571 r32 spy 1 What' s Back of Marketim BY DR. H. G. TAYLOR LESSON A The American Institute of Agriifultuje WHAT'S BACK OF MARKETING By DR. H. C. TAYLOR Chief, Bureau of Agricultural Economics U. S. Department of Agriculture LESSON A "Every Lesson By A National Authority" Confidential Edition Issued for Members ^ ^ ^ Copyright, 1922 THE AMERICAN INSTITUTE OF AGRICULTURE CHICAGO The Man Who Conducts This Lesson .T32 Dr. H. C. Taylor "No government expert can tell me anything about farming that I don't know." "I didn't come here to tell you anything about farming, my friend, I came to look at your herd of dairy cows. I need a little new blood in my herd, and I thought you might have a young bull that would be just what I wanted." The farmer's attitude changed immediately, and within five minutes, he was just as chummy with Dr. Henry C. Taylor, Chief of the Bureau of Agricultural Economics of the United States Department of Agri- culture, as he v;as with his next door neighbor. That is typical of hundreds of experiences Dr. Taylor has had. It is also typical of the way he has gained the confidence of thousands of farmers. It has always been his belief that to help farmers most, a scientist should be a farmer himself. And so both for this purpose and for his own pleasure and profit, he has operated a general farm, v/ith an accredited herd of dairy cattle. It is Dr. Taylor's doctrine that theorizing is of value only as a basis for practical investigation. 'Cl AGO 61 22 M -2 73 WHAT'S BACK OF MARKETING? and farmers should be supplied, not with theories, but with facts that have been worked out in actual practice. This is characteristic of all his work which, since he graduated from the Iowa Agricultural Col- lege in 1896, has been directed exclusively to the development of the study and application of agri- cultural economics. He believes in getting information first-hand, and so he has visited thousands of farms, both in this country and in Europe. After studying economics under Dr. Richard T. Ely in the University of Wis- consin, he went to London for study in the London School of Economics ; and then to Germany to study further in the Halle Wittenberg University and the University of Berlin. He says that his most important accessory, while engaged in study • iroad, was a bicycle, on which he pedaled many hundred miles through the British Isles and Continental Europe. A bicycle was to his liking because it was adapted to the frequent stops he made to study farms and fields along the way. He was given the degree of "Doctor of Philosophy" by the University of Wisconsin upon his return from Europe in 1902. This title was conferred in recog- nition of a study he had prepared upon the subject of "Land Tenure in England." Perhaps one reason v;hy Dr. Taylor was early "fired v/ith the ambition" to develop a real, practi- cal study of agricultural economics was due to the fact that no such work had previously been done. Even the subdivisions of economics, farm manage- ment and marketing, had been woefully neglected. This is why his only source of education in prepara- tion for this agricultural work was represented by the general university courses in economics. The economic principles which he secured from these studies, he has applied to the practical operation of farms. Because of the unique preparation he had given himself while in Europe, the University of Wiscon- sin inaugurated a course of study in agricultural economics to be conducted by Dr. Taylor, and in 1905 he wrote the first text book on "Agricultural Eco- LESSON A nomics," which has since been steadily used as the leading text on the subject. In 1908 his work was further recognized by the establishment of a Department of Agricultural Economics, of which he had full charge until 1919, when, with an ambition to be of greater use to the farmers of America, he accepted the position of Chief of the Office of Farm Management of the United States Department of Agriculture. In 1921, the Bureaus of Markets, Crop Estimates, and the Office of Farm Management were combined, and Dr. Taylor was made Chief of this combination, which is now known as The Bureau of Agricultural Economics. Thoroughness and practicalness characterize all of the work directed by Dr. Taylor. As you feel the influence of his sincerity and ability in your study of the first lesson in this course, you will understand and appreciate the value of these char- acteristics. SUMMARY OF DR. TAYLOR'S TRAINING AND EXPERIENCE EXPERIENCE: Chief, Bureau of Agricultural Economics, D. S. Department of Agriculture, July, 1922- Chief, Bureau of Markets and Crop Estimates, D. S. Department of Agri- culture, 1921-22 Chief, Office of Farm Management, 0. S. Department of Agriculture, 1919-21 Chairman, Department of Agricultural Economics, University of Wisconsin, 1908-19 Instructor of Commerce, University of Wisconsin, 1901-08 A practical farmer and farm owner MEMBER: American Economic Association, American Farm Economic Associa- tion, Association American Geographers AUTHOR: "Introduction to the Study of Agricultural Economics," 1905; ''Agricultural Economics,"' 1919; also numerous bulletins EDUCATION: Drake University, Des Moines, Iowa, 1891-93; B. Agri . , Iowa State College, Ames, Iowa, 1896; M. S. A., Iowa State College, Ames, Iowa, 1898; Ph. D. , University of Wisconsin, 1902 Studied in: London School of Economics, one term, 1899; Halle- Wittenberg University, 1900; University of Berlin, 1900-01 HOW TO STUDY LESSON A Suggestions for study such as this are provided with each lesson. But this one is much longer than the others. Don't be discouraged by its length. After you become accustomed to studying these les- sons, you will not need nearly so many suggestions. Why You Should Know World Conditions As you will see, there are two parts to this lesson. In the first part, you will learn about the standing of the various countries of the world in production, exports, and imports. In other words, you will learn where the surplus food and clothing materials are produced, and where they are needed. In Part II, you will learn of the services per- formed on these products between the time they leave the farm and the time they arrive at the home of the consumer. Marketing services, these operations may be called. Why should you know where the various crops are grown? And why should you know the relative stand- ing of the world's crops? First, you must realize that this world is growing smaller every day. The present means of rapid transportation and communication make it easy for us to deal with people in every civilized land. But more important than that, we are having more to do with each other as nations. Almost every civilized country buys something from America, and in turn, we buy from many other nations. The commerce of the world is the basis of civili- zation and progress, and agricultural products make up a large part of the world's commerce. And so, you must know about world agricultural commerce to understand marketing in America. First, Master Fart I By all means master Part I first. Don't be in a hurry to finish with it. Go over it many times, and, if possible, assume a different viewpoint each time you study it. For example, read it at first with the idea of a student - simply to learn the situation as it is. 5 LESSON A The second time, study the lesson v;ith the idea that you are a farmer who has products to sell and who is interested in knowing v;hat becomes of those products after they are purchased by the local buyer. The third time, imagine yourself the owner of a big flour mill, and study the lesson with the idea of fixing in your mind the competition you, as a miller, would have in buying wheat. You will learn that not only millers in other parts of this country, but millers in other nations of the world are all eager to get a part of the v/heat grown on our great western plains. Then, try studying the lesson with still another viewpoint. Imagine yourself a mill owner in France. You will study the lesson with a somewhat similar viewpoint to that of the miller in the United States. You, the same as he, will be eager to learn just what competition there is in the buying of v/heat, for it is competition in buying when the crop is short that makes the price go up. You will also be eager to learn just what other sources of supply may be drawn upon besides the supply in the United States. You will be interested to know that India is a big producer of wheat. But you may be a little disappointed to learn that India does not export a great deal. Second, Talk With Others There are many other surprises in store for you as you study Part I. But all of them are pleasant surprises. You will be delighted with your newly acquired knowledge, and you will surely get a good deal of pleasure, as well as derive much good from talking over these facts with your friends. You will find it of big advantage to yourself to talk over what you have learned in each lesson with someone. Just see how m.any people in your community actually know what the greatest crop in the world is. Most of them will probably say "wheat." But you will learn from Part I that wheat is not the biggest crop. Before you leave Part I, make sure that you know which countries are likely to be customers of ours and which countries are likely to be competitors. WHAT'S BACK OF MARKETING? You will learn, for example, that Great Britain is one of our biggest customers for wheat, and that Russia (in normal times) is our greatest competitor in selling to Great Britain. Right now, Argentina is our greatest competitor. You will learn many more facts about this world competition, and you should be sure that you have this situation clearly in mind before you proceed with Part II. Remember that conditions change from year to year. There may be a big crop of wheat and corn in the Argentine this year, but next year the drought may destroy a large part of both crops. And then the competition with the United States will be less. The standing of the nations in the rank of crops may be different five years from now than the rank indicated in this lesson. This will emphasize to you the importance of keeping informed as to crop conditions and produc- tion in at least some of the foreign nations. Later in the course, you will learn all of the details about how to keep informed on these subjects, and you will also learn how to interpret the informa- tion secured. Remember that this is the basic lesson, and this lesson is the foundation on which your course will be built. Unless your foundation is well made, you will have much difficulty in understanding many of the things you will learn in future lessons. Part I will inspire you to know more about ocean shipping, rail shipping, the financing of marketing, and a thousand and one other subjects. It is impos- sible to treat them all in this one lesson, but you will be given all of the details as you proceed with the course. These details will come to you in an order that will make them easy for you to master. Third, Learn the Ten Marketing Services After you have mastered Part I, proceed with Part II. The im.portant thing for you to learn from Part II is represented by the 10 services there listed. These marketing services are each important, and the best way to memorize them is to study with extreme care the explanation of each one. 8 LESSON A There isn't any particular value, perhaps, in learning this list of 10 services in order, because it isn't always that a product is handled in the same order. As a matter of fact, some products are marketed without having more than one or two of these services performed before it reaches the ultimate consumer. You should be sure that you understand why each one of these services is performed. In Lesson B, you will be told who performs these various services, but don't let that worry you in this lesson. First, be sure you understand what the services are, and why they are performed. Fourth, Let Your Neighbors Help You Learn By all means, talk over the various services with different people in your community. Good people with whom to talk of these subjects are the following: 1. Farmers 2. Local buyers of farm products 3. Millers and manufacturers 4. Managers of farmers' cooperative organizations 5. The local farm adviser 6. School teachers 7. The superintendent of schools 8. Bankers The facts are here. This lesson is just brist- ling with interesting and valuable information on marketing, and so are all of the other lessons that will follow. Don't be confused by the large amount of new information you will find here, but proceed with your study in an orderly manner, following the sug- gestions here laid down, and you will find that you will be able to master this lesson satisfactorily. Fifth, Use the Study Outline for Review Use as the basis for study, the study outline. You will want to refer to this frequently, especially as you review the subject before answering questions. You will also want to use it for reference. It serves as an index to the lesson. S ixth, Answer Questions After Lesson Is Mastered Do not attempt to answer the questions until you have followed all of the suggestions made here and feel that you have really mastered the lesson. STUDY OUTLINE FOR LESSON A What^s Back of Marketing Page When Scientific Market Study Began 13 We Need the Facts About Marketing 14 Why There Are Surplus Areas and Deficit Areas 14 It Pays to Specialize 15 The Right Way to Look at Marketing 15 Production Areas Are Small 16 How the Necessity for Markets Arose • 16 Industrial Developments Encouraged Specializa- tion 18 PART I Where the World's Crops Are Grown 18 Analysis of World Markets is Simple 19 The Ten Important Crops 19 Importance of World Crops, Based on Produc- tion 20 Importance of World Crops, Based on Exports.. 20 Rank of Crops in the United States 20 What Nations Produce and Export Most 21 The United States Leads in Agriculture 21 India is the World's Second Agricultural Nation 23 Russia is the World's Third Greatest Agricul- tural Nation 24 Argentina is the World's Fourth Great Agricul- tural Nation 25 Germany is the Fifth Great Producer 25 Netherlands Ranks Sixth 25 How Other Nations Rank in Production and Export 26 What Nations Buy Most of the Surplus Crops 31 The United Kingdom, the Greatest Buyer 31 Germany, the Second Largest Buyer 31 Holland Stands Third as an Importer 31 France is the Fourth Importer 32 Belgium is Fifth 32 How the Rank of Nations is Important to American Farmers 32 9 10 LESSON A STUDY OUTLINE— (Continued) PART II What Happens to Crops on the Way to Market 33 1. Standardization Usually Comes First 34 Where Grading is Done 34 No Other Service Increases the Price Like Standardization 35 2. Packing - How Proper Packing Facilitates Market ing 35 Effective Packing Reduces Marketing Costs. 36 Products in Packages Are Best for Col- lateral 36 Consumers Will Pay More for Neat Packages. 37 3. Assembling - in Larger Lots Meets Market Demands 37 4. Storage - We'd Starve in Winter If It Were Not for Storage 38 How Storage Serves Both Producers and Consumers 38 5. Transportation - Why Transportation Adds So Much to the Cost of Marketing 39 Local Hauling is Expensive 39 6. Financing - How Marketing is Financed 40 Commission Houses Advance Money to Local Buyers 40 Buyers May Get Immediate Cash From Ship- ment s 40 Why Interest Charges Multiply 41 Interest Piles Up When Wheat is in Storage. 41 7. Risk-Taking- How It is Handled 41 "Carrying the Risk" is a Necessary Evil... 42 8. Processing and Manufacturing - Have Become Important Parts of Marketing 42 Manufacturing Improves the Product 43 9. Selling, A Much Repeated Process 43 Why Expert Knowledge is Needed in Selling. . 44 10. Dispersing, the Opposite of Assembling 44 Both Wholesalers and Jobbers Are Needed. . . 45 Each Service Has Subdivisions 45 How Education Will I mprove Marketing Conditions 46 INTRODUCTION TO LESSON A You have learned by a study of the Introductory Marketing Talk, why we have a marketing problem. But you have enrolled in this course with the idea of learning exactly how to market. And this lesson will give you the foundation material for that study. Do not be confused or disappointed upon finding that this lesson treats of all agricultural products. It is essential that you know the fundam.ental prin- ciples upon which our marketing system is based, and you can understand this best only when it is explained to you in terms of marketing all farm products. Keep this in mind as you proceed. You will appreciate the importance of it before you have gone far in the course. The United States Leads the World in Agriculture You will learn here that the United States is the greatest agricultural country in the world. Not only do we produce more farm products than any other nation, but the value of our agricultural exports exceeds the value of those from all other nations in the world combined. That is a remarkable record. It means that the United States supplies most of the world's surplus food and clothing materials. In spite of this fact, the exports of the United States at present are only one-eighth of the produc- tion. In other words, we use about seven-eighths ourselves, and export the rest. That will emphasise to you the enormity of our production. American Farming Metho ds H ighly Ef f icient It is important to know in connection with this, that our big production is due more to the efficiency of our farmers than to their number. Six and one- half million farmers in the United States, assisted by a smaller number of farm laborers, represent probably less than 4% of the farmers and farm laborers of the world. 11 12 LESSON A Nevertheless, this 4% produces about: 70% of the world's corn crop 60% of the world's cotton 50% of the world's tobacco 25% of the world's oats and hay 20% of the world's wheat and flax 13% of the world's barley 7% of the world's potatoes 5% of the world's sugar We also produce some rye and rice, but only 2% of the world's total. Taking cereals by themselves, the United States produces about one-fourth of all the world's cereal crops. But even more important than this is the fact that in the United States the production of cereals amounts to about 12 tons for each person engaged in agriculture here, while in the rest of the world the production of cereals averages only 1.4 tons for each person engaged in agriculture. That is emphatic testimony of the effectiveness of our modern production methods. WHAT'S BACK OF MARKETING? By Dr. H. C. Taylor The great economic question, "How shall American farm products be handled?" is now arousing more interest than ever before, "And this is because there has been an almost complete breakdown in the machinery of distribution during the last few years, so that most of our agricultural crops have not been marketed under con- ditions which would permanently maintain the pros- perity of American agriculture," says one of our agricultural leaders. Heretofore, all too many persons have looked upon the marketing machinery as a kind of mystery; as something that operates in the dark, understood by few, with only a few capable of participation. This view has been shared, perhaps unconsciously, by both farmers and consumers. Farmers have devoted their energies largely to production and yet more production, and have taken what they could get for their products. And consumers have been mainly in- terested in buying as cheaply as possible. When Scientific Market Study Began Scientific study of marketing may be said to have had its beginning in 1900, when the U. S. Industrial Commission was charged by Congress with the duty of investigating "questions pertaining to immigration, to labor, to agriculture, to manufacturing, and to business. " This commission deemed the question of marketing to be of such fundamental importance that it sub- mitted an advance report on the distribution of farm products in order to "furnish Congress and the public with concrete data, assembled from a hitherto but partially exploited field of investigation" with 13 14 LESSON A the suggestion that it might "form a basis for intel- ligent analysis, useful alike to the legislator, the farmer, and the business man." But even with this impetus to study, scientific investigations of marketing problems v/ere slow to develop even among agricultural research workers. Today, on the contrary, everyone is interested in the marketing process and everyone seem.s bent on dis- cussing it. Farmers and consumers, alike, feel that it is a matter that concerns them vitally. We Need the Facts About Marketing The great need now is that such discussion shall be based on a clear idea as to what constitutes mar- keting. What is it that takes place between the time a product leaves the farm and the time it is purchased by the ultimate consumer? What are the intervening phases and what are their objects? Who participates in them? Are they necessary to the satisfactory feeding and clothing of the world? In town and country, among thinking men and women, those questions are uppermost today. An encouraging number of people are no longer willing to follow the demagogue or to take the passive part, but are earnestly anxious to understand this matter thoroughly. Through the developments of modern life, agri- culture has become commercial. No longer do the farmers of America produce their crops primarily for the satisfaction of their own wants, but they produce them for the markets just as other business men manu- facture their products to fill the demands of their customers. WHY THERE ARE SURPLUS AREAS AND DEFI CI T AREA S In thus producing for market, farmers individu- ally, and in groups, and by large regions, have found that they can get best results by specializing on certain crops or lines of farming for which they have WHAT'S BACK OF MARKETING? 15 special aptitude, or, more generally, to which their region, their climate, and their conditions of farm- ing are especially suited. For example, the Dakotas produce wheat; lov/a produces corn and live stock; Wisconsin specializes on dairy products and potatoes ; and Texas sells cotton and cattle. Each state pro- duces a large surplus of a few articles and must buy many articles from other states and from other countries. Similarly, large countries become surplus-pro- ducing regions of certain necessities while other countries, deficient in these products, have sur- pluses of other commodities which they wish to ex- change for what they do not have. It usually happens that these large surplus and deficit regions are widely separated. Frequently, a nation is dependent for one of the staples of life on a region half way around the world. Thus, terri- torial division of labor has become intensified as national life has become crystallized along well- defined lines. It Pays to Specialize Nations have learned that it pays to work with nature rather than against her, and that, as a general rule, each nation fares best when devoting its ef- forts to the things it can do best. Trade customs, trade routes, and the development of huge markets far from the heart of the producing countries have developed to facilitate the exchange of surplus crops. The Right Way to Look at Marketi ng If you think of marketing in terms of selling products in your own state only, you cannot compre- hend the necessity nor the importance of many of the conditions existing in our present marketing process. So, in this lesson, you will be given a clear picture of the world with its productive and its non-pro- 16 LESSON A ductive areas, of the areas that produce a surplus, and the areas that must buy food and clothing ma- terials. P roduction Areas Are Small Examine carefully the map which is provided with this lesson as Figure 1. On this map you see all the countries of the world, and you find shaded areas to indicate those few sections where there is the proper rainfall to produce crops profitably. Isn't it surprising that there are only seven important crop producing areas? This map will certainly impress you with the fact that much the larger percentage of the area of the world is comparatively unproductive. How the Necessity for Markets Arose Naturally, the first development in marketing was the creation of local trading centers where the surplus production from one farm might be exchanged for the surplus production from some other farm. For example, one farmer grew more corn than he needed, but kept no sheep. Another farmer, not so far away, raised sheep but did not grow enough corn. So the one farmer exchanged his surplus corn for wool to make clothes for his family, and the other ex- changed his surplus wool for corn to feed his live stock. Finally, there was more surplus wool on hand than could be used by the community surrounding this local market, and there was also more surplus corn than was needed. In other sections, some local markets were short of corn and some were short of wool, and so, men from those markets visited other local markets in an effort to buy what was needed. Thus, there grew the interchange of products between local markets. As population increased in the Old World, it be- came increasingly difficult to produce enough food WHAT'S BACK OF MARKETING? 17 FIGURE 1 LARGEST PART OF THE WORLD IS DEFICIENT IN RAINFALL Only the seven comparatively small areas numbered on this map have sufficient rainfall to produce surplus crops. Fix their location in your mind by studying' this map frequently. The black areas have too much rainfall for our staple crops. The white areas do not have enough rain- fall. 18 LESSON A and clothing materials on the land of some countries to provide for the population, and so the Old World sought food and clothing materials in the New. Industrial Developments Encouraged Specialization Ocean transportation developed until it became a simple and comparatively inexpensive process to transfer the surplus from the Western Hemisphere to the Eastern Hemisphere, where it was very badly needed. The invention of the cotton gin in America and the development of spinning and weaving machinery in England, worked together to pave the way for a more economical means of providing clothing for the nations of the world. With these developments, America grew to be the world's greatest producer of raw cotton and England and Continental Europe have manufactured more of the clothing for the world than any other section. Other nations specialize in other things: Aus- tralia now leads in sheep, Brazil in coffee, India in rice, and Germany in potatoes. The surplus from these nations is easily stored and quickly trans- ported, and it is now easy to provide both food and clothing for all peoples, PART I WHERE THE WORLD'S CROPS ARE GROWN As you will see from the Map (Figure 1) there are seven general regions in the world, four in the Old World, and three in the New, in v/hich the rainfall is sufficient to permit the development of agriculture on an important scale. Within these areas, there are regions in which the rainfall is too heavy. The Amazon Valley of northern South America, some parts of the western coast of Africa, in the East India Islands, and in some parts of southern Asia, the rainfall is over 80 inches a year. Agriculture is best developed in regions of moderate rainfall, such as: WHAT'S BACK OF MARKETING? 19 1. Central and eastern United States, the world's greatest agricultural area. 2. Southeastern Asia, the rice producing area 3. Densely populated Europe, productive, but the greatest buying area 4. Southern and eastern South America 5. Eastern and southern Australia 6. Southern Africa 7. The western coast of North America It is important to note that the best developed agricultural regions of the world are largely in the temperate zones. A jialysis of World Markets is Simple Undoubtedly, as you proceed, you will be sur- prised to learn how simple it is after all, to analyze v/orld markets. There are six large surplus pro- ducing centers and only one huge buying center. Of course, practically all nations produce a surplus of something, and buy other things from other nations. However, the most important thing to learn about the world's trade in agricultural products is that Europe (outside of Russia and the Balkan countries) is the one big buying area and the United States, India, Argentina, Australia, Canada, and Russia are the six big surplus producing areas. The Ten Important Crop s World statistics of crop production are not com- plete. China is a very important producer of many crops, but there are no satisfactory statistics of production in China. In discussing the relative importance of crops, therefore, it must not be for- gotten that the production of the larger part of Asia (China) is not included in the totals. The economic importance of a crop is measured in value. Probably the best standard of value, for those studying this course is American money. 20 LESSON A I mportance of World Crops. Based on Production Applying the average price received by farmers in the United States for their crops 1912-21, to the total volume of production for all countries re- ported, the order of importance of the 10 principal crops is as follows: 1. Potatoes 6. Oats 2. Wheat 7. Rye 3. Corn 8. Cotton 4. Rice 9. Barley 5. Sugar 10. Tobacco Importance of World Crops, Based on Exports Applying the average farm prices of these products in the United States to the quantities exported from all nations, the relative importance is as follows: 1. Cotton 6. Barley 2. Sugar 7. Tobacco 3. Wheat 8. Rye 4. Rice 9. Oats 5. Corn 10. Potatoes Rank of Crops in the Un: Lted States Corn heads the list in value of production; wheat is second. The order of importance of 10 crops follows: 1. Corn 6. Tobacco 2. Wheat 7. Sugar 3. Cotton 8. Barley 4. Oats 9. Rye 5. Potatoes 10. Rice This list does not include hay and forage because they enter but little into the marketing of farm crops. WHAT^S BACK OF MARKETING? 21 In exports, wheat stands second in value. Cotton is first in value. The rank follows: 1. Cotton 6. Oats 2. Wheat 7. Sugar 3. Tobacco 8. Potatoes 4. Corn 9. Rye 5. Barley 10. Rice WHAT NATIONS PRODUCE AND EXPOR T MOST Notice (in Figure 1) that the world's greatest producing countries are a long distance from the greatest buying center. The United States comes first in production and export, and the products that she sells to Europe have to be carried across the Atlantic. India comes second, and it is a long trip through the Suez Canal to Western Europe. Russia, alone, is near, but she has little surplus now (1922), The Argentine is fourth, and it is quite plain that the voyage to Western Europe adds a great deal to the price by the time goods arrive at the place v/here they are most needed. In short, the world's greatest supply areas are about half way around the world from the world's greatest deficit areas. It may be surprising to you to examine the accom- panying Table I, showing the rank in production and export of the six greatest agricultural countries. The United States Leads in Agriculture You can see from Table I that the United States is the greatest agricultural country in the world. As a matter of fact, it produces more of the world's exports of agricultural products than all other nations put together. Notice its high standing in grain, for example. It produces more of the three most important grains, wheat, corn, and oats than any other nation, and it produces the second most barley. It exports the second largest amount of wheat and corn. 22 LESSON A As a matter of fact, the United States exports more wheat now than any other nation. But, when Russia is producing normally, she exports more wheat than we do, and Table I is based on 1909-13 figures. Table I. United States THE WORLD'S GREA TEST _ A GRI CUL TURAL COUNTRIES (Based on Value of Crops Produced and Exported) 1909 - 13 Averages First in Second in Second in Export of production of Export of Cotton kBarley Wheat Tobacco Cattle Corn Meat & Sheep Meat Pro- ducts Cattle India Russia 4. Argentina ■5. Germany o. "Netherlands First in Production of Wheat Corn Oats Cotton Tobacco Horses & Mules Swine Rice Sugar Cattle Goats Barley Rye Flax Potatoes Rice Wheat Oats Barley Flax Corn Hides & Skins Rye Potatoes Cotton Flax Tobacco Wheat Oats Potatoes Horses & Mules Sugar Swine Rye Flax Cotton Hides 8: Skins Rye Butter Oats Meat & Meat Pro- ducts Wool Potatoes Barley Cheese NOTE: It is extremely important that you thoroughly familiarize yourself with the standing of these six nations, and the reasons for the standing. More details are to be found in Table II and Table III. Although we produce over 70% of the world's corn, we do not export as much as Argentina and so we have to take second place in the exports of corn. We lead the world both in production and export of cotton. Our production is 60% of the entire v/orld's crop. We lead both in production and export of tobacco. As a matter of fact, we produce more than 50% of the world's total of tobacco. WHAT'S BACK OF MARKETING? 23 In addition to the crops already mentioned, we produce 50% of the world's oats and hay, 20% of the world's flax, 13% of the world's barley, 7% of the world's potatoes, 5% of the world's sugar, 27% of the world's rye, and 2% of the world's rice. Table II. RANK OF LEADING COUNTRIES IM PRODUCTION AND EXPORT OF LEADING FARM CROPS. "" (Based on 1909-13 averages) ; : Crops arranged in order of World Rank : Rank : 1 Countries : in :Pota- : :toes : 2 : Wheat r 3 rCorn : 4 :Rice : 5 : Sugar : 6 rOats : 7 :Rye r 8 rCot- rton r 9 :Bar- rley : 10. : To- rbacco ; : : 11 : rFlax : 1. United :Produo-: States :tion : 5 1 1 1 : 7 : r 1 : 6 : r 1 : 2 : 1 : : r 4 : :Exports: 8 : 2 : 2 : : 6 : 7 : 1 ■ 6 • 10 : 2. Russia :Produc-: :tion : 2 : 2 . 4 2 1 4 1 3 : .•Exports : 1 5 1 2 1 5 : 3. India iProduc-: :tion : 3 . 7 ; 1 1 2 2 • 2 : rExports: 7 1 2 • 4 • 5 2 : 4. Argen- rProduc-: : .tina :tion t : 8 : 3 : r 9 r 1 : :Exports: : 3 : 1 : 2 8 1 : 5. Germany :Produc-: :tion : 1 9 2 3 2 3 6 : Exports: 2 10 7 3 4 1 6 9 : 6. Nether- rProduc-: : lands :tion : 7 : 10 :Exports: 1 : 5 : 5 : 5 7 3 3 8 2 5 : 7. Austria :Produc-: Hungary :tion : 3 5 2 5 G 3 4 3 6 : rExports: 9 8 4 3 8 8. France :Produc-: :tion : 4 4 8 5 : 5 »9 10 8 r :Exports: 4 : 7 4 9. RoumaniarProduc-: :tion : : 5 : 9 : rExports: 6 . 3 : 7 : 4 : 5 r 10. Canada rProduc-r rtion r 10 6 4 : 8 : 5 : rExports r 10 4 5 : 7 r 3 : We lead in live stock by a wide margin. You will see from Table III that we have more horses and mules and more swine than any other nation. We are sec- ond in sheep. In exports, we lead in cattle and in meat and meat products. I ndia is the World's Second Agricultural Nation Leading all nations in the production of rice, sugar, cattle, and goats, India will be a surprise to 24 LESSON A you. She is first in exports of rice, second in pro- duction of cotton, flax, and tobacco, second in exports of cotton and hides and skins. Notice, however, that India's exports are not so important in rank as her total production. Her enormous population consumes much of the farm prod- ucts produced. Table III. RANK OF LEADING COUNTRIES IN NUMBER AND EXPORT .OF LIVE STOCK PRODUCTS Based on averages for 1909-13 or 1911-13) : Rank iHorses Countries : in : and : : Mules Cat- tle Sheep Swine :C-oats: :Kides and : : Skins Meats & Fro :ducts Butter Cheese Wool 1. -United zNumber : 1 2 2 1 : States :Exports: 1 : 1 9 2. India :Kuniber : 7 1 6 : 1 rExports : : 2 8 3. Argen- : Number : 4 5 4 9 : 6 tina :Exports; : 1 : 2 10 2 4. Austra- iNumber : 10 9 1 11a :Exports: : 3 3 1 5. Russia :Nuir,ber : 2 3 3 4 : 5 lExports: : 6 2 7 6, Denmark :Number : : Exports: : 5 1 7. Canada :Number : 9 7 : : Exports: : 12 1 8. Germany :Nuraber : 8 6 2 : 9 :Exports : : 3 10 9 9. France :Nui!iber : 6 7 6 : :Exports: : 4 • 10 6 & , 7 10. Nether- :Nuraber : lands :Exports: 4 4 2 R ussia is the World's Third Greatest Agricultural Nation When Russia is producing normally, she is more to be considered as a competitor on the world's m.arkets than is India. Russia produced the largest amount of barley and rye in 1909-13. She was second in the production of wheat, oats, potatoes, and horses and mules. In exports, she led in wheat, oats, and barley and was second in exports of rye and butter. While Russia produced less wheat than the United States, she exported more because much of her popu- lation eats rye bread instead of wheat bread. At the WHAT'S BACK OF MARKETIN G? 25 present time, (1922) Russia is out of the world's markets, but v/e must not forget that she is a great agricultural country and will probably again be a competitor of ours when her political situation is more nearly settled. Argentina is the World's Fourth Great Agricultural Nation Argentina excels only in the production of flax. However, her population consumes a comparatively small part of what it produces, and so Argentina is an important exporting country. In fact she is a strong competitor of the United States, leading in the exports of flax, corn, and hides and skins. She is second in exports of oats, meat and meat products, and wool. Ge rmany is the Fifth Great Produc er Germany's big crop is potatoes, and in this she leads the world. She not only produces more potatoes but she imports the most and exports the second largest amount. Germany is also a big producer of rye leading the world in exports. She is second among the nations in the production of sugar and swine. Netherlands Ranks Sixth The Netherlands (or Holland) does not rank high in production. She stands seventh in the production of potatoes and tenth in the production of rye. In other crops, her rank is lower than that, but when it comes to exports, she is a country to be reckoned with. She leads in the exports of potatoes and is second in the exports of barley and third in the exports of cats and rye. She is fourth in the exports of butter and meat and meat products, and fifth in the exports of rice, corn, wheat, and flax. She holds seventh place in the exports of sugar and eighth place in the exports of cotton. 26 LESSON A But how can she export so much when she is not a great producer? Probably the answer may be found in Table 4 which shows the rank in imports. You will see there that the Netherlands imports the third largest amount of barley. It seems very evident ' that she exports a large part of what she imports because she holds first place in imports of rye, sec- ond in the imports of oats, third place in the imports of wheat, corn, barley and meat, and fourth place in the imports of tobacco. Table IV. THE KATIONS THAT BUY THE MOST OF THE WORLD'S FJIRM PRODUCTS (Crops based on 1911-13 averages.) (Live stock products based on 1920 figures, except Germany, which is represented by 1913 figures. ) Countries : First in : : Second in : « Third in : Fourth in : imports of : imports of : imports of : imports of 1. United : Corn-Wheat- : Tobacco- Kingdom : Oats-Cotton- : Butter- : Cheese-Meat : Potatoes- : Barley- : Sugar- : Wool : t : : Corn-Wheat- : 2. Germany : Barley-Pota- : Rye-Cotton- : Oats- : : toes-Tobacco : Butter- : Hides-Skins- : Rice- : Cheese- Meat : Wool 3. Nether- Rye Oats : Meat- : Tobacco lands • Corn- Wheat- Barley 4. France Wool. Cheese Potatoes- Cotton- , Hides-Skins- Butt er- Toba'cco Oats 5. Belgium Butter- : Corn-Wheat- ] ^ • Hides-Skins : Barley-Meat- s Wool How Other Nations Rank in Production and Export The six nations already discussed are the leading ones in production of surplus crops. However, other nations hold important places in the production of certain products. You will get the rank of these by studying Table 2, and Table 3. WHAT'S BACK OF MARKETING? 27 Illustrating Essential Marketing Services STANDARDIZATION GRADING PEACHES ACCORDING TO MARKET STANDARDS Any commodity that is offered to buyers in packages each contain- ing- a uniform product, brings better prices. Standards are first determined and then the product is graded to these standards. PACKING PACKING ORANGES FOR LONG JOURNEYS Most farm products must be put into suitable paclcages before they will find ready sale. Placed in suitable packages, they are also more valuable as collateral for making loans. 28 Essential Marketing Services ASSEMBLING MANY WAGONLOADS MAKE A CARLOAD It would not be economical to transport farm products to distant terminal markets in lots as small as one wagonload. The elevator assembles w^agonloads from many farmers. STORAGE COTTON FROM MANY PLANTATIONS With the cotton in store houses at concentration points, the crop caji be marketed almost on a moment's notice. Storage helps distribute surplus crops over the entire twelve months of consumption. Essential Marketng Services 29 TRANSPORTATION THE GREATEST SINGLE COST IN MARKETING Without our many railroads and steamship lines with their huge terminals, it would be impossible to distribute farm products. And marketing- has grown because products can be readily transported. SELLING AN OFT-REPEATED SERVICE IN MARKETING Most of the middlemen who perform marketing services actually own the products upon which the services are performed. Consequently, farm products are sold several times before they reach the consumer. 30 Essential Marketings Services RISK-TAKING THE SHIPPER OF THIS CARLOAD SUFFERED A LOSS Anyone who ships farm products, assumes the risk of loss. In the case illustrated in this photograph, an inspector is determining the loss on the potatoes due to sprouting. DISPERSING THE OPPOSITE OF ASSEMBLING After products are assembled into quantities large enough for ship- ping, they must later be broken up into quantities small enough for individual families. Dispersing begins on the wholesale markets. WHAT^S BACK OF MARKETING? 31 These more complete tables are provided for reference. It is quite important that you familiar- ize yourself with the crops produced and exported by the six leading nations, but the standing of the other nations need not be studied so carefully because you will not have occasion to make use of them nearly so often. WHAT NATIONS BUY MOST OF THE SURPLUS CROPS Now let us consider Table IV, showing the world's greatest buying nations. This table, of course, considers only rank in imports of raw products. Manufactured products, except sugar, are not in- cluded. The United Kingdom, the Greatest Buyer The United Kingdom, including Great Britain and Ireland, is by far the largest buyer from the pro- ducing areas of the world. The United Kingdom buys more wheat, corn, oats, cotton, butter, cheese, and meat than any other country. She is second in the buying of barley, potatoes, sugar, tobacco, and wool ; sixth in the importing of rice ; and ninth in rye. Germany, the Second Largest Buyer Germany is the second greatest buyer, purchas- ing more barley, potatoes, and tobacco than any other nation in the world. She is second in buying cotton, rye, wheat, corn, butter, meat, and hides and skins; third in oats, rice, cheese, and wool. Germany pro- duces more potatoes than any other country in the world and still imports more potatoes than any other country in the world, H olland Stands Third As An Importer Third as a great buying nation, stands the small country of Holland, more commonly known as the Netherlands. More rye is shipped to the Netherlands than to any other country and the second largest 32 LESSON A amount of oats and third largest amount of corn, wheat, barley, and meat. She stands fourth in the importing of tobacco, fifth in the importing of rice, and ninth in cotton. Fr ance is the Fourth Importer France is fourth as a buying nation, buying the most wool ; the second most cheese ; the third largest amounts of potatoes, cotton, and tobacco. She is fourth in the purchase of oats, hides, and skins and butter; fifth in corn and barley, sixth in the buying of wheat, and seventh in the buying of rye. Be lgium is Fifth Belgium is the fifth greatest buyer, standing third in the imports of butter and hides and skins ; fourth in the imports of wheat, corn, barley, meat, and wool ; fifth in potatoes ; sixth in rye ; seventh in oats and cotton, and ninth in tobacco. Italy is fifth in the purchase of wheat ; sixth in corn, oats, and cotton, eighth in tobacco. Eight other European countries are heavy importers, which makes Western Europe the world's greatest market place. How the Rank of Nations is Important to American Farmers Tvifo nations, the United Kingdom and Germany, are first or second, or both, in importing all the 10 wo rld's important crops, except rice, and the five i mportant live stock products. Germany is third in imports of rice. Don't lose sight of this important fact as you proceed with the lessons in this course. Remember- ing that Germany and the United Kingdom are the world's greatest buyers of all crops and live stock products, you will readily understand how the changes in demand in those countries will affect the prices of farm crops here at home. WHAT'S BACK OF MARKETING? 55 In the same way, you will understand that the production of crops in India, Russia, and the Argen- tine will have a marked effect on prices here, because those three countries are our greatest competitors in production and export. The y with the United States produce and export the most or the second most of all crops and live stock products excep t cheese. For individual crops, there are other important countries to be considered, but for crops as a whole, the two greatest buying nations. United Kingdom and Germany, and the three great producers, India, Russia, and Argentina, influence our markets the most. PART II. WHAT HAPPENS TO CROPS ON THE WAY TO MARK ET To study the marketing problem in detail, it is necessary to resolve it into its component parts or activities. In so doing, v/e discover that the dis- tance between producer and consumer has become greater and greater. Marketing has developed away from the old order of direct sale. It has been found desirable to introduce a greater number of interme- diaries who participate in various ways in moving, storing, and transforming the goods in order that they may be where they are wanted, when they are v/anted, and in the form they are wanted. Not all of the work which will be discussed on the following pages is performed in the marketing of every product, but as a whole, this list represents the typical work necessary to prepare farm products so that they will be in the form you wish to buy them for your household needs. Marketing Services Considered in This L e sson Strictly speaking, perhaps, marketing services should include only those performed on raw agricul- tural products. But it is believed that every stu- dent of marketing should know about the processing 34 LESSON A and manufacturing of agricultural products. These students should know too, how these manufactured products are handled between the processors or manu- facturers, and the ultimate consumer. Consequently, both processing and manufactur- ing and dispersing will be discussed in this course. The principal kinds of work performed in connec- tion with marketing are classified in this lesson as follows: 1. Standardization 6. Financing or grading 7. Risk-Taking 2. Packing 8. Processing and 3. Assembling manufacturing 4. Storage 9. Selling 5. Transportation 10. Dispersing or dividing I. Standardization Usually Comes First Successful marketing today depends more than formerly on the way in which commodities are sorted for market. So generally is this now recognized that grading influences price more than most any ether one factor. Standardization or grading consists of sorting commodities into groups of uniform kind, size, and quality. Such grading, to be of greatest value, is accomplished through the use of recognized stand- ards. The primary purposes of grading to standards are to eliminate the necessity for inspection on pur- chase ; to avoid paying of freight, storage, and other marketing costs on goods that may later be sorted out and discarded; and to facilitate financ- ing. Where Grading Is Done — Grading may be done: 1. At the farm 2. By producers' associations WHAT'S BACK OF MARKETING? 35 3. At centralized country points, as at apple packing houses 4. By dealers who wish to place popular and profitable goods in the trade either wholesale or retail 5. By those who wish to ship nationally-stand- ardized commodities in interstate commerce No Other Service Increases the Price L ik e S tandardization — Market specialists claim that, compared with the cost of performance, none of the steps in marketing enhances the value of commodities as greatly as this one of grading. Expansion of the market through sale by sample, sale by type, and sale by auction, is based on the use of grades. Stor- age, financing, and the whole system of warehouse receipts — all these are based on the use of generally recognized grades. This subject of standardization is thoroughly treated in later lessons where you will find more specific information regarding the grading of the particular commodity in which you are most inter- ested. 2. How Proper Packing Facilitates Marketin g Most farm products require packing in one form or another in the process of marketing. This service is sometimes performed at the farm and sometimes later on. In fact, some crops must be repacked or repackaged several times, to meet the requirements of the trade and the demands of the consumer. These demands are sometimes little more than whims, but it pays to meet even such demands. For example, apples in bushel boxes will bring more on some markets, while on other markets apples will hardly sell at all in boxes, but are preferred in bushel baskets or in barrels. In some sections, hay is wanted in bales of an entirely different size than is commonly used in other sections. 36 LESSON A Raisins used to be sold almost entirely in bulk. Now housewives will hardly buy bulk raisins. In fact, there is now a demand for both raisins and prunes in packages small enough to slip into a vest pocket. Effective Packing Reduces Marketing Costs — The primary purposes of packing are: 1. To facilitate handling 2. To reduce freight charges 3. To reduce storage costs 4. To reduce other marketing costs 5. To prevent shrinkage and deterioration 6. To make products more attractive The baling of cotton, for instance, accomplishes practically all of these purposes. It facilitates handling by putting the cotton into firm, compact form, with covering securely wired to withstand handling by hooks. It reduces charges for freight because of the very condensed form of the product in the bale, allowing many bales to be carried in one car. It reduces storage charges because the bales are more easily handled than bulk cotton and they take up less space. It facilitates financing, because the commod- ity is in a recognized, standardized, more or less protected unit. It retards deterioration because the increased density and the covering lessen its exposure to moisture and "country damage," Products in Packages Are Best for Collateral - Loans are not readily obtainable on advantageous terms, if at all, on products in their original state, whether cotton in the field or apples on the tree. Properly harvested, and reduced to accept- able marketing units, such as bales, boxes, and carloads, they become valuable collateral because WHAT'S BACK OF MARKETING? 37 they can then be more quickly turned into cash in case of necessity. And bankers want collateral that can be sold promptly and without additional expense. Consumers Will Pay More for Neat Packages - Facking and packaging is a distinct service to farm- ers, to dealers, and to consumers. So decidedly do consumers realize this, perhaps unconsciously, that they willingly pay higher prices for the sake of securing their products in a form convenient and attractive for their use. Few housekeepers are willing to buy tub butter for table use. Few pur- chasers are willing to carry eggs loose in a paper sack; they prefer to pay more to have them in an attractive box. 3 . Assembling in Larger Lots Meets Market Demands The bringing together of enough of one product to make a carload for shipment to a central market constitutes "assembling." It is in the saving on freight rates that assembling shows its greatest value. However, most goods could not be sold at all on central markets if they were not offered in carloads. The big buyers would not bother with a lot of small purchases. The work of assembling may take place at the farm or at the local or terminal market. The farmer may assemble and ship his apples by the carload. If he sells by the box or number of boxes, at some later stage, these boxes are usually grouped with similar boxes by an intermediate buyer or dealer to form a carload for shipment. Although carload lots seem large to the farmer, they are units too small to fill many demands. The boat lying at dock demands many carloads of grain before its cargo is complete. The packing house requires many carloads of cattle a day. This larger form of assembling to complete large transactions in agricultural products is a service 38 LESSON A essentially for a commercial market man, except in cases of unusually large, well-organized, and strongly-financed producers or associations. 4. We'd Starve in Winter If It Were Not For Stor- Production is essentially seasonal, but consump- tion is relatively uniform during the entire year. Obviously, therefore, some adjustment is necessary between the harvesting of the crops and the feeding of the people. To meet the continuous and more or less uniform demand by the consumers, storage has been provided. Products may be stored: 1. On the farm 2. At shipping point 3. Along the route to market 4. In the large market centers If you store your crop, you naturally expect to receive for it when it is sold later, the price at harvest, plus at least the cost of storing. Simi- larly, if you sell at time of harvest, leaving to others the task of storing a large part of your out- put, and supplying it to consumers when they want it, you must expect to accept a lower price than is common 10 months after harvest. If you have facilities for storage, or are willing to take the risk of storage, you are likely to receive a higher price later on than at the time of harvest. However, most farmers do not care to take the risk of loss and lower prices that is neces- sary when crops are held. Consequently, others buy the surplus at harvest time and store it as a specu- lation, usually making a profit to pay for the risk- taking, but sometimes suffering a loss. How Storage Serves Both Producers and Consum- e rs - Storing is a service both to the producer and to the consumer. It widens the market for the WHAT^S BACK OF MARKETING? 39 farmer, and stabilizes the supply for the consumer. It tends to stabilize prices to the advantage of both. It prevents excessive deterioration and spoilage and thus reduces loss for both. One of its greatest benefits to farmers is derived through accredited v/arehouse receipts which furnish safe collateral on which money may be borrowed. This subject is treated more specifically in all its details, in later special lessons. 5. Why Transportation Adds So Much to the Cost of Marketing All farm products that enter marketing channels are transported. If the consumer is at a local mark- et, the matter of hauling may be purely a local one and may be performed by the farmer himself, who thus takes time from the production work of his farm and is entitled to receive some compensation for this time. Local Hauling Is Expensive Farmers are gradually coming to realize that local hauling, such as usually falls to them, is expensive. Good roads and good equipment decrease the apparent expense of this service, but, although both are becoming more prevalent year by year, their initial expense is heavy and maintenance may be costly, so that there appears to be no cheap way out of the difficulty. Such studies as have been made have shown this cost of hauling to average 5% of the farm value of the crops marketed. The actual costs vary greatly, ranging from 2% to 9%. Transportation creates the greatest single cost in marketing. Consequently, it needs to be treated thoroughly. You will want to know all about transportation by rail and by boat ; about transpor- tation in America and to foreign countries. You 40 ' LESSON A will, therefore, be intensely interested in the special transportation lessons that follow later on in the course. 6. How Marketing is Financed Financing often begins before the crop is har- vested — when the farmer borrows from his local bank to defray production and harvesting expenses — and continues until the crop has been distributed and is in the hands of the consumer. The interest on borrowed money along the way is a necessary part of the cost of marketing and is added to the other expenses that accumulate. The grain buyer at the country station, whether agent for some company or ov/ner of his own elevator, pays cash for the farmer's grain. If he is an agent, he is supplied with money by a terminal market com- pany that he represents. The company borrows from banks and pays interest on the money that is advanced to the farmers for their grain. Commission Houses Advance Money to Local Buy- e rs - The country buyer, if an independent or a cooperative elevator owner, may be financed in part or almost wholly by some commission house at a term- inal market. Usually, some money will be supplied by the local bank at the country station. Buyers May Get Immediate Cash From Shipments - The independent buyer at the country station will probably sell his wheat "for shipment" within a spe- cified time. As soon as he has a carload, he ships it to some commission house, drawing a draft , with bill of lading attached, against the house for about 75% of the value of the wheat. The local bank may, on the basis of this draft, credit the buyer's account with the amount, charging interest until the draft is credited to its own ac- count by its correspondent bank at the terminal WHAT^S BACK OF MARKETING? 41 market. The commission house pays the draft and charges the country shipper interest on the amount it has thus advanced him until the car of wheat has been received and sold. Why Interest Charges Multiply - When a car of wheat arrives at the terminal market, it is sold to some mill, terminal elevator company, or shipper. If to a shipper, the grain, either in the same car or after having been transferred to another, is sent on to some mill or exporter, and the shipper draws a draft with bill of lading attached, on the concern that buys it. The bank credits the shipper's account and charges interest until the draft is paid. Finally, the miller who grinds the wheat, or the exporter who ships it out of the country, draws a draft, with bill of lading attached, upon the concern to whom he sells, and interest is again charged. It is not carrying the illustration too far to say that the flour jobber or the baker who receives the flour from the mill often borrows money to enable him to pay the draft which was made against him by the mill. I nterest Piles Up When Wheat Is In Storage - If the car of wheat shipped from the country station is stored in a terminal elevator, it is put with millions of bushels of other wheat into storage bins to be held until wanted by mills. This involves not only a storage charge, but an interest charge as well. Owners of grain stored in terminal elevators are heavy borrowers. They borrow with warehouse receipts as collateral. "Grain paper," as their notes are called, is regarded by bankers as of the highest class. Grain paper from western terminal markets is sold to banks throughout the Central states and in the Eastern money centers. 7. Risk-Taking - How It Is Handled In most systems of marketing, someone must take chances on loss that comes from changing market con- 42 LESSON A ditions, deterioration, fire, and other damage. Insurance and hedging are among the aids utilized to forestall loss from risk-taking which is closely- linked with several of the other steps in marketing, notably with storage. Even the consumer occasion- ally carries some of the risk when he stocks up far in advance of his need of household supplies. The products he buys may deteriorate or decline in price. "Carrying the Risk" Is a Necessary Evil - We have seen that most agricultural commodities must be carried long distances, and that most of the staples must be held for a comparatively long time. Obvi- ously, therefore, carrying the burden and risk of unconsumed foods is a "necessary evil" in marketing. V/hether assumed by farmer, intermediaries, or the final purchaser himself, the one who carries this burden of risk is entitled to some compensation for the hazardous part he is playing. 8 . Processing and Manufacturing Have Become Important Farts of Marketing The farmer sells wheat, live stock, hides, and cotton. The consumer buys flour, meat, shoes, and clothing. Somev;here between seller and buyer, it is evident that wheat must be milled; cattle, sheep, and hogs must be reduced to steaks and chops ; hides must be tanned, and transformed into shoes; cotton must be spun and woven and made into garments ready to wear. In the early days, farmers killed, cut up, and sold as meat, the cattle, hogs, and sheep they raised. Only in comparatively rare instances do such prac- tices now exist. Farmers, except in cooperative groups employing others to do it for them, have practically withdrawn from this manufacturing field as a marketing activity, leaving it to those who do it as a sole business. WHAT'S BACK OF MARKETING? 43 Manufact uring Improves the Product - Manufac- turing, however, does more than merely serve the farmer and the purchaser by relieving them of certain work. Generally speaking, by doing this work on a large scale, many improvements can be made. Large-scale manufacturing, with large output, obviously makes possible a reduced cost. From the larger amounts of raw material available to a large establishment, grades are more readily established and maintained. And because of superior equipment and highly specialized workers, great improvement in quality and appearance is possible. For instance, in many cases, creameries can man- ufacture butter of finer quality than farm butter carefully produced in the same locality. Certainly home v/eaves for clothing, however durable, will no longer satisfy the men and women of today. Large-scale operations make possible greatly increased consumption. Then, too, there are many profitable by-products from a large packing house but there is little unprofitable waste. 9. Selling , a Much Repeated Process The act of selling may occur but once during the marketing process, or it may occur many times. The farmer may sell direct to the consumer at the farm, on a public market, or he may drive from door to door. He may sell to a local buyer or car-lot assembler; to a local marketing concern such as a grain elevator or creamery; or he may ship to a commission firm in a large market. The local buyer or car-lot assembler may sell to a packing house or other intermediary, or through a commission man. The commission man or packing house in turn, may sell through jobbers, or direct to retailers. The retailers sell to the ultimate consumers, the family buyers. 44 LESSON A Many other methods of sale exist to fit other conditions or demands. Jobbers, brokers, traveling salesmen, agents, auctioneers, advertisers - all these contribute services in the various methods of sale. W hy Expert Knowledge Is Needed in Selling - To sell advantageously in the large markets, one must have a thorough knowledge of the markets. In some methods of selling, goods may be sold on their merits alone, and if the demand is great enough, little of the trading instinct is necessary in the transaction. In other methods, a knowledge of human nature and skill in using this knowledge are the essentials. The auctioneer needs a facility and a detailed knowledge of human nature unused by commission men, but he may not need the commission man's wide knowledge of markets and market practices. By the use of skill, one salesman may effect more sales of an inferior product than the more conserva- tive salesman makes of a superior product, even though the price be the same. Insofar as salesmanship and advertising expand sales solely for the benefit of the producer, they should not be called productive. But if they are of an educative nature, if they tend to improve standards of living, by introducing and extending the use of desirable products, they are socially beneficial. 10. Dispersing, the Opposite of Assembling Throughout the assembling stages of marketing, quantities handled by successive agencies increase in size. The farmer sells, usually, in relatively small quantities. The local buyer or dealer collects and ships in carload lots. The packing house or mill uses many carloads in one day. The warehouse col- lects and holds under one roof, quantities of which the country buyers' carlot is only a small unit. WHAT'S BACK OF MARKETING? 45 Now we reach that stage of marketing where these large quantities must be broken up into smaller lots in order to fill the requirements of dealers who supply our average American families. These families can house and use but small quantities at a time and buy, in the main, not the raw products of the farm, but these products in their later, processed or manufactured form. In this analysis, that part of the marketing process which has to do with the actual supplying of the consumers' wants, when and as demanded, is called "dispersing." So large is the bulk economical for transporting, storing, processing, and financing, that even the wholesale dealer cannot, as a rule, undertake profit- ably to effect the full amount of breaking up re- quired to supply the retail grocer with the small quantities of the large number of products which he must carry. Both Wholesalers and Jobbers Are Needed - Fam- ily purchasers cannot and will not go long distances to buy at concentration points. They must have some point in the neighborhood where they can buy small quantities frequently and at convenient times. This means that retail stores must often be located in business or residence neighborhoods where rents are high and space at a premium. They cannot store stock for many days in advance nor buy the amounts offered by the wholesaler. Between the two, therefore, the broker and the jobber have intervened to supply, with more flexi- bility, the needs of the retailer. EACH SERVICE HAS SUBDIVISIONS Now that you understand the importance of each of these services, you must realize that not all of each service is necessarily performed at any one place at any one time. 46 ^ LESSON A Wheat may be cleaned and graded (standardized) at the local elevator. It may then be mixed or blended at a terminal elevator, and this also comes under the head of standardization. Cotton is assembled into carloads at a Georgia village, but it is again assembled (this time into shiploads) at a seaport. Many products are manufactured more than once. Take lard, for example. First the lard is manufac- tured in the packing plant. Then the lard is used in making pastry which is what the ultimate consumer buys. Each of these marketing services will be dealt with exhaustively in separate lessons later in the course, but it is important that you have the general understanding of their relation to each other which this lesson has given you. HOW EDUCATION WILL IMPROVE MARKETING CONDITION S The grave danger of much of the criticism of the present day is that it is built on insuffcient knowledge, hearsay, and prejudice. Research (such as was necessary in the preparation of these les- sons) and education built upon it, form the only safe basis for improvement in marketing methods and for determination of fair rates of charge. The farmer, the middleman, and the consumer can contribute to the solution of our marketing difficulties by informing themselves of the process, the reasons for it, and the methods by which it is now accomplished. If based on such unbiased knowledge, their suggestions will be practical and helpful. Legislation, to be constructive and effective, must be built upon a clear understanding of underly- ing principles, and its administration must be based on a thorough knowledge of the forces and agencies in operation. Without education in its various forms such as demonstrations, extension work of all kinds, and WHAT'S BACK OF MARKETING? 47 widespread teaching of marketing facts by corre- spondence and in resident schools, no important part of the people can ever gain that knowledge and under- standing of the economic principles of marketing which are essential to improvement. In the light of knowledge and understanding, will come the efficiency and fair play in marketing which are essential to the future well-being of the American people. 48 LESSON A NOW - THE MIDDLEMEN LESSON You have learned of the 10 services that are performed upon agricultural products between the time they leave the farm and the time they arrive at the home of the ultimate consumer. You will want to know v/ho performs those services. And the next lesson by Prof. Paul D. Converse will give you all of the details. The men who perform these marketing services are commonly called "middlemen," And that word has had more bad things said about it than most any other. It isn't so often that the men themselves who perform these services are blamed. It's usually a denuncia- tion of middlemen in general. Is this justified? Are there some middlemen who charge too much for their services? Are there some we could get along without? Can we save half of the expense of marketing? Can we market our farm products without paying the bankers large amounts of interest before the products finally reach the consumers? Can we prevent speculators from taking a big share of the price the consumer pays? Those are pertinent questions and you will be able to answer them after you have mastered Lesson B. You will find it one of the most interesting lessons in the course. You will find in it a mine of material on which to base arguments and discussions with the people in your community. It will prepare you to take a definite stand on many of the disputes in connection with marketing, and you will have facts to back your stand. WHAT^S BACK OF MARKETING? 49 GLOSSARY OF MARKETING TERMS USED IN LESSON A Inasmuch as a glossary is provided with each lesson, no attempt is made either to give in each glossary complete definitions, or to give all the possible meanings of each term when used in different connections. The definitions here given explain the mean- ings of the terms as applied to marketing farm products, and more specifically to the meaning as used in this lesson. It is difficult to find in standard dictionaries satisfactory definitions of many marketing terms as used in a commercial sense. In fact, it would be difficult to find a definition for some of these marketing phrases in any other place except in this glossary, assembling, n. Act of bringing together to make larger quantities. As used in marketing, this refers to the bringing together of smaller quantities of farm products to make up carloads, shiploads, or other commercial units. a uctioneer, n. One who conducts and sells by auc- tion. One who sells products to the higest bidder. broker, n. A person who negotiates sales or con- tracts as an agent, charging a small commission or fee for his service. carlot assembler, n. One who assembles farm products into carlots for shipment ; practically the s£ime as a local buyer. In the act of assembling, he usually purchases the crops. collateral, n. Property given as security for debt. commercial market man, n. A man engaged in the business of serving as agent in the selling of products on central markets, or engaged in the buying of products from producers and re-selling of those products. commiss i on house, n. A business concern that receives goods on consignment to be sold for the producer or shipper. The commission house receives payment for its services in the form of a percentage of the sales or in the form of a fixed fee. consign, v. t. To forward or deliver to another to be sold. The shipper retains ownership in articles consigned until the commission man or broker to whom consignment is made has effected a 50 LESSON A sale. When goods are shipped thus to be sold, it is said they are shipped on consignment. consiimer, n. One who uses up an article of ex- changeable value, or v;ho produces from it another article of value. For. example, a manufacturer may be a consumer of raw products. More correctly, the term "ultimate consumer" describes the person usually referred to as consumer. Ultimate consumers are those who use up articles of exchangeable value, so that those articles v;ill not again enter the channels of trade. We are all ultimate consumers. cooperative, n. In these lessons the word "cooperative" is used to refer to a producer's cooperative association, v;hich is an organization made up of a number of producers for the purpose of buying and selling to their mutual advantage. correspondent bank , n. A bank in a larger city in which a country bank maintains an account, the same as a local depositor maintains an account in a coun- try bank. This same word is used to designate the country bank. The city bank calls the country bank its correspondent, just as the country bank «alls the city bank its correspondent. country buyer, n. One who buys direct from farmers in their local towns. Sometimes a representative of a larger concern with headquarters in a permanent market ; at other times, a local man operating inde- pendently and selling either to terminal market concerns or other commission men or brokers. deficit area, n. A section in which some necessary food or clothing materials are not produced in quan- tity large enough to supply the population. Deficit areas must buy those products from surplus areas. deterioration, n. The process of being lessened in worth. In this lesson it is used to refer to the change in condition or quality of food or clothing materials, which makes these materials of less value for their intended use. d ispersing, n. The distribution of food or clothing to the ultimate consumers. The process of dispersing includes the distributive work of manufacturers, wholesalers, shippers, and retailers. distribution, n. The transfer of commodities from producers to consumers. distributor, n. One who engages in some part of the work of dispersing necessary commodities to ultimate WHAT^S BACK OF MARKETING? 51 consumers. A distributor may be a manufacturer, a manufacturer's representative, a wholesaler, a job- ber, or a retailer. draft , n. An order dravm by one party or person on another for the payment of money to a third ; mostly limited to an order payable at or collectalDle through a bank or other financial agency. exporter, n. One who buys products in the section in which they are produced and ships them to some foreign section for sale. exports, n. That which is sold and transferred away from that section in which it is grown. It may be used to refer to products produced in one state and sold in another, but it is better applied only to those products that are sold outside of the nation in which they are produced. The v/ord as used in this lesson refers to products sold outside of the nation in which they are produced. final purchaser, n. One who buys to consume in a way that will prevent the product from again being placed upon the m.arket ; same as ultimate consumer. financ ing, n. The process of securing or supplying the money necessary to purchase goods for re-sale, the money to be repaid the borrower when the goods are sold. function, n. Any specific power or act of operating that belongs to an agent or the specific work accom- plished by that agent. Example: the functions of the broker. grade, n. A classification of a product. In market- ing, the classification is made to separate articles with different degrees of acceptability to the buyers. The grade may be based on size, color, physical condi- tion, flavor, texture, firmness, and so on. grading, n. The act of separating articles into classes, differing in their degree of acceptability to purchasers. grain paper , n. Notes secured by warehouse receipts representing grain in storage. imports, n. Articles brought into one section from another. In these lessons the word "imports" is used more strictly to refer to articles brought from one nation to another. Imports are not necessarily pro- duced in the nation from which they are brought. Sometimes they are imported into one nation and then exported to another. For example, the Netherlands 52 LESSON A imports much more than she consumes of several dif- ferent products, but she acts as a shipper for some interior countries and re-sells the articles to buyers in those countries. i nspection, n. An official examination by persons appointed for the purpose ; an examination by a pros- pective buyer. intermediate buyer, n. One who purchases an article between the time it leaves the producer and before it reaches the consumer. The purchase may be made for speculation or for changing the form or location of the article to make it more acceptable to the ultimate consumer. intermediary, n. One who performs some act or mar- keting service anywhere between the producer and the consumer. This service may be only the buying and selling of the article, or it may be changing of the form or location of the article to make it more acceptable to buyers. interstate commerce, n. Commerce that includes the shipment from one state to another. This is usually considered to be the only commission on which the United States has jurisdiction, and loss governing any phase of the marketing of a production within the state where it is produced must be state loss. jobber, n. A man or concern that sells to retailers a variety of goods in quantities usually smaller than will be supplied by wholesalers. local buyer, n. The same as country buyer. manufacturing, n. The act of changing the condition of a product to make it useful in meeting certain needs of ultimate consumers. In the process of manufactur- ing, the article or parts of it may be combined with other material. market , n. The place where products are sold. foreign market, n. A terminal market in a foreign country. intermediate market, n. A place where carloads are assembled into train loads or boat loads for shipment to terminal markets. local market, n. A market near to the producer, where most producers sell to local buyers. retail market, n. A place where articles are sold to the ultimate consumer. seaboard market , n. A market located in a city which is an ocean port. Most of the selling done WHAT'S BACK OF MARKETING? 53 here is to exporters and is for shipment by boat. terminal market, n. A place where a large per- centage of any crop is sold to manufacturers, exporters, or speculators; sometimes known as concentration point. For instance, Chicago, Buffalo, and Minneapolis are terminal grain markets. wholesale market, n. A place where products are sold to wholesale buyers, or where products are sold by wholesale buyers to retailers ; for ex- ample, the South Water Street Fruit and Vegetable Market in Chicago world market, n, A market where products are sold to be re-shipped to various nations of the world. marketing machinery, n. The agencies (considered collectively) that perform the work of selling, changing the form of, and changing the location of products to enable them to be sold advantageously to ultimate consumers. marketing process, n. This includes the work of selling, changing the form and changing the location of products to enable them to be sold advantageously to ultimate consumers. merchandising, n. The process of selling articles to ultimate consumers, including the increasing of the demand for these articles. packaging, n. The act of placing articles in packages to make them more conveniently handled and more acceptable for transportation and selling. packing, n. The act of putting articles into more favorable condition for storage, or shipment, or selling. p rocessing, n. The changing of the form of an article to enable it to meet certain needs of consumers. Strictly speaking, processing usually does not sub- tract anything from the article excepting moisture, and usually does not combine any other product with the article. In this way it differs from manufactur- ing. However, sometimes manufacturing is included in the term "processing." p roducers, n. Strictly speaking, only those who produce raw materials. Sometimes used, however, to refer to those who produce and manufacture or process articles. public market, n. A place where producers display articles to be sold direct to ultimate consumers. 54 LESSON A The market is usually maintained by a municipality. repackage, n. The transferring of articles from one package to another. This is done usually because the original package is not as acceptable to the prospective buyer as the new one. Sometimes it is done to get the articles into smaller packages as smaller packages are more in demand. research, n. Intelligent, protracted investiga- tion, especially for the purpose of adding to human knowledge ; studious inquiry. retailer, n. One who sells direct to ultimate con- sumers in comparatively small quantities. risk-taking, n. The act of assuming the responsi- bility for loss ; used in marketing to refer to the responsibility that comes from the ownership of articles held in storage. sale by auction, n. A sale in which the buyer makes his own price, by competing with others in his offers to the auctioneer. The article is finally sold to the buyer making the highest offer. sale by sample, n. A sale made under the condition that the buyer has a sample of the product offered for sale, to be personally examined. sale by type, n. A sale made under the condition that the buyer does not see a sample of the article pro- duced, but that the buyer is sure the articles deliv- ered will be according to a specified type, grade, or standard. shipper, n. The owner of articles at the time they are shipped. shrinkage , n. Degrees in size or weight of products usually due to evaporation of moisture. Sometimes the loss is by leakage or evaporation by unfavorable weather conditions. speculator, n. One who buys articles whose form he does not intend to change, but who intends to re-sell the articles at an expected advance in price. Speculators often do change the location of articles and sometimes store these articles to be sold at an- other time. stabilized prices, n. Prices made uniform or nearly uniform throughout an extended period. standard, n. In marketing, standard is used to refer to the qualifications by which an article is judged as to its value to ultimate consumers. Standards are WHAT'S BACK OF MARKETING? 55 set up by federal law, by state law, by organizations, and by individuals. St andardizat i on , n. The act of dividing articles into grades, the article to be grouped and selected according to specified conditions. storage, n. The act of putting away articles for future consumption. surplus area, n, A section in which one or more products is produced in greater quantities than are needed by the local population. terminal market com pany, n. A concern with head- quarters in a terminal market and organized for the purpose of buying usually on local markets and selling on the terminal market. t rade customs, n. Methods of procedure that have been followed by marketing agencies for some time. trade routes, n. Routes of travel over which certain products are customarily sent from one market to another. transportation, n. That part of marketing which consists of changing the location of articles with the ultimate purpose of having these articles in a location convenient to the ultimate consumers at a time when the ultimate consumers will be ready to buy them. ultimate consumer, n. One who consumes articles in a way that prevents them from being used again or entering again into trade. We are all ultimate con- sumers. This term is used to make a distinction between those who consume directly and those who con- sume in the process of manufacturing other articles. A manufacturer may be a consumer, but as a manufac- turer he may not be an ultimate consumer. As an individual he is an ultimate consumer of food. unit, n. A single thing or group recorded sepa- rately. warehouse receipt, n, A document supplied to the owner of a commodity by the owner of a licensed ware- house. This receipt indicates the quantity and grade of the product. warehousing, n. The operation of a warehouse for storing products. Often a fine distinction is made between this and storage, the difference being that a so-called warehouse man often attends to the details of deliveries of smaller quantities of the articles stored. 56 LESSON A wholesaler, n. A man or concern that supplies goods of restricted variety in quantities larger than retailers usually care to buy. Ordinarily, the wholesalers sell to jobbers and jobbers sell to retailers. 11-22-1M-3 -'K :;■ / :^'&:^' ijim^( ),y '";<,i( V ;'i