the material other than the box shook of at least eighty thousand dollars. In the same year it sold $105,890 worth of fertilizer, imported six hundred tons of vetch seed for cover crops, bought twenty-eight carloads of nails or approximately twelve thousand kegs for use in the packing-houses, supplied ten million box labels and two billion fruit wrappers, or approximately one hundred and fifty carloads of tissue paper. In con- nection with the manufacture of box material it cut fifteen million feet of lumber, one-half of which was used in box manufacture and the remainder was sold in the open market. CHAPTER X COOPERATION IN IRRIGATION ACCORDING to the statistics of the Thirteenth Census, one-third of the irrigated land in the United States in 1909 was under cooperative enterprises. There are 13,739,679 acres of irrigated land in the United States distributed over different irrigation enterprises as follows : — ACRES Individual and partnership enterprises 6,258,401 Cooperative enterprises 4,646,039 Commercial enterprises 1,444,806 Irrigation Districts 533,142 U. S. Reclamation Service 395,646 Carey Act enterprises 288,553 U. S. Indian Service 173,912 Total 13,739,499 "The most striking fact brought out by this table," says R. P. Teele, in charge of Irrigation Statistics, Bureau of the Census, in an address before the Nineteenth National Irrigation Congress, "is the very large percentage of the acreage irrigated by cooperative, individual, and partner- ship enterprises. Of the acreage irrigated in 1909, about eighty-four per cent was included in enterprises of this character, placing irrigation districts in this class. Of the remaining sixteen per cent, about ten per cent is in- cluded in what have been classified as commercial enter- prises — those supplying water to parties who have no 258 Cooperation in Irrigation 259 interest in the work. The remaining six per cent is di- vided as follows: Reclamation Service, three per cent; Carey Act enterprises, two per cent ; and Indian Service, one per cent. As there are large enterprises in course of development, these figures for 1909 do not fully represent the present situation. The figures for 1910 gave the Reclamation Service about four per cent of the total, the Carey Act about six per cent of the total, and the Indian Service about two per cent, the decrease being principally in individual and partnership enterprises. Of the acreage included in projects, the Reclamation Service shows six per cent, the Carey Act eight per cent, and the Indian Service about three per cent, the decrease being divided between cooperative and individual and partnership enterprises. "All Reclamation and Carey Act enterprises and many of the commercial enterprises will eventually become cooperative. Classing these with those already under the control of the water users, leaves less than ten per cent of the acreage irrigated in 1909 to be served by works which are not now or soon to be controlled by those who use the water. "While statistics to prove the statement are not avail- able, I believe it safe to say that in no other industry in this country is there so large a percentage of cooperation." PROGRESS OF COOPERATIVE IRRIGATION ENTERPRISES Cooperation in irrigation had its origin in the develop- ment of the arid lands of Utah by the Mormon colonies. The development of the early history is related by Samuel Fortier, who says : — 260 Cooperation in Agriculture "These pioneers had little money of their own and could not obtain financial assistance from people outside of the state. Necessity, therefore, compelled them to join hands in undertakings of this kind which were too large for the individual or a partnership of individuals to con- struct. It may be said that cooperation is the keystone of the development of Utah. The success which attended this ' form of organization in the building of irrigation ditches and the utilization of water from streams spread to other industries. This is shown in the cooperative cream- eries, cooperative canneries, and cooperative stores that abound in this state. "From Utah as a center this form of organization spread to other states. One finds, for example, pretty much the same type of irrigation enterprise in Montana, Cali- fornia, Wyoming, Nevada, and other states. In Colorado the capitalistic canal, or what the Census has chosen to designate the commercial canal, was quite popular at one time, but many of these enterprises have been re- organized as cooperative companies. "The history of such organizations can be best under- stood by reference to a particular canal, namely, the Logan, Hyde Park, and Smithfield Canal Company of Logan, Utah. This was begun in June, 1881. The interest in the ditch is represented by stock, there being 2498 shares having a face value of $5 each and a present market value (June, 1909) of $70. Stock was issued in pay for work mainly. This company does not figure on any definite number of shares to the acre. Some land requires two shares per acre for irrigation, others four or five. Each share has one vote. There are five directors elected for Cooperation in Irrigation 261 a term of two years, and these elect their own president and vice-president. The directors appoint a secretary-treas- urer; who receives a small annual salary. The water master distributes the water under the direction of the board of directors. The company controls all laterals and shares except 315 shares of stock held for the town of Smithfield for town use. Smithfield is allowed one director and is practically under the control of the main organization. The area of land under the ditch is 2500 acres. This, like other similar companies, is incorporated under the law of the state of Utah. The works were con- structed by day labor by the water users under the direc- tion of one of the directors, one director taking charge of a certain length of canal and overseeing the job. A few settlers borrowed money and paid cash for their portion of the cost. The annual assessment averages about seventy cents and the total annual revenue about $1750. Dividing the total expenditures between the nine miles of main canal gives an annual cost of about $195 per mile." METHODS OF ORGANIZING, FINANCING, AND OPERATING WATER COMPANIES IN SOUTHERN CALIFORNIA The methods of organizing, financing, and operating water companies in Southern California are described by C. E. Tait, Irrigation Engineer, United States Depart- ment of Agriculture. The methods are similar in other states. Mr. Tait says : - "Water companies are principally of two classes, public service companies and cooperative or mutual companies. "Public service water companies are private business corporations that sell water for profit. The capital stock 262 Cooperation in Agriculture theoretically represents the investment or the cost of water rights, water-bearing lands, work done in develop- ing water, and of irrigation works. The companies deliver water to users at fixed rates, the charges sometimes being so much per irrigation per acre with a minimum charge for the season, but more often being in proportion to the quantity of water used. Until the passage of the Public Utilities Act, the law of California made it the duty of county supervisors when properly petitioned by a certain number of taxpaying citizens to fix the rates charged by a public service company to give a fair profit on the value of the system. In many cases no request was made to have the rates fixed according to law, and the water charges have been regulated by contract between company and users, the latter often being dealt with as an incorporated mutual company having its own distributing system. Such contracts are accepted where rates have not been officially established, but cannot be made to conflict with legal rates. Sometimes a bonus or its equivalent has been exacted from the water users in addition to the water charge, but companies of this class can be forced to give reasonable public service without discrimination and with- out collecting a bonus. The Public Utilities Act of 1911 gives the State Railroad Commission power to not only fix the rates of public service water companies, but to practically regulate their entire business, including manner of service, measurement, accounting, incurrence of in- debtedness, etc. "Cooperative or mutual water companies are organized by land-owners for the purpose of supplying water for the irrigation of their own lands at cost and without profit to Cooperation in Irrigation 263 any one. A mutual company is a special form of private company in which the stock represents water rights and is owned entirely by those to be served, the classification being one of general custom rather than a legal distinction. Most of the mutual companies originated in one of three ways: some grew out of the failures of state irrigation districts ; others were promoted and fostered by land companies ; and still others were organized by settlers directly, without the aid of other agencies. "Many districts were organized in Southern California soon after the passage of the State Irrigation District Law, and most of these failed, because of insufficient water supply, mismanagement of funds, defects in the law itself, and various other reasons. Where the districts had been for worthy projects, mutual water companies were or- ganized to succeed them, the companies taking over the property of the districts at its value. "It is probable that a majority of the mutual water companies originated subsidiary or promotion companies having lands to sell. The promotion or parent companies were usually known as 'land and water companies.' Their methods were to acquire large tracts of land, often Spanish claims, and subdivide these for sale to settlers. They also developed and provided water for the irrigation of the land they had for sale. They then caused the or- ganization of mutual water companies, the latter as a rule having only a few first settlers, perhaps stockholders or agents of the parent company, as the original members. The usual method was to turn the capital stock of the mu- tual company over to the parent company in exchange for the water system. The system would include the water 264 Cooperation in Agriculture rights, as well as canals, pipe lines, pumping plants, reser- voirs, and such other works as might have been constructed by the parent company. The parent company would then reimburse its treasury by selling shares of stock in the mutual company, together with land, to settlers. In this way the control of the mutual company, which originally rested in the parent company, passed to the settlers as soon as more than one-half of the shares had been sold. "Other mutual companies were organized by land- owners directly, who associated for the development of water resources and the construction of irrigation works. In such cases the systems were built a little at a time and not completed for several years after the work was begun, this being the result of the way funds were secured for construction. Funds have been raised by subscribing capital, by direct assessment of the capital stock, by small loans and by bonds. In a few cases the settlers cooper- ated in building works by their own labor. Bond issues must be authorized by a two-thirds of, and must not exceed the amount of, the subscribed capital stock. Mu- tual company bonds are not as marketable as municipal bonds except where the issue is large enough to justify special investigation of the project by bond buyers. Bonds of small mutual companies have been disposed of through contractors doing the work for which the bonds were issued. Banks frequently loan money to mutual companies of recognized standing on corporation notes and to new mutual companies, provided the notes are indorsed by directors or stockholders personally able to furnish the required security. Some of the most efficient Cooperation in Irrigation 265 irrigation systems in Southern California and in the United States have been constructed piece by piece by land-owners with no other aid than small loans from local banks. "Under some of the mutual companies in the fruit dis- tricts it was originally intended to have one share of stock, with par value of $100, for each acre to be irrigated. As a rule a share represented the equivalent of one-tenth miner's inch of water flowing continuously, although this varied to some extent. Sometimes there were ten shares per acre, with par value of $10, so that the valuation per acre and per miner's inch was about the same. Experience proved that one miner's inch was hardly sufficient for ten acres of mature citrus orchards, but that it was enough for seven or eight acres. Extra shares in water com- panies were purchased by orchardists to provide the additional water needed for full-grown trees, so that the par value of an acre water right, based on present use, is about $125. Under other companies one miner's inch served only five acres from the start. The market value of shares is influenced by supply, demand, and various local conditions as well as the original cost, and acre rights are now valued at from $100 to $300 for citrus fruits. "A mutual company may legally provide in its by-laws that each of the shares or water rights be appurtenant to certain land, but often the water is instead made appur- tenant to the entire tract as a whole which the irrigation system serves, then stock may be transferred within the tract separately from the land if the transaction is entered on the books of the company. "There is no fixed rule by which mutual companies 266 Cooperation in Agriculture provide funds for expenses. Some secure all money by stock assessments; others by a charge for the water de- livered. The most satisfactory plan is to assess the stock for maintenance and permanent improvements and to have a water charge to meet operating expenses. Since betterments to the property enhance the value of the stock, the shares should be the basis of payment for such work. Operating expenses should be distributed among members according to the service rendered each, for water is not always used in proportion to the number of shares held by each. "Most mutual companies deliver water to stockholders only, but some deliver to non-members when service to members is not interfered with. The water charge to non-members is at a higher rate, especially where the company's stock is assessed. The unit of measurement and of the charge in the orchard districts is the miner's inch per hour. Charges to mutual company members vary from one-half cent per hour inch for gravity water to three cents per hour inch for water pumped with a high lift. The cost of water per acre for citrus orchards varies from $5 to $20 per year except in extreme cases. The higher figure is representative where interest and prin- cipal is being paid on bonded indebtedness, and the lower figure, where there is no indebtedness, and gravity water. The Imperial Valley mutual companies use the acre foot as the unit of quantity and the cubic foot per second as the unit of measurement of flowing water. The water rental is 50 cents per acre foot, while the stock assessments amount to $1 to $1.50 per acre annually. Alfalfa in this valley requires from three to three and one-half acre Cooperation in Irrigation 267 feet of water per acre each year and most other crops more than half as much. "Mutual companies are controlled by a Board of Direc- tors elected annually by the stockholders. The directors elect one of their number president. The Secretary keeps the books and records and computes and collects charges for water. The work of water delivery and maintenance is placed in charge of a superintendent. Large companies have zanjeroes to assist in delivering water. "When the crops under an irrigation system are of the same class, such as citrus fruits, it is usual to deliver water by rotation. A stream or head is used in succession by stockholders along a lateral pipe or ditch, the complete circuit or rotation being completed in a specified time, usually about thirty days, and the time of use by each stockholder being proportional to the number of his shares. Schedules of rotation are made in advance for the entire season, so that each stockholder knows the time of the month that he is to have the water. The water need be measured only at the head of the lateral, then the num- ber of hours that the water is used by each stockholder when recorded is sufficient to compute the water charge. Heads from thirty to sixty miner's inches are delivered for ten-acre citrus orchards, and the length of an irrigation ranges from twelve to forty-eight hours. Sandy soil requires a large head for a short time, while tight soil requires a small head for a longer time. Where the crops under a system are diversified, delivery by rotation, al- though the most economical, is not always practical on account of the different water requirements of the crops as to time and frequency of irrigation and the size of head. 268 Cooperation in Agriculture In such cases it is usual to deliver on order of the stock- holder within certain reasonable limitations, the water being measured at each delivery point. Each stockholder may be entitled to a certain amount of water each month, preference of time of delivery being in order of applica- tion. " Mutual water companies are incorporated in California under the law for the incorporation of private companies. Three or more persons may incorporate. Articles of in- corporation as prescribed by law must be filed with the county and the state, whereupon the latter issues a certifi- cate of incorporation. The articles should declare the purpose of the organization broadly enough to permit the conduct of all business unhampered, but should state that water is not to be sold for profit. The corporation should then adopt by-laws that are consistent with the consti- tution and laws of the state. The by-laws should specify the duties of the officers, regulate the service, and define the relations of stockholders to the company. In the light of present experience only a few suggestions may be made for new organizations regarding changes from the usual form and methods of the better companies now operating. The water should be capitalized at a figure that will cover the entire cost of making it available for the irrigation of the land, exclusive of operating expense. This usually includes cost of real estate, water rights, rights of way, construction of works, engineering, and all incidentals to preparing the system for service. A fair capitalization for pumped water in the fruit districts is $1000 per miner's inch. As there is practically no surface water without storage left for appropriation in the streams Cooperation in Irrigation 269 of Southern California, the value of gravity water now exceeds its original capitalization and varies more than the value of pumped water. It reaches $2500 per miner's inch in some localities. Small shares of stock are convenient and require less dealing in fractional shares. If the capital stock be divided in shares of par value $10 each, then in the case of pumped water at $1000 per miner's inch, each share entitles the holder to the use of one-hundredth part of a miner's inch ; and if a miner's inch serves eight acres, the stockholder with a ten-acre orchard will have one hundred and twenty-five shares. "It is not necessary that the number of shares to the acre be specified, for there are other ways to encourage the economical use of water, but it is recommended that the water or the shares representing water rights be made ap- purtenant to the land to be irrigated by the system and to the adjacent lands. The adjacent lands are included only because water may sometimes be used more economi- cally than is expected, in which case some of the shares may be transferred to land joining the original tract and the service of the company extended without increasing water supply or capital stock. There is a disadvantage in a member owning more shares than necessary for the irri- gation of his land, as the stock is assessed for the mainte- nance of the system, and this together with the provision for appurtenance prevents speculation in stock. Where there is no indebtedness, assessments need not be levied annually but only as required by new works, extensions, or special repairs. A water rental or charge just sufficient to meet the ordinary or operating expenses is consistent with the stated purpose of a mutual or non-profit company, 270 Cooperation in Agriculture and it not only fairly apportions the cost of water delivery among the members, but it also very effectually induces economy in the use of water by members. Such a charge may be adjusted annually by the directors in considera- tion of whether a surplus or a deficit was produced the previous year. ". The mutual water company has been the most success- ful form of irrigation organization in Southern California, and its efficiency has been demonstrated elsewhere in this and other states. The largest mutual companies in the citrus belt irrigate about 20,000 acres. The largest mutual company in the United States is in Imperial Valley and irrigates 100,000 acres." CHAPTER XI RURAL CREDIT IN many European countries the farmers have organized banking systems on the cooperative plan through which to supply credit to carry on their farming operations. There are several forms of rural credit institutions abroad. Three leading systems originated in Germany : first, the Raiffeisen, or rural credit banks, which were founded in 1849 by Herr Raiffeisen, a burgomaster of Weyerbusch; second, the Schulze-Delitzsch, which are part rural and part urban credit banks, founded about the same time by Herr Schulze, mayor of Delitzsch ; and, third, the cooperative non-profit societies, the Landschaften as they are called, organized within a province and obtaining credit for the members by means of bonds guaranteed by the land- owners of the province collectively. The Landschaften banks originated during the last of the eighteenth century. The Raiffeisen and Schulze-Delitzsch banks were organ- ized after Germany had passed through a terrible famine in 1846 and 1847. There was great distress among the small farmers, who, on account of the social and economic conditions then prevailing, were thrown into the hands of the unprincipled usurers from whom alone they could obtain the necessary credit to carry on their business. These systems of credit have been widely adopted in 271 272 Cooperation in Agriculture Europe, Asia, and in Canada, but not to any extent in the United States. NATIONAL INTEREST IN RURAL CREDIT There is a general interest in the subject of rural credit in the United States on account of the high rate of interest which the farmer is supposed to pay for his credit when compared with other lines of business and the difficulty of obtaining ample credit in some parts of the country. In foreign countries, the governments play an important part in the development of the cooperative method of conducting business, but it is only recently that Mr. Roosevelt, through the appointment of the Country Life Commission, directed the attention of the country to the need of a wide application of the cooperative method to the solution of rural life problems, that our own govern- ment has taken official cognizance of the cooperative method as a means of upbuilding better farming and bet- ter rural business conditions. The comprehensive mono- graph l of the European systems of rural credit by Dr. Lorenzoni of the International Institute of Agriculture still further stimulated the interest and led the Southern Commercial Congress to hold a conference on rural finance in Nashville, Tennessee, in April, 1912, and to organize a commission representing each of the states to go abroad in 1913 to study the systems of rural credit and to report to the International Institute of Agriculture, the com- mission having been indorsed by a joint resolution passed in the Senate of the United States. The American 1 "An Outline of the European Cooperation Credit Systems," Inter- national Institute of Agriculture, Rome, 1912. Rural Credit 273 Bankers' Association has also investigated the rural credit question abroad. As a result of the widespread interest in the subject, the credit welfare of the American farmer has suddenly become a live public question. The 62d Congress author- ized the President to investigate the operations of the cooperative land mortgage banks and cooperative rural credit unions as they relate to agriculture and rural con- ditions in foreign countries. Through the diplomatic officers in Europe the Department of State has been inves- tigating the question, and a preliminary report has been prepared by Ambassador Herrick and has been trans- mitted to the governors of the states by President Taft, together with his suggestions concerning the establish- ment of a rural credit system in the United States. The President has also invited the governors at the next annual conference with him "to consider means for the adoption of an agricultural credit system as a benefit to the American farmer." In order that the requirements of the farmer shall not be overlooked, each of the three leading political parties in their platforms in 1912 recom- mended an investigation of the foreign agricultural credit systems so that it may be ascertained whether a rural credit system may be adapted to the conditions of the United States. The abundance of the interest of so many agencies in the farmers' credit welfare, insures a wide consideration of the relation of our banking system to the needs of agriculture and in the end should result in a more elastic rural financial system. 274 Cooperation in Agriculture COOPERATIVE CREDIT UNIONS IN THE UNITED STATES There are a number of cooperative credit unions in the United States and in Canada, especially in the Province of Quebec, where there are a number of mutual banks that furnish credit to the farmers. In Massachusetts, the cooperative credit unions have been encouraged by the enactment of laws permitting the incorporation of credit unions. The Meyrick credit union at Springfield was the first to incorporate under the law, and at the end of one year it had 105 members, a capital of $3000, and $10,000 in outstanding loans. In 1911, thirteen new unions were formed, with a combined capital of $25,000. THE JEWISH CREDIT UNIONS The Jewish Agricultural and Industrial Aid Society, according to data furnished by Mr. Leonard G. Robinson, the General Manager, has established eight credit unions during the past two years, with a membership in June, 1912, of 240. They have 836 shares outstanding, with a total capital of $4180. These unions have been in operation on the average seven months, and during that time they have granted loans aggregating $17,755, or more than four times the capital. The repayments have amounted to $7525.52, or nearly one-half of the amount loaned. Their net profits for the period amount to $308.65, or at the rate of more than 12^ per cent per annum, all of which has been placed in the reserve fund. The plan of these credit unions is set forth in the Annual Report of the society for 1911 as follows : — Rural Credit 275 "Our plans for the establishment of cooperative credit associations or banks, which we had under consideration for the past two years, and of which mention was made in our last annual report, have this year materialized, and we now have three such associations in operation: the Jewish Farmers' Cooperative Credit Union of Rensselaer County, New York ; the Jewish Farmers' Cooperative Credit Union of Fairfield County, Connecticut ; and the Jewish Farmers' Cooperative Credit Union of Ellington, Connecticut." The objects of these Credit Unions are fully set forth in their 'Articles of Association,' which are here quoted : — "WHEREAS, a system of personal credit, whereby short-term loans for productive purposes can be obtained for moderate amounts and on easy terms, is of prime importance to those en- gaged in agriculture ; and "WHEREAS, our faith in the benefits of cooperation and mutual self-help leads us to believe that a loan association managed co- operatively will best satisfy the needs and conserve the interests of the Jewish farmers in the vicinity ; be it "RESOLVED, that we, the Jewish farmers of— — , hereby associate ourselves into a voluntary or unincorporated associa- tion to carry out the objects above set forth." "Each of these Credit Unions raised $500 through the sale of shares to members, and our Society loaned them $1000 — two dollars for every dollar raised among them- selves — bearing interest at the rate of two per cent per annum. The three Credit Unions commenced operations May 1. The results of their operations for the fiscal year ending September 30 — a period of five months — are given below : — 276 Cooperation in Agriculture RENSSELAER COUNTY, N.Y. FAIUFIELD COUNTY, Or. ELLINGTON, CT. TOTALS Number of members 35 25 24 84 Number of shares 105 102 101 308 Number of loans 31 17 18 66 Amount of loans $1695.00 $1275.00 $1490.00 $4460.00 Average per loans Principal repaid 54.68 474.00 75.00 547.00 82.78 158.00 67.57 1179.00 "The net profits of the three Credit Unions for the five months were $61.93, or at the rate of over 9| per cent per annum on their capital. "The form of organization of these Credit Unions is similar to that of the Raiffeisen Banks in Germany, upon which most other credit banks throughout the world are modeled. They are controlled entirely by the members. Shares in these Credit Unions are $5 each, and the holder of one share has the same voice and the same rights as the holder of, say, 100 shares. Membership in these Unions is open only to members in good standing of the local Jewish Farmers' Associations. The entire member- ship of a Credit Union constitutes the General Assembly, which has the final decision on all questions. The direct management is in the hands of a Board of Directors of seven members, four of whom are the officers, namely, the President, Vice President, Secretary, and Treasurer. The four officers also constitute the Credit Committee and are in complete charge of the granting of loans. The other three members of the Board constitute a Super- visory Committee, whose duty it is to audit the books Rural Credit 277 and to supervise the acts of the Credit Committee. Ap- peals from the Credit Committee, as well as from the Supervisory Committee, can be taken to the General Assembly. The members of the Board of Directors are not eligible to borrow except by a two-thirds vote of the General Assembly in each instance. The loans are granted only for productive purposes or urgent needs. They are not granted for a period exceeding six months nor for an amount exceeding $100. Interest is charged at the rate of six per cent, and is payable in advance. The security is determined by the Credit Committee, and is generally the promissory note of the borrower with one or more responsible indorsements. Initiation fees and other charges, also so much of the net profits as have not been distributed as dividends, constitute the Reserve Fund of the Credit Unions." THE COST OF CREDIT TO THE AMERICAN FARMER The indebtedness of the American farmer is approxi- mately six billion dollars, on which an annual interest charge of 510 million dollars is paid.1 There are twelve million farmers in the United States and they add each year to the National wealth $8,400,000,000. They pay an average interest rate of 8^ per cent. The rate of interest paid by the farmer, as the President points out, is considerably higher than that paid by industrial corpora- tions, railroads, and municipalities, yet the security offered by the farmer in the land on which his crops are grown is as stable as the securities offered by the corporations mentioned. This condition of affairs is due to the fact 1 Letter of President Taft to the governors of States, October, 1912. 278 Cooperation in Agriculture that our financial system has not been developed to meet the needs of American agriculture, and the farmer is handi- capped by not being able to negotiate loans by offering the land as security for his most necessary credit needs, or to utilize his character as an asset for personal credit to the extent that a member of a foreign cooperative union may do. A better understanding of the subject may be had by a brief discussion of the credit requirements of the farmer and of his present means of obtaining the credit he needs. The American farmer needs credit to make permanent improvements to his property, to increase its productive power, and for short-term purposes to be used for current expenses while his crops or products are maturing and especially to provide for the harvesting and movement of the crops. He now has three general ways of obtain- ing credit: by borrowing from an individual or other private agency on such terms as the two agree upon; by obtaining credit from a local store or other mercantile institution, giving as security, if necessary, a mortgage or lien upon his crop ; and by borrowing money from a bank, an insurance company, loan and trust company, or other institution, giving such security as these agencies require. He sometimes obtains credit by using a ware- house receipt for grain, cotton, tobacco, fruit, or other crop as security for a loan. The Individual Credit System Under the individual credit system a farmer usually secures money from a local farmer or neighbor or a resident or distant agent who has money to loan. For Rural Credit 279 a long-time loan for permanent improvement he usually gives a mortgage on the land ; for a short-time loan for current expenses, a note properly secured, a crop lien, or other form of chattel mortgage or personal security. Some of the loan agents deal honorably with the farmers, but the unscrupulous acts of money lenders in foreclosing mortgages so as to obtain the farm below its value and other acts not less honorable have given the unscrupulous individual loan agent or money lender the name of "land shark," and have made this form of rural credit one of the most dangerous and expensive for the average farmer to use. The Crop Lien Another form of individual credit is the common prac- tice of those who market the products of the farm to ad- vance money to the farmers in the spring to carry on their current seasonal operations, taking as security a mort- gage or lien on the crop. The system is the outcome of the personal relations that exist between the producer and those who handle his crops. The commission mer- chant, jobber, auction company, or warehouseman who furnishes the money, of course, reserves the exclusive right to handle the crop, and he is able to dictate the con- ditions under which the crop is to be sold. In many of the truck-growing and fruit-growing sections of the coun- try this system of credit is the most common method by which capital is provided to the rural classes, and it is the only method by which many of the farmers can secure the necessary capital to conduct their seasonal operations. In the southern states a large proportion of the cotton 280 Cooperation in Agriculture farmers, especially the tenant farmers, secure their credit in this way. While the system is not wholly bad, it is often accompanied by the gravest abuses. By the manipulation of the crop, the unscrupulous dealer can keep the farmer indebted to him continuously. The farmer may lose his independence, he is under the control of the dealer who handles his crop, and he often pays an enormous rate of interest indirectly as a result of the way in which his crop is manipulated by the dealer. Under the chattel mortgage system the farmer may be prevented from mak- ing permanent improvements on his property, and he is likely to be in a condition of continual financial slavery to the unscrupulous agents who handle his business. Unless the crop is an unusual one and the prices are abnormally high, he may never be lifted out of debt. The Store Credit System Under the store credit system, of which there are many forms, the store gives the farmer the right to purchase the fertilizer, tools, feed, wagons, and other necessities needed in the household or on the farm. This form of credit is for current expenses and not for permanent improvements on the property. The storekeeper does not often loan money, though sometimes the farmer can secure direct loans by giving a crop lien or other form of chattel mortgage as security. If the character of the farmer is good and the risk reasonably safe, the credit may not need to be secured, and the bills that have accumulated at the store during the season are paid when the crops are sold. Where the reputation of the farmer is less certain and the risk correspondingly greater, and where the methods Rural Credit 281 of farming are shiftless, the credit may be secured by a crop mortgage or lien. The store system of credit in one form or other has dominated the rural life in the cotton-growing states, in the past, and it is in common use to a greater or less extent in every rural community. In the South it is combined with a crop lien or chattel mortgage form of security. It has proved to be a haphazard, unsystematic, extravagant, and often vicious system for both the store- keeper and the farmer. It prevents the permanent im- provement of a community. It is based on a false se- curity, because the lien or mortgage is given on the crop before it is developed and often before the crop is planted. In order to make the risk secure, the Southern storekeeper generally charges an average of twenty-five per cent more for the goods sold than the charge for similar supplies when bought for cash. The supplies are usually of com- paratively low grade. The farmer therefore pays an equivalent of this abnormal rate of interest on his credit. To protect himself still further, the storekeeper in the cotton states may have to direct the farming operations of those to whom he extends credit, dictating the crops to be grown, the crop rotations, and the tillage systems. When an able man handles this system of credit, the agriculture of a community may be built up to a high state of productiveness, but, taken as a whole, the system is open to the gravest abuses. The farmer sells his prod- ucts at the lowest wholesale price and buys his supplies at the highest retail prices. It has proven detrimental to the best interests of an agricultural community, to the social and economic advancement of the farmers, and equally detrimental to those who furnish the credit. 282 Cooperation in Agriculture The average farmer who depends on store credit would save money if he would borrow at a bank on such security as he could offer and pay cash for the supplies which he purchases. Bank Credit Bank credit has been extended less to agriculture than to almost any other class of business, because land is not available as security for short-term loans. Yet it is the most common form of credit in American agriculture, probably more than half the credit of the American farmer being obtained from this source. Under the national bank law, which has not been revised for fifty years, money cannot be loaned on farm lands as security. The theory of the law is that a mortgage on real estate cannot be quickly liquidated to protect the bank in case of an emergency, while personal securities of different kinds which the bank is permitted to accept can be quickly converted into money, — a protection that was considered necessary when the banking system was enacted, because the obligations of the bank are largely payable on demand. The resources of the national banks must be kept in a fluid condition, and their funds can only be invested in short-term, commercial paper. The need of a more elastic rural credit system is recognized by the monetary commission appointed by President Taft to revise the national banking system, and an amendment to the na- tional bank act has been recommended providing that thirty per cent of time deposits may be loaned upon im- proved and unencumbered real estate, the loans not to exceed fifty per cent of the value of the property which shall be situated in the territory near the bank. Rural Credit 283 In case of the loan and trust companies which often act as brokerage agents in placing and handling loans, in- surance companies, savings banks, and other similar cor- porations, the investments are of a more permanent char- acter, and these institutions accept farm mortgages as security for long-time credit at reasonable rates of interest. They do not often extend credit for short periods of time. The state banks and private banks desire to turn over their capital rapidly and do not as a rule loan money on long-time mortgages on farm lands and do not accept land as security for short-term loans. These institutions do loan money on proper security such as notes or stock certificates, chattel mortgages, and other personal security, for short-time loans. THE NEED OF A BETTER RURAL CREDIT SYSTEM There is less need of a distinctive rural credit system in the United States than there was when cooperative credit systems originated in Europe. While there are many abuses in handling credit available to farmers, and the rate of interest may be high when compared with loans extended in commercial business, the local and state banks that have been organized in nearly every town of several hundred inhabitants, especially in the northern and western parts of the United States, furnish credit to the farmers on per- sonal notes, chattel mortgages, mortgages on realty, or other acceptable security. In the country these banks are often owned and managed by farmers and are organized and operated primarily for rural credit purposes. There is great competition among these local banks, and every 284 Cooperation in Agriculture town of a few thousand inhabitants may have several banking institutions that are successfully operated and that furnish credit to the farmers at reasonable rates of interest. Through these local and state banks, a respon- sible farmer who desires credit has little difficulty in se- curing a short-term loan provided he can offer acceptable security, and his land is available for security for long- term loans. The small farmer and especially the tenant farmer whose only security is his crops or cattle or other personal property, the whole amount of which may not be available to hypothecate as security for a short-term loan, may have more difficulty in securing credit from a bank and is forced to depend on the store as his principal source of credit. One of the fundamental difficulties in rural credit is the inelastic nature of the country banking system which restricts the credit that a rural bank can extend, and the further fact that the best security in the world, the land on which he grows his crops, is not liquid as security. The security of the farmer as well as the credit of the bank is therefore restricted. The average farmer is obliged to sell his crops at the prevailing market prices at the harvest time. He cannot hold them for better market conditions, because he has usually secured credit for a short period on the expectation of repaying it when the crop is harvested. The agricultural credit needs have been met in foreign countries by the organization of cooperative credit banks or societies on the principle that where a group of persons combine to furnish a collective guarantee, they can utilize the security of that guarantee as a basis for obtaining credit at a low rate of interest. This collective guarantee Rural Credit 285 may be in the form of a mortgage on the lands of the members of the banking society as in the Landschaften ; or it may be a collective personal guarantee given by the members of a bank to repay the loans extended to the members. In the case of the Raiffeisen rural banks, un- limited liability is a fundamental part of the system; in the Schulze-Delitzsch system, the liability of the members may be either limited or unlimited. In the rural credit systems of this type the collective personal guarantee as pointed out by Dr. Lorenzoni is in fact indirectly a property security. Based on these collective guarantees, capital is secured for the members in a variety of ways. In all cases it is readily secured from the large banking institutions at low rates of interest. In France the government furnishes the main source of capital for the cooperative banks. In Germany the Landschaften issue bonds and secure their capital from the investing public ; the Raiffeisen banks depend on their current deposits, savings deposits and reserve funds, and on the loans which they obtain from the central and other banking institutions. The following are the principal safeguards for loans given on personal security in addition to the loans secured on mortgages as outlined by Dr. Lorenzoni to whom the author is indebted for a large part of the data included in the rural credit discussion.1 " (1) That loans are only made to members of the group and that only persons known to be trustworthy are ad- mitted ; "(2) That membership is confined to persons residing 1 " An Outline of the European Credit Systems." 286 Cooperation in Agriculture within a small district and that, therefore, the members are personally known to one another ; "(3) That the members being mutually responsible, it will be to the interest of all members to keep an eye upon a borrower and to see that he makes a proper use of the money lent to him ; " (4) That, in like manner, it is to the interest of all members to help a member when he is in difficulty ; "(5) That the borrower is required to find sureties or give other collateral security for the repayment of the loan; " (6) That the borrower binds himself to apply his loan to a specific purpose which will bring in a monetary return sufficient to enable him to repay the same when borrowed, to pay the interest charges, and to leave a profit to him- self." A brief discussion of the leading foreign cooperative credit systems may be helpful in the consideration of cooperative credit as a means of meeting the needs of the American farmer, but as the question is receiving con- sideration from various official and unofficial sources, no attempt will be made to apply the foreign methods to American conditions or to suggest the steps that may be taken to make the American financial system better adapted to our rural credit needs. THE RAIFFEISEN BANKS The Raiffeisen banking system is designed to meet the credit needs of the small European farmer. The system is founded on a code of moral and educational principles to which are added the unlimited liability of members. Rural Credit 287 gratuitous management, and operation for the members at cost, and a restricted area where the members know each other intimately. Organization and Management A number of farmers in a community join and form a cooperative bank in which the members are jointly liable for the debts of the association, and each member is liable for his neighbor as well as for himself. Each member owns a limited number of shares of stock, usually only one. The average amount of paid-up capital of each mem- ber in Germany in 1909 was less than five dollars. The interest paid on the stock is the same as the interest paid by members on loans. Each member has one vote in determining the policies of the association. The profits from the banking operations are carried in the reserve and are prorated to the members. The management of the bank is in the hands of the entire membership which acts in a body known as the General Meeting. The Gen- eral Meeting intrusts the management to a supervisory council and to an executive committee or committee of management, and to a treasurer, all of which are appointed by the General Meeting, the treasurer usually being the only paid employee of the bank. The Working Capital The working capital that the Raiffeisen bank uses to loan to its members is derived from the paid-in capital of the members, the reserve that has been accumulated in the past, the current deposits and deposits in the sav- ings department, and the money which is borrowed from 288 Cooperation in Agriculture individuals, from the central cooperative banks, or from other banking institutions. The working capital of the fifteen thousand Raiffeisen banks in Germany in 1909 was $461,089,632, one and two-tenths per cent of which was share capital, two and six-tenths per cent reserve, nine and eight-tenths per cent current deposits, seventy- five and two-tenths per cent savings deposits and eleven and two-tenths per cent other liabilities. The capital of the bank itself, that is, the share capital and the re- serve, forms three and eight-tenths per cent of the total volume of capital in use, and eighty-five per cent of the capital is furnished by the current and savings accounts of the members. Under the Raiffeisen plan less than four per cent of the total volume of business transacted in Germany in 1909 was represented by the paid-in capital of the bank, i.e. the reserve and paid-in capital stock. It is pointed out by Dr. Lorenzoni that of the two billion marks loaned to the farmers in 1909, eighty-eight and eight-tenths per cent was provided by the savings and deposits of the farmers themselves, or deposits made through local pride. It will be seen from these data that an enormous business is transacted by the Raiffeisen banks on a very small capital. The Loaning of Money The money loaned to the members of the Raiffeisen banks are both short-term and long-term loans. About one-third of the loans are of the short-term variety and are principally for current expenses. The member se- cures his loan by the indorsement of the notes by other members, the deposit of stock certificates, valuables, or Rural Credit 289 other acceptable forms of security, by mortgage on the land, or in some cases by an unsecured personal note. The greatest security, however, lies in the collective in- terest of the members in the banking system, the interest of every member in the financial affairs of his neighbor, and of the great financial strength that comes to an institution that is founded on a mutually cooperative rural banking system in which the character of every member and the purpose of his loans is known and passed upon by every other member. The Federation of the Raiffeisen Banks There are two kinds of federations in Germany with which the Raiffeisen banks are identified. The coopera- tive societies of different kinds formed in a province on the Raiffeisen plan usually join and organize a provincial federation, and these in turn are federated into the Na- tional Federation of Darmstadt, Germany. The object of these federations is to look after the general questions that affect all of the associations alike, to protect their mutual interests, and to develop the cooperative move- ment among the rural classes by propaganda and educa- tion. In 1910 the National Federation in Germany was composed of forty-one provincial federations, and they in turn included, on June 1, 18,962 cooperative so- cieties of which 12,894 were cooperative credit asso- ciations. In addition to the federations mentioned in the preced- ing paragraph, the banks of a province are federated into a central bank for strictly banking purposes, and the provincial banks are again federated into two national 290 Cooperation in Agriculture central banks. These banking federations and the fed- erations for propaganda, protection, and education are closely affiliated and are members of each other's organ- izations, the officers of the one frequently managing the affairs of both. The function of the provincial banks and of the central banks is to furnish capital to the local banks and other cooperative societies within the federations and to the provincial banks on the same principle that the local bank furnishes capital to its members. It is the means of making the cooperative rural banking system provincial and national in scope. THE SCHULZE-DELITZSCH BANKS The Schulze-Delitzsch banks are formed to meet the commercial and industrial needs of the towns and cities, but they are utilized to a large extent by the better class of farmers who are also members of the banks. Their busi- ness is conducted more like modern banking institutions. They have a large capital, pay good dividends, and have either limited or unlimited liability. Most of the Schulze- Delitzsch banks are affiliated into provincial federations. There were 939 of the Schulze-Delitzsch banks in Germany in 1910 with a membership of 600,000 and loans amount- ing to 4,015,900,000 marks. The average membership of the Schulze-Delitzsch banks in 1910 was 639, of the Raiffeisen banks 92, while the total membership of the latter banks was 1,163,186. The membership of the Schulze-Delitzsch banks is made up of farmers who cul- tivate medium-sized places, wage earners, professional men, artisans, merchants, and others, the farmers forming the largest single class. About 60 per cent of the Schulze- Rural Credit 291 Delitzsch banks are founded on the unlimited liability plan, this form being considered safest in sections that are not familiar with cooperative credit. The average share capital per member in 1910 was 360 marks as compared with an average of 19 marks in the Raiffeisen system. The Working Capital The working capital of the Schulze-Delitzsch banks in 1910 in Germany was $346,743,897, 14.8 per cent of which was share capital, 6.5 per cent reserve, and 78.7 per cent capital from outside sources. The proportion of the bank's own funds in 1910 was 2L3 per cent in the Schulze- Delitzsch and 3.8 per cent in the Raiffeisen banks. The principal function of these banks is to furnish short-time credit, 41.5 per cent of the loans being of this nature, while only 10 per cent were on mortgages. The Schulze- Delitzsch banks are federated into thirty-two provincial federations which include also cooperative societies of other kinds. These provincial federations are affiliated with the General Federation of German Cooperative Societies. They have not federated into a central na- tional banking institution as the Raiffeisen banks have, though the movement of these funds and the equalization of their debits and credits are facilitated by the Dresden bank, a private institution. THE LANDSCHAFTEN The Landschaften are cooperative banking institutions in Germany formed collectively by the proprietors or landlords of a province or other administrative unit to obtain for their members the credit they desire in making 292 Cooperation in Agriculture permanent improvements on the land. They are long- term land credit banks. The credit is obtained on the security of a collective mortgage on their lands which is syndicated into a bond. The security also includes the assets of the associations and ultimately the unlimited liability of all its members. These bonds are sold to the investing public, and the funds derived are used in making loans to the members. There are twenty-five of the co- operative land banks in Germany, the first having been formed at the end of the eighteenth century. The total amount of bonds issued by the Landschaften in 1909 equaled $653,294,429. The Landschaften are managed by an assembly of land-owners and an executive committee. Those of the Committee having legal knowledge may receive pay for their services ; the others receive traveling and incidental expenses only. The business of the Landschaften is inspected by the government, and the employees are indirect employees of the states. In granting loans, a proprietor makes a request for the loan, giving a detailed statement of the object. The funds for the loan are secured by the sale of the bonds issued by the Landschaften, and the amount loaned a member may equal from one-half to two-thirds the value of his land. The estates of the land-owners who are mem- bers of the Landschaften taken collectively form the security for the bondholder. Concerning the Landschaften, Ambassador Herrick states:1 "Originally a Landschaft did not give cash to 1 Preliminary Report on Land and Agricultural Credit in Europe. Division of Information. Department of State, October, 10, 1912. Rural Credit 293 a member in exchange for his mortgage. It gave him a bond which simply contained a promise to pay in the event the interest and principal could not be collected from the debtor. The bond was of the exact size of the mortgage, primarily secured by it, and made payable to bearer on a few months' notice. In case of default the holder had to resort to foreclosure proceedings, so the bonds had only a limited circulation, and were often sold below par. This was but a slight advance on private money lending. Later the associations undertook to collect the interest and principal. Finally they assumed direct responsibility, and began to give cash to members for their mortgages, raising funds for this purpose by issu- ing and selling bonds of even denominations for large and small amounts. The practice of requiring mortgages to be paid in lump was abolished, and in place thereof the loans were made repayable by annual installments run- ning through a long period of years, and the installments were set aside for redeeming the bonds. These steps brought about a complete revolution in land credit, and marked the beginning of the land-mortgage business as it is known to-day. The whole theory of the organization of land credit is based upon this debenture bond and sys- tem of amortization and sinking funds devised and intro- duced by the Landschaften. One without the other two is useless. The three must be combined, and also coupled with strong management under wise laws in order to attract a steady flow of cheap money to agriculture. It is remarkable that this truth has never been realized or applied to the United States for farm-mortgage loans. In spite of the example of practically every nation in Europe 294 Cooperation in Agriculture for generations, the lending of money on mortgage in America still remains largely a mere brokerage business, unrestricted by proper governing laws, either by indi- viduals or corporations, while mortgages continue to be drawn up for three or five years, when experience shows that the average life of a loan is far in excess of that period and needs to be renewed time and again, with added expense to the debtor and trouble for the creditor. Had the European amortization system been employed, the companies dealing in western farm mortgages between 1890 and 1894 probably would have escaped the misfor- tunes that brought them down to ruin. "Amortization is simply a method W paying off a loan by returning a little of the capital each year. These payments are called annuities, and are composed of the interest and contributions to the sinking fund and the cost of conducting business. They are calculated for periods of 10 to 75 years, and at the end of the period the mortgaged debt becomes extinguished, and the property returns to the owner free and clear of all encumbrances." The New Landschaften "These new institutions are of different patterns. Several are annexes to the older societies, but most are independent and resemble ordinary mortgage banks, except in the essential point that they have no share capital earning dividends. They are, as the old so- cieties, simply syndicates of borrowers formed to supply proprietors with capital on the lowest possible terms and repayable in the easiest manner. They are gratuitous intermediaries between the outside capitalists and the Rural Credit 295 borrowers, and while performing services of the highest importance in testing the security offered by the borrowers, and in guaranteeing to the public the safety of the capital lent by them, they charge absolutely nothing for their services beyond a small commission, perhaps one-fourth of 1 per cent or even one-tenth of 1 per cent, to cover actual expenses. It is usual for each association to be restricted to a particular area of operations within which every proprietor, whether noble or peasant, may obtain a loan if he can offer sufficient security. There is always a minimum limit either to loans or to the value of prop- erty on which loans will be given. This is usually low. In the new Bradenburg Landschaft, affiliated to the old Kur-und-Neumark Landschaft, loans may be granted on property having a net income of only $25. The minimum limit is seldom even approached. "Members are those who borrow from the bank. They are generally responsible in all their property, not merely for their own borrowings, but for the debts of the society to the outside public. But in some cases only the prop- erty pledged to the society is responsible; in others they are bound, in case of need, to pay a sum proportion- ate to the amount of their own borrowing. There are no shares to be paid up except in two societies. These two resemble cooperative societies, for the shares are personal and nontransferable, are of unlimited number, varying with the number of members, and their value is claimable by a withdrawing member. The share seems to be demanded simply to provide a first working capital and the nucleus of a reserve. The amount of the share is frequently a certain percentage of the amount of the loan 296 Cooperation in Agriculture required. Some societies demand an entrance fee of a few cents, which goes to the reserve. This reserve will be dealt with below. ' "The societies in general, having no share capital, do not lend their own funds. The candidate for a loan asks that debentures may be issued against a mortgage of his property. This is then examined. If the security is approved, the candidate executes a mortgage deed to the society, which thereupon issues debentures which are placed on the market and, being sold, provide the funds for the loan. In the old banks the debentures are simply handed to the borrower, who sells them for himself. In the new land banks either this is done, or the bank sells them and pays the borrower the value if below par, or if they sell above par, then the face value, the surplus going to the reserve; or they simply issue debentures on the market and pay the borrower the amount of the loan as settled. It will be seen, then, that the banks have no capital and no need for it. "The debentures are for the usual class, secured not by the particular mortgage on which they are issued, but by the whole mass of mortgages held by the bank and by all its proper forms of security, viz., the property of the mem- bers, the reserve or guaranty fund, and even the sinking funds. In some banks a debenture holder has the right (never needed, however) of requiring a court to assign a particular mortgage against his debenture as a specific security in case the bank should fail to pay him his interest or capital due. A debenture holder cannot demand pay- ment of his debenture, except when it is drawn for pay- ment. But the bank can call in any at six months' Rural Credit 297 notice, besides withdrawing them by lot in the usual way. These debentures enjoy an excellent position, the 4 per cents selling usually at or above par. Since cheapness of loans is the sole object of the bank, it is customary to call in debentures selling at a premium and issue a fresh series at a lower rate. "Loans are usually applied for to the district com- mittee which each bank has, with a statement of the property, the amount required, and all documents neces- sary to prove title and freedom from encumbrance. Properties may be valued by a special valuation ; or a mul- tiple of the net income, as assessed to the land tax, may be taken. In both cases, however, an inspection of the property is necessary unless under a special rule. Half to two-thirds of the estimated value is allowable as a loan. The interest paid by the borrower on the loans is that paid by the bank on the debentures, the bank being merely an intermediary between the borrower and the actual lending public. But where the bank pays the loan in cash it charges such interest as it thinks proper, in order to make up any loss should the debentures sell below par. Loans are repayable almost entirely by amortization, usually in about 53 years. Some short- term loans are granted with corresponding debentures. The bank cannot demand repayment of a loan except in case of waste, deterioration, or the like. On the other hand, the borrower is at liberty to repay in whole or in part whenever he pleases, but must pay the entire interest for the half year in which he repays. The loan is repaid by an annuity consisting of the interest, sinking fund (usually beginning at one-half of 1 per cent), with a 298 Cooperation in Agriculture contribution to the reserve or guaranty fund, and another for the expenses of administration. The annuities have totaled 6 per cent, but they now average around 4 per cent or lower — e.g. interest being 3 per cent, sinking fund one-half of 1 per cent, guaranty fund one-fourth of 1 per cent, and expenses one-fourth of 1 per cent. Some of the banks also require a lump payment on the grant of the loan of 1 or 2 per cent to be credited either to the working or to the guaranty fund. The working fund is formed by the contribution made for the expenses of management and any special sources." CHAPTER XII THE RURAL TELEPHONE THE development of the rural telephone service during the last generation has been a leading factor in the ameli- oration of country life conditions. According to data compiled by the Bureau of the Census1 there were 17,902 farmers' telephone lines in the United States in 1907, including 565,649 telephones ; the largest development of lines occurred in Iowa, Missouri, Illinois, Kansas, Indiana, and Ohio. At the same time there were three hundred and sixty-eight mutual or cooperative systems which are organized principally in the rural districts operated by the commercial companies. A farmers' telephone system as understood by the Census Bureau is one that has no regular exchange or central of its own, but which may or may not be connected with the exchange of a Bell or of a commercial or mutual system. These lines are not incorporated. A mutual or cooperative system is operated primarily for the conven- ience of its members, and not for profit. The members are assessed to pay expenses of operation, maintenance, and extension. Many of these cooperative associations are incorporated. The commercial systems are operated primarily for profit and comprise the Bell system and independent commercial companies. 1 " Telephones," 1907. 299 300 Cooperation in Agriculture The rural telephone service dates back thirty-three years ago when the Bell Company, which then controlled the patents, leased telephones to be used between the residences of a community. They were not exchange telephones, and under this system the farmers of a com- munity could enjoy a telephone service, though they were not connected with any other line. The next step oc- curred in the early eighties, when these independent circuits were connected through an exchange. After 1893, when the principal patents on the telephones expired, the farmers began to organize their own lines, the movement being aided by the Bell and other commercial companies in order to develop a large rural service that would even- tually be connected with the great trunk systems of the Bell Company. The evolution of the rural telephone system is thus related by the Bureau of the Census. — "In those communities where the farmers have built their own telephone lines, the original form of organization has been purely mutual. Construction has been a co- operative work, and the association of the farmers the most primitive type of corporation. The establishment and development of such farmers' telephone systems have usually gone on along evolutionary lines, and have followed more or less closely the form herewith outlined. A group of farmers who lived within a reasonable distance of one another, having come to the conclusion that telephone service was an essential comfort of life, and that it had already passed from the region of luxuries into the field of necessities, would meet together and arrange to establish a telephone system which should connect them with one another. The work involved in constructing such system PLATE XVI. — Farmers' Cooperative Grain Elevators. Chapter VII. The Rural Telephone 301 would be so divided that each member of the association would contribute an equivalent part of the material and labor. If the country was wooded, the farmers making up the association agreed to cut and supply the poles and to haul them to the places where they were needed. In many cases it might happen that one member of the group of farmers had a wood lot and could supply all the poles, and he would agree to furnish a sufficient number of poles, while the other members of the association would take charge of the work of setting them and stringing the wires. The farmers' boys and the farm hands did the work of setting the poles and putting on the cross-arms, which would in many cases be hewn out of native timber. The wire and the insulators, the switchboard and the instru- ments, would have to be bought, and so a cash assessment would be levied on each member to make these purchases. If it became necessary to buy poles because of the lack of suitable timber in the district, the assessment had to be proportionally increased. The work of stringing the wires and installing the instruments was taken up by the me- chanically-minded farmers and their boys, and in a very short time a complete telephone system was in operation. The switchboard was placed in the house of one of the members of the association situated at some convenient point, and the operation of the lines was attended to by the wife and daughters of the farmer in whose home the board was located. "A strictly mutual, isolated system of this kind sufficed for a while to give all the telephone service this particular group desired, but it was not long before progressive farm- ers realized the need of connection with the outer world. 302 Cooperation in Agriculture Negotiations would therefore be opened with the telephone company operating in the nearest town, the town with .which these farmers did their usual trading, for a contract by which the farmers could secure town service and also get access to the toll lines reaching to the county seat and the metropolitan center of the district. These contracts between the groups of farmers and the larger systems operating in the cities and connecting with the long-dis- tance toll lines made these farmers' groups or mutual companies, as many of them were called, a part of a larger system — sometimes the Bell, sometimes the independent — and marked the first step toward attaining the ultimate end of telephone service, which is to enable every one who has access to a telephone to reach every other person who can reach one. "The connection with the more important systems in a way furnished all the telephone service needed for the second period of development, but a third step had to follow. In many cases, as these little mutual farmers' lines took on more subscribers and extended from farm to farm, they began to overlap one another in the territory served, a fact which in the natural sequence of events led to the consolidation of these lines and the formation of larger systems. As a result of this process of consolida- tion the purely mutual character of the ownership became weaker. In order to secure a proper maintenance of the lines and those uniform methods of operation and construc- tion which are essential to good service, it was found nec- essary for their ownership to take the corporate form ; and to-day a very large number of incorporated telephone companies exist in the United States controlled by a regu- The Rural Telephone 303 larly elected board of directors, which are in reality nothing but a combination of small groups of farmers forced by the circumstances to take the form of a corporation." "The establishment of the farmers' lines is, of course, inexpensive, so far as cash expenditure is concerned. The farmer contributes what he has the most of, that is, labor and material, and is called upon for the smallest possible amount of what he finds it hardest to secure, that is, cash. For a company to undertake this construction would require enormous sums of money, and this money would represent simply the conversion of one form of wealth into another with no gain in the total wealth. The farmers build these lines in their spare time, that is, in the time which otherwise would not add anything to the wealth of the community, but which by this means is directly converted into permanent wealth. "To maintain the telephone line it is customary for the various members of the association to become responsible either for that portion of the line located on their farms, or for some other definite portion of the system, and in- asmuch as the service on the whole line depends upon the proper maintenance of every portion of the line, if any one of the members neglects to keep up his portion he soon finds himself in disfavor with all the other members of the group. On the other hand, the farmer who knows that a friend is responsible for the quality of the service on his telephone line is far more lenient toward small inter- ruptions in the service or faults in transmission than he is under similar circumstances when the service is furnished by a company. When, in course of time, it becomes nec- essary as a result of the expansion of the system to secure 304 Cooperation in Agriculture the services of some one who shall give his whole time to seeing that the line and the instruments are kept in proper repair, farmers' boys are found growing up in every country community who take an interest in electrical and mechani- cal methods, and who gladly devote themselves to this work for a very moderate amount of cash payment, their ambi- tion being to learn the methods of operating. "The operating expense of the telephone service is likewise small. A switchboard placed in a farmer's house and attended by the farmer's wife and daughters makes but little demand upon the time of any one, and this service is given for a minimum cash payment. The mere fact of having the switchboard, the center of the farmers' group, is often a source of sufficient pride to cause this work to be done for nothing. "Thus it happens that in the earlier days of a farmers' telephone system, when the plant is small and is carefully looked after by the members of the association, the cost of the service is very trifling. Later on the plant grows old and deteriorates and requires more repairs. The num- ber of subscribers increases, and the operators must spend their entire time at the switchboard. Storms come, and the partially worn-out plant succumbs more readily to the weather. The result is that at the end of the year the members of the association find that the expenses have been greater than in previous years, and much larger than they had ever figured on. This produces dissatisfaction, but still the telephone service has become so indispensable that it must be continued. When this stage has been reached, the association usually feels obliged to become a regular company and very often to consolidate with its The Rural Telephone 305 neighbors, in order that the consolidated company may secure a technical man the cost of whose services can be apportioned among a sufficiently large number of sub- scribers so that this charge will but slightly increase the burden of each. "Very few of those who express dissatisfaction with the increased expense of the telephone service which results from the conditions indicated, stop to think of the reasons for this increased cost of service, and of the increased value which their telephones now possess. As the system has grown, the investment has naturally become greater, and inasmuch as the newer subscribers are located at points more distant from the center of the group than were the first, the investment in poles and wires for each subscriber has become greater. So, too, the investment in the switchboard becomes greater with the growth of the sys- tem. A small switchboard for a hundred subscribers can be installed for about $4 a subscriber, while for a thousand subscribers such a board might easily cost $20 for each subscriber. " Similar conditions exist with regard to the work of operating the switchboard. The farmers at first do not consider the fact that where there were 20 subscribers, and each one could talk to but 19 others, the daily number of calls from each subscriber was small. When the num- ber increased to 300, each subscriber could reach 299 others, so that the demand for telephone calls became greater. The result was that with a small number of subscribers the average farmer would resort to the telephone three times a day. When he could reach 299 of his neighbors he might call up 10 of those a day. This increased number of calls 306 Cooperation in Agriculture would mean, of course, that an operator could attend to fewer lines than had formerly been the case. With 20 subscribers, each of whom gave but three calls a day, there would be but 60 calls, so that the operator would have a great deal of spare time, and would not need to stay at the switchboard, but could go to it when the bell rang. With 300 subscribers, and an average of 10 calls a day for each subscriber, the number of calls daily would be 3000. If these calls were distributed equally over the entire day, they could still be handled by one girl without difficulty if she gave her entire time, but telephone calls, even in rural districts, are not so distributed. The morn- ing is apt to be a busy time on the farm lines, when business is being transacted with the adjoining town, plans made with neighbors, and orders given of one kind and another. A practical lull then ensues during the major part of the day, followed by a sudden rush of business about supper time, when the telephone visiting begins and the members of the farm-line telephone associations discuss all the events of the day and happenings past, present, and to come, and make appointments for business and for pleas- ure. During this time the farmers' telephone board is a very busy place, so that the number of patrons a single operator can attend to is smaller, and consequently more operators must be employed to handle the calls. As the number of subscribers and of calls increases, this demand upon the operator becomes such that each must be given fewer and fewer lines to attend, especially if their lines are frequently used, so that where one girl might in the early stages of telephone development easily attend to 100 or even 150 lines, a point is reached where a girl The Rural Telephone 307 may have all that she can possibly do to satisfy GO sub- scribers. "These facts make it apparent that as a telephone sys- tem grows the cost grows likewise, and all through the country the farmers have found themselves obliged, in order to keep up their plant and furnish the kind of service which they feel they want, to increase their assessments in the case of mutual associations, or to raise their rates in the case of the incorporated companies. The one thing which the farmer has often failed to see is that with this increase in cost has come a great increase in the value of the service. When he was able to reach only a dozen neighbors, and was not connected with any village, the service was of value to him, but still not of great value. After he was connected to the nearest village exchange, and was able to reach 300 subscribers, the service became immensely more valuable, and this service he still obtained for a minimum of cost. As the country filled up and the number of people connected with his telephone system increased up to the thousands, while the cost to him may have increased a few dollars a year, still the increase in the value of the service which resulted from the fact that it reached so many more persons was many times greater than the small additional expenditure required of him. In actual dollars and cents the additional profits which the farmer, in selling his products, may make on a single transaction through having the facilities of quick com- munication with the trading centers would in many cases suffice to pay the cost of a telephone for his entire lifetime." CHAPTER XIII MUTUAL INSURANCE THE cooperative method of conducting business is applied extensively to rural insurance. The mutual insurance companies sometimes cover a state, but more often are confined to a county or township. There were fifteen hundred town and mutual companies in the United States in 1911. The mutual companies are formed by groups of farmers or property-owners to insure themselves against fire and lightning, tornadoes, cyclones, wind- storms, hailstorms, and against the loss of stock, the insurance to be done at actual cost. In Europe the in- surance of cattle against death from diseases and the insurance of persons engaged in agricultural work have developed into large undertakings. The expenses of these companies are low. They pay comparatively small sala- ries to the management, the rents for quarters are low, and all of the operations are conducted economically. The stock corporation companies, on the other hand, are conducted on a much more elaborate and expensive scale, and the farmer who insures his property through them therefore pays a relatively higher insurance rate, the premiums generally amounting to three or four times as much as the premiums or assessments charged by the mutual companies. The farmers of Minnesota, for ex- ample, according to Mr. Valgren, through their mutual 308 Mutual Insurance 309 companies are saving three-quarters of a million dollars annually in premiums. The Minnesota Act authorizing the formation of township mutual insurance companies was passed in 1875, and of the one hundred and fifty or more associations formed since that time, none has failed.1 The formation and management of the mutual com- panies must conform to the insurance laws of the state, the mutual companies being subject to the same super- vision as that exercised over the stock corporation insur- ance companies. In forming a mutual company, a group of farmers or other property-owners residing in the same town or county or in a number of adjoining towns who own collectively from $50,000 to $250,000 worth of property, or whatever amount is prescribed by the state law, form themselves into a company or corporation for mutual insurance against fire, hail, cyclone, or against such other catastrophes as the state laws provide. When agreements have been entered into for insurance by the number of people prescribed by the law, usually twenty-five or more, and a certain proportion of the premiums are actually paid in, and the remainder secured by notes or bonds in the possession of the association, the company takes out a certificate of incorporation, and, after approval by the state officials, is ready to transact a mutual insurance business. A PLAN FOB A MUTUAL INSURANCE COMPANY There are two methods of organizing mutual insurance companies. In one of these a fixed premium is charged 1 "Farmers' Mutual Fire Insurance in Minnesota," Victor Nelson Val- gren, Quarterly Journal of Economics, Harvard University, Feb., 1911. 310 Cooperation in Agriculture to all those who insure, somewhat after the plan of the old-line companies. From these premiums a surplus is ' accumulated from which the losses are paid, and when the surplus is not large enough to cover losses, the members are assessed pro rata to cover the losses. In the second method, no premium is paid upon the insurance, but a fee is collected at the time a policy is issued to cover the cost of examining the property and other expenses in connec- tion with issuing the policy. The members are under a written agreement to pay a pro rata share of the loss sus- tained by the company whenever a loss occurs. In some states each company has to provide and main- tain as a reinsurance reserve a fund equal to a certain pro- portion of the amount received annually from premiums. This provision applies especially to the state mutuals. Under the first method of organization, in addition to the annual premium a member pays, he may be legally liable to the association for a still greater amount when unusual losses occur, in Iowa, for example, the maximum liability of a member equaling not "less than a sum equal to the basis rate charged by the association for insurance nor greater than a sum equal three times such basis rate." In other states each member by agreement may be liable for his pro rata share of all the liabilities carried by the company, the maximum amount of the liability usually being plainly stated on the face of each policy. When a loss occurs, the extent of the loss is determined by the company, and the amount is paid from the assessment or from the reserve fund. One may gain an idea of the extent of the mutual in- surance business from the annual reports of the state in- Mutual Insurance 311 surance officials, there being, for example, one hundred and fifty township mutual fire insurance companies in Minnesota in 1911 and seven mutual hail and cyclone in- surance companies. The insurance in force in the town- ship mutual fire insurance companies at the end of 1911 was $295,219,952. The amount in force in the mutual hail associations was $6,145,340, and in the mutual cy- clone companies, $38,278, 197. x In Iowa in 1911 there were nineteen state mutual fire insurance companies, one hundred and fifty-three county mutual fire companies, nine exclusive hail insurance companies, and one mutual tornado company. The risks written by the Iowa state and county mutual assessment associations in 1911 amounted to $175,718,435, the losses paid $1,235,637.12, and the risks in force $653,324,809.2 THE STRENGTH OF THE MUTUAL INSURANCE ASSOCIA- TIONS The strength of the mutual insurance companies, like any other cooperative business enterprise, lies in the ac- quaintance of the members with each other, the restricted area in which they operate, the care with which the haz- ards can be determined and the policies issued. The weakness lies in their inability to pay the losses whenever a very general disaster occurs on account of the small volume of business, the small assets, and the inability to collect assessments from the members. There is a large 1 Preliminary Fire Report, Department of Insurance for the year end- ing December 31, 1911. 2 Forty-third Annual Report of the Auditor of State of Iowa, on In- surance, p. viii. 3l2 Cooperation in Agriculture moral element in all kinds of insurance. In the town and county mutuals, the moral risk is very low because the intimate acquaintance of the members insures against the overvaluation of property and the issuing of policies to dishonest people, and it prevents dishonest practices which a person might engage in when dealing with the large insurance corporations located at a distance. Many of the states safeguard the mutual associations against losses that might occur from unusual conflagrations by prohibiting their operation in the larger villages and cities, by confining their operation to restricted territories such as a single town or county or at most to a small number of towns or counties, and by restricting their operations to non-hazardous risks. The kinds of property that can be insured by a mutual insurance association is usually defined by law, in Minnesota the statute providing : — "Nor shall any township mutual fire insurance com- pany insure any property other than dwellings and their contents, farm buildings and their contents, live-stock, farm machinery, hay, grain, in the bin or stack, churches, schoolhouses, society and town halls, country blacksmith shops and their contents, parsonages and their contents, and the barns and contents used in connection there- with, butter-makers' dwelling houses and contents, and barns and contents used in connection therewith. "No such company shall insure any property within the limits of any city or village except that located upon lands actually used for farming or gardening purposes, but whenever the dwelling house of any person insured is within the limits of a town where the company is au- thorized to do business, and the farm on which such dwell- Mutual Insurance 313 ing is situated is partly within and partly without such town, it may include in such insurance any outbuildings, hay, grain, stock, or other farm property on such farm outside such limits." STATE MUTUAL ASSOCIATIONS The mutual assessment associations, like other co- operative businesses, begin to lose in safety and strength when they attempt to operate as state mutuals or in other large geographical areas. Under these conditions the personal contact and acquaintance of member with member are weakened, the risks cannot have the personal examination that local mutuals give, the powers of the association have to be delegated to employees or agents, the moral hazard increases, and the assessments are likely to grow in number and in size. While some of the state mutuals are successful, their general condition compares unfavorably with that of the local associations. The status of the state mutuals is set forth by Mr. Solomon S. Huebner of the Wharton School of Finance and Com- merce of the University of Pennsylvania, to whom the author is indebted for many of the points of view in this chapter,1 as follows : — "Many attempts have been made, usually with un- successful results, to apply the mutual plan of fire insur- ance over one or more states. But these state mutuals, while retaining the objectionable features of the local mutuals — namely, lack of assets, small volume of busi- ness, and assessments — also lack their elements of strength. The moral hazard is increased as the terri- 1 " Property Insurance," pp. 60-61, 1911. 314 Cooperation in Agriculture tory within which a mutual company does business in- creases. When such mutuals attempt to write insurance -throughout an entire state, they necessarily come into com- petition with the wealthier and more firmty established stock companies, and cannot secure business except at inadequate premiums. They also lack the business or- ganization and the trained staff of experts possessed by the stock companies, and to secure business in sections far removed from the home office, must depend upon agents for the soliciting of insurance and the selection of risks. The result is that the service is not of the best, and the supervision over the selection of risks is woefully inferior to that of the local companies. "As long as the company grows and policy-holders are not called upon to pay assessments, the management hears few complaints, and few members find occasion to trouble themselves about its affairs. The officers in too many instances ambitiously strive to rapidly increase their business, and in doing so depend upon agents, whose interest it is to write as much insurance as possible. But in the course of time the poor selection of risks begins to bear fruit. The low premiums are found woefully inade- quate, and assessment after assessment must be collected from the policy-holders to meet the ever-increasing claims. It is then that the policy-holders begin to rebel against what they regard as unreasonable charges. As the claims against the company become more pressing, it in turn must resort to pressure, and even litigation, to collect the assessments, and then follows wholesale withdrawals and at last bankruptcy. "This has been the story of the great majority of state 315 mutuals. By extending their activities over too large a territory, personal supervision could not be exercised over the risks accepted, and powers delegated to employees were too often abused or inefficiently exercised. The rates were too low and the hazardous risks too many, and the result could riot be other than failure. We are informed that at a recent date only two or three out of the seventy- four state mutuals in New York in 1853 were still in exist- ence. To insure their greater safety, a number of states have passed laws with special reference to their organiza- tion and operation. The number of applications for in- surance which must be in hand before their organization is perfected is usually much larger than is required for local mutuals. The class of business which they may ac- cept is carefully limited in certain states, while in others a limit is placed upon the amount of insurance which may be written on any one risk." BIBLIOGRAPHY The following list includes the leading references to the various forms of cooperation outlined in the foregoing pages : — ADAMS, E. W. "The Modern Farmer." W. J. Stone Com- pany, San Francisco, 1899. AIKEN, D. W. The Grange, its origin, progress, and educational purposes. Washington, Government Printing Office, 1883. ALBERTSON, H. H. "Among the Farmers of the Central West," Arena, May, 1908, V. 39 : 632-635. "Cooperative Farmers in Politics," Arena, June, 1908, V. 39 : 763-766. AVES, ERNEST. " Cooperative Industry." London : Methuen & Co., 1907. BAILEY, L. H., ed. "Cooperative Marketing in Fruits," Cy- clopedia of American Agriculture, Vol. IV, pp. 265-267. New York, 1909. Chapter on Community Action in "The Country-Life Movement." New York, 1911. BARRETT, CHARLES SIMON. "The Mission, History, and Times of the Farmers' Union." Marshall & Bruce Co., Nashville, Tenn. BEMIS, E. W., Cooperation in New England, Publications of American Economic Association, Vol. I, No. 5. Baltimore, Guggenheimer, Weil and Co., 1886. BLISS, R. K. Iowa Extension Bulletin, 7. "Cooperative Cow- Testing Associations in Iowa.'! BRAND, R. E. (See Fraser.) BROWN, W. H. "Cooperative Agriculture." (In Bliss, W. D. P., ed. New Encyclopedia of Social Reform, pp. 305-306. New York, 1908.) BUGBY, M. O. (See Goddard.) BUSH, C. R. (See Bliss.) 317 318 Bibliography BUTTERFIELD, K. L. Chapters in Rural Progress. Chicago, University of Chicago Press, 1908. CARD, F. W. " Cooperative Fire Insurance and Telephones." (In Bailey, L. H., ed. Cyclopedia of American Agriculture, Vol. IV, pp. 303-300. New York, 1909.) CHANDLER, W. H. "Cooperation among Fruit-Growers." Bulle- tin 97, University of Missouri, College of Agriculture, 1911. Committee on Agriculture, Cooperative Land-Mortgage Banks, Hearings, May 29, 1912. Senate Joint Resolution 75. Commissioner of Corporations, on Cotton Exchanges, Report of the. COULTER, J. L., and MORMAN, J. B. "Cooperation in the Mar- keting of Farm Produce," American Economic Association Quarterly, S. 3 ; V. 10, 1, pp. 2f>8-274. 1909. "Economic Organization of Rural Life," Proceedings of Twelfth Conference for Education in the South, 1909, pp. 112-129. "Organization among Farmers in the United States." New Haven, Conn. 1909. 28pp. (Yale Review Reprints, No. 10.) COULTER, J. L. "Cooperation among the Farmers." Sturgis and Walton Company, 1911. CRISSEY, F. "Cooperation close to the Soil," Everybody's Magazine, September, 1909, V. 21 : 406-416. DALHOFF, JOHN. "Agricultural Cooperation in Denmark: its Developments and Present Conditions," International, January, 1909, V. 4, pp. 105-109. DEAN, H. H. "Canadian Dairying," Toronto, W. Briggs, 1906, Part 2, Chapter 1. DRYSDALE, JOHN. "Cooperation in Agriculture." (In Green, C. E., and D. Young, eds. Encyclopedia of Agriculture, Vol. 1, pp. 438-449. Edinburgh, 1908. EYERLY, E. K. "Successful Cooperation among Fruit-Growers, Journal of Political Economy, February, 1909, V. 17 : 92-95. FAY, C. R. "Cooperation at Home and Abroad." New York : The Macmillan Co., 1908. 403 pp. FORD, JAMES, Ph. D. Cooperation in New England : Urban and Rural. Survey Associates, Inc. New York, 1913. Bibliography 319 FOSTER, F. J. The Grange and the Cooperative Enterprises in New England. Annals of the American Academy of Polit- ical and Social Science, Vol. IV (March, 1894). FRASER, W. J. "Dairy Suggestions from European Conditions." Urbana, 111. 1909. Illinois Agricultural Experiment Sta- tion Bulletin, 140. GODDARD.L.H. Ohio Agricultural Experiment Station Ch-cular 99. GRABEIN, MAX. Wirtschaftliche und socialo Bedeutung der landlichen Genossenschaf ten in Deutschland. Tubingen : H. Laupp, 1909. 195 pp. HALE, E. E. "History of Cooperation in the United States," Johns Hopkins University Studies in History and Politics, V. 6, 1888. HAYS, W. M. "Cooperation in Agriculture." Washington, 1910. 10pp. — "Cooperation true Americanism." Raleigh, N.C., 1908. HECHT, FELIX, ed. Jahrbucher des europaischen Bodenkredits. Leipzig : Duncker and Humblot, 1909, 1 vol. HERRICK, MYRON T. Report on Land and Agricultural Credit in Europe. Division of Information. Department of State, October 10, 1912. HIBBARD, B. H. "Cooperation in the Grain-elevator Business." (In Bailey, L. H., ed. Cyclopedia of American Agriculture V. IV, pp. 267-269. Now York, 1909.) HOBSON, RICHMOND P. "Agricultural Credit Banks," by O. R. Hobson, Congressional Record, Vol. 48, No. 194, 62d Congress. Second Session, Washington, Friday, July 26, 1912. 10273 pp. HOLMES, GEORGE K. Systems of Marketing Farm Products and Demand for such Products at Trade Centers. Report 98. Office of the Secretary, U. S. Department of Agriculture. HUMPHREY, G. C. "Community Breeders' Associations for Dairy Cattle Improvement." 1910. Bulletin 189, Uni- versity of Wisconsin, Agricultural Experiment Station, Madison, Wis. HUTT, W. N. "Marketing Fruit and Tzmck Crops." (In Mary- land Agricultural Experiment Station. Twentieth Annual 320 Bibliography Report, March, 1907, Bulletin 116, pp. 211-257. College Park, Md., 1906-1907.) KELLEY, O. H. Origin and Progress of the Order of the Patrons of Husbandry in the United States ; a history from 1866 to 1873. Philadelphia, J. A. Wagenscller, 1875. KEMMERER, E. W. "Agricultural Credit." (In Bailey, L. H., cd. Cyclopedia of American Agriculture, Vol. IV, pp. 269-276. New York, 1909. KLIMMER, WILHELM. " Die Entwickelung des landwirtschaft- lichen Genossenschaftswesens in Grossherzogtum Baden,". Diisseldorf : Druck van Haas & Wittke, 1906. 194 pp. LEWIS, C. I. "The Apple from Orchard to Market." Bulletin 94, Oregon Agricultural Experiment Station, Corvallis, Oregon, 1907. (Treats of cooperative fruit organizations.) LORENZONI, G. "An Outline of European Credit Systems." International Institute of Agriculture, Rome, Italy. LUBIN, DAVID. "The International Institute of Agriculture and Cooperative Banking." Rome, Italy, 1909. LUICK, H. F. (See Bliss.) MARKER, C. "Some Phases of Dairying in Denmark." Bulletin 4, Department of Agriculture, Dairy Commissioner's Branch, Ottawa, Canada, 1905. McNEiL, A. "Cooperation in the Marketing of Apples." Bulletin 18, Dairy and Cold Storage Series, Department of Agriculture, Ottawa, Canada. MORMAN, J. B. "Business Cooperation Organizations in Agri- culture." (In Bailey, L. H., ed. Cyclopedia of American Agriculture, Vol. IV, pp. 255-204. New York, 1909.) MYRICK, H. "How to Cooperate." New York, 1891. 349pp. "Cooperative Finance and American Methods for the American People, 1912. NELSON, N. O. "Cooperative Movement in the United States," Outlook, 89 : 525-529. July 4, 1898. Right Relationship League of Minnesota. PADDOCK, W. "Fruit-Growers Associations." Fort Collins, Colo., 1907. Colorado Agriculture Experiment Station Bulletin 122. Bibliography 321 PENNINGTON, M. E. "Studies of Poultry from Farm to Con- sumer." Bureau of Chemistry Circular 64, U. S. Depart- ment of Agriculture, 1910. PLUNKETT, SIR HORACE. "The Rural Life Problem of the United States." The Macmillan Company, New York, 1910. POWELL, F. W. "Cooperative Marketing of California Fresh Fruit," Quarterly Journal of Economics, February, 1910, V. 24 : 392-418. POWELL, G. HAROLD. "Cooperation in the Handling of Fruit." Yearbook U. S. Department of Agriculture, 1910, pp. 391- 406. — California Fruit Growers' Exchange, in Report 98. Office of the Secretary, U. S. Department of Agriculture. PRATT, E. A. "The Transition in Agriculture." London: J. Murray, 1906. 354 pp. — "The Organization of Agriculture." London, 1904. 403pp. RABILD, H. "Cow-Testing Associations," May 1, 1911. Cir- cular 179. RASMUSSEN, FREDERICK. "Cattle-Breeders' Associations in Denmark." Bureau of Animal Industry, Bulletin 129. U. S. Department of Agriculture, Feb. 17, 1911. RICARD, J. H. " Les Syndicats agricoles et leurs revendications,"/ Revue Politique et parlementaire, Jan. 10, 1910, V. 63 : 41-65. ROMMELL, GEO. M. "Suggestions for Horse and Mule Raising in the South." Bureau of Animal Industry, Circular 124, U. S. Department of Agriculture. RUDDICK, J. A. (See "Ottawa" under "General.") RUDLOFF, H. L. " Die Genossenschaftsbewegung der Getreide- produzten in den Vereinigten Staaten Nordamerikas," Fiih- ling's Landwirtschaftliche Zcitung, May 1, 1908, V. 57 : 321-334. Senate, Preliminary Report on Land and Agricultural Credit in Europe. 62d Congress, 3d Session, Document 967. STREETER, G. C. ."Cooperative Elevators," Farm and Fire- side, V. 32, No. 18, pp. 1-4, 1909. "Grain Cooperative Societies in Illinois and Iowa." 322 Bibliography SLOCUM, ROB. R. "Marketing Eggs through the Creamery." Farmers' Bulletin 445, U. S. Department of Agriculture, 1910. TODD, S. E. "Agricultural Cooperation." Bulletin 192, On- tario Department of Agriculture. TOUSLEY, E. M. "Cooperation among Farmers." 1910. 16pp. WHITELY, C. F. (See "Ottawa" under "General.") WIEDFELT. "Agricultural Cooperation." (A review of 12 im- portant works on the subject.) Quarterly Review, London, V. 209, pp. 299-320, October, 1908. "Agricultural Credit Banks." Great Britain Board of Agriculture and Fisheries, Leaflet 214. 1908. WOLFF, H. W. "Cooperative Banking, its Principles and Prac- tice," with a chapter on Cooperative Mortgage-credit. London : P. S. Ling and Son, 1907. 301 pp. "People's Banks." London, 1893. 2G1 pp. " Beginnings of Cooperation in Canada." Economical Review, London, 18 : 22830. April, 1908. WOLL, F. W. "The Wisconsin Dairy Cow Competition," De- cember, 1909. Circular of Information 9. WEIGHT, C. D. Cooperative Distribution in Massachusetts. 17th Annual Report Massachusetts Bureau Statistics of Labor, p. 49. Boston, Wright and Potter Printing Co., 1886. A Manual of Distributive Cooperation. Boston, Wright and Potter Printing Co., 1885. GENERAL REFERENCES American Cooperative Journal. Published by American Coop- erative Publishing Company, Chicago, 111. Belgium. Ministere de 1'agriculture. Expose statistique de la situation des associations d'interet agricole pendant 1'annee 1903-1907. Bruxelles, 1904-1908. 5 vols. in 1. Bibliographic der Socialwissenschaften ; hrsg. Von Dr. Her- mann Beck in Auftrage des Internationalen Institutes fuer Sozial-Bibliographie in Berlin. 1905-1908. Berlin, 1906- 1909. 4 vols. Bibliography 323 Canada. Special committee on industrial and cooperative so- cieties. Reports. Ottawa, 1907. 204 pp. Cape of Good Hope. Department of Agriculture. Report of the Superintendent of Agricultural Cooperation. Cape Town, 1906. 1905-1906. 1 vol. "Cooperation." (Monthly.) Published by Cooperative Educa- tion Bureau, Minneapolis, Minn. "Cooperation and Cost of Living in Certain Foreign Countries." Document 617. House of Representatives, 62d Congress, 2d Session. "Cooperative Distribution." Bulletin of the Department of Labor, 6, September, 1896. Edited by Carroll D. Wright and Orrin B. Weaver, Chief Clerk, Government Printing Office, Washington, D.C. Cooperative Association of America : The Cooperator, Lewiston, Me., 1901-1902. "Cooperative Societies for the Purchase of Farming Requisites." Great Britain Board of Agriculture. Journal, March, 1909 : 917-924. Country Life Commission. Report. Washington, 1909. pp. 56-57: "The Necessity of Working Together." Industrial Commission, Report of the. "Distribution and Mar- keting of Farm Products." Vol. VI of the Commission Report. Government Printing Office, Washington, 1901. International Cooperative Alliance. Bibliographie cooperative internationale. London : International cooperative al- liance, 1906. 276 pp. New South Wales, Department of Agriculture. "Cooperative Organizations of Fruit- Growers." Farmers' Bulletin 26, 15 pp. Summary of the Present Status of Agricultural Insurance So- cieties in Certain Countries. Bulletin of the Bureau of Eco- nomic and Social Intelligence, January, 1911, pp. 133-170. Telephones. Bureau of the Census. Government Printing Office, Washington, D.C., 1907. 324 Bibliography Cow TESTING AND BREEDING Cow-testing Associations. Circular 179, May 1, 1911. H. Rabild. Iowa Extension Bulletin 7. " Cooperative Cow-testing As- sociations in Iowa," by R. K. Bliss, C. R. Bush, and H. F. Luick ; Ames, Iowa; April, 1911. Maine Department of Agriculture, Bulletin 4. Michigan Dairy and Food Department. Bulletins 137, 155, 179; Lansing, January, 1907-July, 1910. " The Wisconsin Dairy Cow Competition," F. W. Woll, Decem- ber, 1909. Circular of Information, 9. Ottawa Department of Agriculture. Dairy and Cold Storage Commissioner's Branch, Bulletins 4, 5, and 12. October, 1910, Ottawa, Canada. CREAMERIES Bureau of Animal Industry, Bulletin 10, U. S. Department of Agriculture. Minnesota Agricultural Experiment Station, Bulletin 35. South Dakota Experiment Station, Bulletin 46. Andelsbladt No. 49, pp. 849-850. Aarhus, Dec. 9. 1910. DAIRYING "Dairy Suggestions from European Conditions," Urbana, 111., October, 1909. Illinois Agricultural Experiment Station, Bul- letin 140. See W. J. Fraser, and R. E. Brand. Ohio Agricultural Experiment Station, Wooster, Ohio, March 1, 1910, Circular 99. " Cooperative Dairy Work," by L. H. Goddard and M. O. Bugby. DEAN, H. H. "Canadian Dairying," Toronto, W. Briggs, 1906, Part 2, Chapter 1. New York Produce Review, V. 28, 7, p. 308. New York, June 10, 1909. New York Produce Review, V. 7, 336, p. 11. New York, April 9, 1908. " Practical Dairyman," V. 3, 25, p. 299. Rutherford, N. J., Feb. 24, 1910. INDEX Abuses in fruit trade, 206. Associated methods of selling fruit, 235. Auction company, 202. Bank credit, 282. Banking systems for rural credit, 271. Bibliography, 317. Boll weevil, 183. Breeders' and growers' associations, 87. Brokers, fruit, 199. Business system for cooperative creameries, 148. Butter, cooperation in the manu- facture of, 135. By-laws of a citrus fruit associa- tion, 55. California Fruit-growers' Exchange, 241. California law relating to coopera- tive associations, 46. Carey Act enterprises, 258. Cattle-breeding, cooperative, 95. Centralizer creameries, 146. Central packing-house for fruit, 226. Changes in industrial methods, 1. Changes in labor methods, 3. Charter of a citrus fruit associa- tion, 52. Citrus distribution, cooperative methods, 247. Citrus fruit association, charter of, 62. Citrus fruit membership agreement, 32. Citrus fruits, remedy for decay in, 216. Citrus fruits of California, 239. Citrus Protective League of Cali- fornia, 75. Cold-storage for fruits, 231. Commission merchant, 201. Company system of horse-breeding, 106. Constitution and by-laws of a farmers' elevator company, 132. Cooperative fruit associations, 212. Cooperative organization of a federation, 67. Corn-breeding associations, 112. Corporations for distributing fruit, 200. Cost of credit to the American farmer, 277. Cotton, acreage of, 188. Cotton, distribution of, 184. Cotton, price of, 188. Cotton crop, annual, 182. Cotton industry, cooperation in, 182. Cow-testing associations, coopera- tive, 89. Creamery, the American, status of, 144. Creamery, organization of, 137. Credit, cost of, to the American farmer, 277. Credit, rural, 271. Credit unions, cooperative, 274. Credit unions, Jewish, 274. Crop improvement, cooperative, 109. Crop lien, 279. 325 326 Index Dairy federation, cooperative, 152. Danish cattle-breeding associations, 95. Danish cow-testing associations, 89. Dishonest commission merchants, 208. Dissatisfaction among farmers, 10. Dividends, payment of, 83. Economic mistakes of cotton- growers, 195. Efforts towards organization, 11. Egg business, 161. Eggs, cooperation in handling, in other countries, 177. Eggs, marketing, through the creamery, 168. Elevators, grain, farmers' coopera- tive, 122. Farmers' Union, 185. Farm products, cooperative dis- tribution and sale, 120, 248. Federation of cooperative associa- tions, 64. Fertilizers, commercial, restriction in use of, 195. Financing a cooperative organ- ization, 78. Fortier, Samuel, 259. Fruit, cooperation in handling, dis- tributing, and sale of, 197. Fruit, distribution of, 198, 234. Fruit rots, 213. Fruit trade, abuses in, 206. Fruit trade, retail, 204. Fruit-growers' supply company, 254. Fundamentals in cooperation, 18. Grading fruit, 218. Grain-distributing system, 123. Grain elevators, farmers' coopera- tive, 122. Growers' and breeders' associations, 87. Handschin, W. F., 99. Harvesting fruit, cooperation in, 215. Herrick, Ambassador, 273, 292. Hood River Apple-growers' Union, 221. Horse-breeding, cooperative, 105. Huebner, S. S., 313. Illinois Corn-breeders' Association, 115. Individual credit system, 278. Industrial methods, changes in, 1. Insurance, mutual, 308. Irrigation, cooperation in, 258. Jewish Agricultural and Industrial Aid Society, 274. Jewish credit unions, 274. Jobbers, fruit, 201. Jordan, Harvie, 188. Labor methods, changes in, 3 Landschaften, 271, 291. Legal features of cooperative organ- izations, 40. Live-stock, cooperative breeding of, 94. Lorenzoni, Doctor, 272, 285. Loss, economic, in rural efficiency, Management of cooperative organ- izations, 36. Membership in a farmers' organiza- tion, 25. Milk, cooperation in distribution and sale of, 153. Milk producers, organization of, 156. Minimum price of cotton, 190. Minnesota, cooperative cattle- breeding in, 99. Mormon colonies, irrigation by, 259. Mutual insurance, 308. Index 327 National League of Commission Merchants, 208. Nebraska law relating to coopera- tive associations, 46. New York Dairymen's League, 159. Organization, efforts towards, 11. Organization of a farmers' coopera- tive association, 52. Packing fruit, 218. Pennington, Miss., 161. Perishable fruit, selling of, 237. Pierce, Mr., 161. Political questions, 73. Pooling fruit, 227. Price of fruit, fixing a, 246. Prosperity of the American farmer, 6. Public policy questions, 73. Purchase of supplies, cooperation in, 250. Raiffeisen banks, 271, 286. Remedy for decay in citrus fruits, 216. Retail fruit trade, 204. Rommel, G. M , 106. Rot of fruits, 213. Rural credit, 271. Rural efficiency, economic loss in, 8. Rural telephone, 299. Schulze-Delitzsch banks, 271, 290. Slocum, Mr., 166. Southern Cotton Association, 185. Store Credit system, 280. Supplies, cooperation in purchase of, 250. Supply company, organization of, 250. Tait, C. E., 261. Teele, R. P., 258. Telephone, rural, 299. Voting power of members of farmers' organizations, 27. Warehouseman, 203. Warehouses for cotton, 190. Water companies in Southern California, 261. Wisconsin cattle-breeding associa- tions, 98. Wisconsin law relating to coopera- tive associations, 45. HP HE following pages contain advertisements of a few of the Macmillan books on kindred subjects Latest Additions to the RURAL SCIENCE SERIES EDITED BY PROFESSOR L. H. BAILEY Director of the New York State School of Agriculture at Cornell University Sheep Farming BY JOHN A. CRAIG AND F. R. MARSHALL Illustrated, cloth, i2mo, $/.jo net This book deals with sheep husbandry as a phase of intensive farming. 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Among the topics treated are the following: the selection and purchase of a farm ; the selection of the type of farming adapted to the conditions; the most efficient size of farm for different kinds of farming; the horses and equipment; capital and its proper distribution in the farm business ; ways of starting farming with small capital ; methods of renting farms with their advantages from the standpoints of the owner and farmer; the management of machinery, horses, and men; field and building management ; cropping and feeding systems ; the marketing of farm products ; methods of keeping farm records and accounts. Obviously, this book should be in the hands of every farmer or agricultural student, while to the instructor of Farm Manage- ment it will be welcome as the long-awaited, and, we believe, the only satisfactory textbook for use in a long or short course. Animal Husbandry BY MERRITT W. HARPER Professor of Animal Husbandry in the New York State College Illustrated, doth, ismo ; preparing This is a simple, concrete presentation of the essential facts con- cerning farm animals, adapted for use in secondary schools. THE MACMILLAN COMPANY Publishers 64-66 Fifth Avenue New York RURAL TEXTBOOK SERIES — Continued Manures and Fertilizers BY H. J. WHEELER, PH.D., D.Sc. Formerly Director of the Rhode Island Experiment Station Illustrated, cloth, I2mo ; preparing The clear and unusually full discussion of the practical utiliza- tion of manures and fertilizers of all kinds, and of their relations to the plant and to the soil, makes this book not only an excel- lent text for college students, but also one which will be gener- ally welcomed by all up-to-date agriculturists. All the animal manures, litter, and waste nitrogeneous materials of every sort are discussed. A helpful feature for the student is the extended treatment of the availability of organic nitrogen and of the or- ganisms contained in barnyard manure which give rise to the various fermentations taking place therein. The well-known, and also the new, nitrogenous manures such as calcium cyan- amid and calcium nitrate are considered in detail. The chap- ters devoted to the potash salts, phosphates, lime, magnesia, soda, gypsum, iron, and manganese are exceptionally complete, and chlorin, sulfur, silica, carbon disulfid, toluene, and other substances exerting catalytic and other effects are described. Much of the material in this book which will be new to students and other readers has suggested itself to the author in the course of twenty-two years of continuous research. Corn Crops BY E. G. MONTGOMERY Professor of Farm Crops in the College of Agriculture at Cornell University Preparing This is a textbook on corn and the sorghum crops, including the grain sorghums, the sweet sorghums for sirup or forage, and the broom corns. In it plant structures, physiology, and the other technical phases of the subject are separated from the more practical phases which might be classed as cultural methods. Hence, the entire book is adapted to use as a text in an advanced course, and the treatment of cultural methods is adapted to use in more elementary courses. The book is also an excellent handbook for farmers and others interested in the production or handling of corn or sorghums. THE MACMILLAN COMPANY Publishers 64-66 Fifth Avenue New York Cyclopedia of American Agriculture Edited by L. H. BAILEY Director of the College of Agriculture and Professor of Rurai Economy, Cornell University. With 100 full-page plates and more than 2,000 illustrations in the text; four volumes; the set, $20.00 net; half morocco, $82.00 net; carriage extra VOLUME I— Farms VOLUME in— Animals VOLUME II— Crops VOLUME IV— The Farm and the Community "Indispensable to public and reference libraries . . . readily comprehensible to any person of average education." — The Nation. "The completest existing thesaurus of up-to-date facts and opinions on modern agricultural methods. It is safe to say that many years must pass before it can be surpassed in comprehensiveness, accuracy, practical value, and mechanical excellence. It ought to be in every library in the country." — Record-Herald, Chicago. Cyclopedia of American Horticulture Edited by L. H. BAILEY With over 2,800 original engravings; four volumes; the set, $20.00 net; half morocco, $82.00 net; carriage extra "This really monumental performance will take rank as a standard in its class. Illustrations and text are admirable. . . . Our own conviction is that while the future may bring forth amplified editions of the work, it will probably never be superseded. Recognizing its importance, the publishers have given it faultless form. The typography leaves nothing to be desired, the paper is calculated to stand wear and tear, and the work is at once handsomely and attractively bound." — New York Daily Tribune. THE MACMILLAN COMPANY PUBLISHERS 64-66 Fifth Avenue NEW YORK OF KINDRED INTEREST The Farmer of To-morrow BY F. I. ANDERSON Cloth, i2mo, $f.jo net There has been a great deal of theorizing about the " back to the land" movement. It is the purpose of this book to crystal- lize and to make practical all of the vague generalizations which have so far been expressed on this subject. To this end the first part of Mr. Anderson's book is given over to a considera- tion of the land itself as a factor in the movement, primarily its economic bearing on the question. The second half takes up the soil with a detailed exposition of soil sanitation, the author confining himself, however, to only the broad principles. In presenting these two main thoughts the author touches upon such important and interesting topics as Why Europe Raises Three Bushels of Grain to Our One, Why Soils Become Un- productive, Why the Farmer of Yesterday is Rich, Why There Has Been No Increase in Acreage Productivity, and Why Irri- gated Land Pays Interest on a Capitalization of Two Thousand Dollars an Acre. The book is one which should be of interest alike to those who are actively engaged in some form of agricul- ture and to those who are trying to solve the problem of the high cost of living. Malaria : Cause and Control BY WILLIAM B. HERMS Illustrated, doth, 8vo, $i.jo net The awakening of the general public to the necessity and possi- bility of the control of malaria, indicated by the incessant de- mand for information, makes the publication of Professor Herms's concise treatment of the subject an important and timely event. The question of malaria control is deserving of the most careful attention, particularly in these days when so much is heard of the " back to the soil " movement. For ma- laria is notably a disease of rural districts. Those who are familiar with the situation know very well that malaria is too often responsible for farm desertion. Professor Herms writes of the conditions attending the disease as he has found and studied them during the past few years himself, and the sugges- tions for control which he makes are such as he has applied and found successful. THE MACMILLAN COMPANY Publishers 64-66 Fifth Avenue New York «•« 0* to I* bO at ctf Do Acme Library Card Pocket Under Pat. " Ref . 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