Why We Have A Marketing Problem BY SYDNEY ANDERSON The American Institute of Agriculture WHY WE HAVE A MARKETING PROBLEM An Introductory Marketing Talk by SYDNEY ANDERSON Member of Congress, Chairman Joint Commission of Agricultural Inquiry "Every Lesson By A National Authority" Confidential Edition Issued for Members Copyright, 1922 THE AMERICAN INSTITUTE OF AGRICULTURE CHICAGO The Author of This Marketing Talk C\0^ Sydney Anderson "Who's the man with a broad and fair-minded view of agricultural marketing?" That was the question asked by the Executive Board of The American Institute of Agriculture v;hen it was decided that a marketing talk like the one you now have in your hands should be the first material presented to you. During the discussion of this subject, it was generally agreed that someone not financially in- terested in marketing, but directly interested in it for some other reason, would probably be the man, Hon. Sydney Anderson, Member of Congress since 1913, was chosen because he has an unusually broad, comprehensive, accurate, and fair-minded view of the whole problem of marketing agricultural products. ©ClA8'j(;i;>4 M-273 WHY WE HAVE A MARKETING PROBLEM Probably the climax of his years of experience in the studying of agricultural marketing from the standpoint of the nation as a whole, came when he served as Chairman of the Joint Congressional Com- mission of Agricultural Inquiry. In the organization of the work of this Commis- sion, a wider variety of marketing facts and more of them were brought together than ever before. Every phase of the marketing of agricultural products was studied, and literally hundreds of business execu- tives joined in the work. Most of these men gave their services without any compensation, because they realized the value of the work being done by the Commission. At one time, an estimate was made which showed that if the men who were co-operating in this work were to be paid the salaries they were earning in their industrial positions, the payroll would amount to over $110,000 a week. The organization of this important work illus- trates two things about Hon. Sydney Anderson. First, it indicates the thoroughness with which he takes hold of every task; second, it illustrates the respect that business men in general hold for this Congressman, whose standing has been won by his care- ful thinking, his fair-mindedness, and his aggressive action. He v;as selected by President Harding as the chairman of what is known as "President Harding's Agricultural Conference." He is the organizer of the National Transporta- tion Institute, an organization to make a thorough and impartial investigation of transportation. He has practiced law at Lanesboro, Minn,, since 1904, and has represented his territory in the House of Representatives since 1913. He was a member of the Agricultural Committee of the House of Representatives during the early WHY WE HAVE A MARKETING PROBLEM rjonths of the World War, when the important v;ork of that committee was the consideration of food produc- tion and the control of marketing. It was this committee that organized the Food Administration and arranged with the Department of Agriculture to lend all of its efforts towards the stimulation of production. He was selected by this important committee handle all of the legal aspects of its bills on the floor of the House, as well as to care for the legal aspects in the preparation of the bills before they were presented. One of the most important committees of the House of Representatives is the Appropriations Committee. Hon. Sydney Anderson, as sub-chairman in charge of agricultural appropriations, has become known as the one man who knows more about the Department of Agriculture than any other present congressman. He has made it his business to know everything that he can learn about agricultural marketing and agriculture in general. So you see, Hon. Sydney Anderson has plenty of experience on which to base the clear and concise discussion to be found in this market talk. Summary of Hon. Sydney Anderson's Training and Experience Chairman, Joint Congressional Commission of Agri- cultural Inquiry Chairman, Pres. Harding's Agricultural Conference Organiser, National Transportation Institute Member of Congress, 1913 — Practiced law, Lanesboro, Minn., 1904 — Practiced law, Kansas City, Mo., 1903-1904 Admitted to bar 1902 Law Student, Highland Park College, Des Moines, Iowa, 1899-1900 University of Minnesota, 1901-1902 WHY WS HAVE A MARKETING PROBLEM SUGGESTIONS FOR STUDYING THIS INTRODUCTORY MARKETING TALK Congressman Sydney Anderson, who headed the Joint Commission of Agricultural Inquiry authorized by Congress, saw in this work an opportunity, not for muck-raking or political horse play, but for real service to agriculture. The Commission, under his direction, completed what is probably the most far-reaching investigation of agricultural mai-ket- ing and distribution that has ever been made. The Commission secured the assistance of trained experts in the marketing field and has heard the testim.ony of thousands of men in touch with all of the various phases of marketing and distribution. The report, which has just been issued, is a monumental piece of work, and the American Institute of Agri- culture was especially impressed with the Summary of Part 4 of the report on "Marketing and Distribu- tion." This Summary gave one of the clearest ac- counts of the development of our marketing problem that we have ever read, and we asked Representative Anderson to prepare an introductory Marketing Talk for our course based upon the findings of this Com- mission. The following pages will give you an unusu- ally clear understanding of the development of the present marketing system. Y'ou may possibly be surprised to receive a market- ing talk before you receive a lesson. The reason is this: This marketing talk introduces you to the marketing problem and prepares you for the study of Lesson A. It is not intended that you should study this marketing talk in as much detail as you will study the lessons. The object in providing you with this dis- cussion is to give you at least two very definite impressions. WHY WE HAVE A MARKETING PROBLEM In the first place, you will be impressed with the fact that marketing is rather a complicated process and requires the services of many people. In the second place, you will receive the impres- sion that the necessity for the intermediaries that handle products between the time they leave the pro- ducer and the time they are purchased by the con- sumer, arises from the fact that there are certain responsibilities that must be assumed which indi- vidual producers are not willing to take upon them- selves. So-called "middlemen" assume these re- sponsibilities, as explained on the later pages. Read this talk, therefore, with the idea of get- ting these two points clearly in mind. Study this marketing talk to learn the reasons for our present marketing situation. As soon as you are sure that you have a very definite impression from the reading of this market- ing talk, then proceed at once to the study of Les- son A, WHY WE HAVE A MARKETING PROBLEM In pioneer days there was no problem of distribu- tion, because people lived simply and produced their own foodstuffs, clothing materials, and found close at hand fuel and materials from which to create shelter. Pioneers in new territory established communities and developed resources. Railroads were built, goods were transported, and time and distance became factors in the relations and transac- tions of men. Fertile soil yielded crops beyond the require- ments of the farmer's family. Forests were converted into building materials for the erection of better homes and into furniture to fill the new homes. Mines were dug and their mineral products converted into machinery to relieve human labor. Farmers ex- changed their surplus crops for lumber to build barns and homes and for implements to cultivate the soil and harvest the crops. Traders and merchants came into existence because they facilitated the exchange of surplus goods. Travel Fac ilities Help ed Develop Market s Travel became a matter of comparative ease and men traveled far to display merchandise, while the resources of a continent were converted into new wealth with which to purchase greater comfort, con- venience, and opportunity. The standard of living constantly advanced and an ever-increasing propor- tion of the population entered the fields of industry, commerce, and finance. Cities grew and became the market places for agriculture. Working days became shorter and time and opportunity for recreation became greater. Edu- WHY WE HAVE A MARKETING PROBLEM cation and travel created a desire for comfort, convenience, and refinements not dreamed of in earlier generations. Electricity added to the length of the day by lighting cities and providing means of rapid, com- fortable locomotion. Telephone and telegraph ex- tended communication and nationalized industry, commerce, and finance. Marketi ng Fac il itie s Changed Living Habits Refrigeration revolutionised the transportation and storage of food products and changed the living habits of the Nation. Fruits, vegetables, and fresh meats were transported to distant markets. The pro- duction of the whole country v;as m.ade available to the large consuming centers, and crops of seasonal production were offered to consumers throughout the greater portion of the year. The consumer came to accept unusual service and convenience as a matter of course and finally to de- mand more, and each new service and convenience drew additional people into the activities of marketing. Time-saving, convenience, comfort, and satisfaction became the determining factors in the excellence of service. Why It Now Costs More to Market Than_ to Produce As more facilities were created, more people were engaged in marketing with a constant upbuilding of expense, until we have n ov/ re ached a point where it costs more to distri b ute and serv e the con- sujner than it cost s to pr oduc e. Co mmodity _ value s a re lost in a mase of service co sts . The distributive situation will be better appre- ciated when you realise that out of 41,614,248 people engaged in gainful occupation, 29,570,867 are en- gaged in manufacturing, transportation, distribu- tion, and allied activities, and that the people thus WHY WE HAVE A MARKETING PROBLEM engaged are contributing the comforts, conveniences, services, and operations that make the present standard of living possible. Strange as it may seem, the public does not real- ize that not only must the producer receive proper compensation for the raw materials, but that, out of the charge for service along the way, the men who operate railroad trains, drive trucks, operate machines, nail boxes, wrap packages, and the men v/ho make deliveries must be paid for the service the consumer has demanded. Why Farmers Leave M uch fo r Others to Perform The products of agriculture usually come into the local marlcet in relatively small lots of ungraded, unstandardized raw material for which the producer assumes no responsibility. It costs more to sell in small quantities than in large quantities: to sell an unstandard commodity than one that is standard; to sell a product for which the seller asummes no responsibility for variety, quality, standard, or delivery, than one where the seller guarantees the variety, quality, standard, or delivery of the com- modity. The unstandard character of the farmer's product as it comes to market, the small lots in which it is sold, and the fact that the farmer does not guarantee its variety, quality, standard, or its delivery, are large factors in diminishing the net return v/hich the farmer receives from the final consumer's dollar. The American farmer has been chiefly occupied with the problems of production, involving all the uncontrollable forces of nature and the combating of crop diseases and insect pests. He has been concerned with individual production rather than with service, marketing, and distribu- tion. Until such time as the agricultural producer 10 WHY WE HAVE A MRKETING PROBLEM considers production in its relation to consumer demand and satisfaction, he is unlikely to materially improve his condition. At present, for the most part, the agricultural producers leave to others the selection, grading, standardizing and assembling of products, as well as the risks involved in marketing. The vast bulk of agricultural products is transported to large cen- ters for assembling, grading, converting, and dis- tributing. In practically all local markets in which agricultural products are offered, a variety of agencies exist for the purchase, preparation for market, and handling. The agencies within the local market ship the products to a primary m.arket, v/hich is the common point of concentration, or to a terminal market, where they are disposed of to converters or standard- izers to be prepared for the consuming market. The first function performed by agencies within the local market is the assembling of numerous small lots of products which have to be graded as to quality, variety, degrees of ripeness, and fitness for market. Buy ing Habi t s Add to Marketing Exp e nse The great bulk of farm products is harvested and marketed during a small portion of the year, whereas consumers' demand spreads over the entire year. Consumers buy frequently and in exceedingly small quantities, and demand that commodities be conveniently available at a moment's notice. Many of these commodities are highly perishable and must be handled with great rapidity and by means of special and expensive facilities for refrigeration and storage. Consumers in different localities have marked preferences as to grade, appearance, flavor, and package. Satisfaction of consumer preferences WHY WE HAVE A MARKETING PROBLEM IX begins with the agencies in the local market. This leads to specialization of dealers who handle single commodities or groups of commodities. Marketing Agencies Must Be Paid For Risks Assumed The agencies within the local market buy with the consideration of the risks and services involved in assembling, selecting, grading, standardizing, transporting, and selling. They establish their margins so far as competitive buying and competitive selling will permit , to adequately protect themselves against the various risks and secure a profit on their transactions. In communities where production is reasonably uniform and standardized, the agencies within the local market usually pay better prices in the pro- portion in which their risks are reduced and the degree to which the producer assumes responsibility for the character of his product. Producers do not always sell their products in local markets, but sometimes offer them for sale to buyers or through commission men in primary or ter- minal markets. In this case, the producer assumes the risk of transit, and losses, and wastes of im- proper packing, insufficient selection, and grading. When such shipments reach market, the commodities are graded and any portion that is not sufficiently mature, or is blemished or overripe or otherwise unfit for market, is disposed of at the expense of the producer. In such instances, the producer not only loses the commodity, but pays the transportation cost on products which should not have been shipped. These occurrences are of sufficient frequency to deserve a most careful study by the producer. Producers Cannot Perform All Marketing Services It is frequently suggested that agricultural products be sold by sample or grade description from markets established close to the centers of produc- 12 WHY WE HAVE A IvlARKETING PROBLSIvi tion, and that in such markets there be established adequate and efficient warehouses, cold-storage plants, and other facilities for the protection and preservation of raw commodities. In theory at least, this suggestion has attract- ive possibilities in that it would save unnecessary waste and much handling and rshandling and avoid "back-tracking" products in the redistribution of commodities to smaller communities. This suggestion, however, assumes that standard grades can be universally established, and that con- sumers and dealers would willingly anticipate their requirements to sufficiently provide for a steady flow of products from point of production to place of consumption. It further assumes an intensive dis- tribution within the radius of territory that could absorb the quantities of agricultural products produced within any given center. Under existing conditions consumers find it more convenient to leave the responsibilities of selection and service to the established distributors. Wh y Parcel Pos t Selling Is L'Ot Popular There has been a definite effort on the part of the Post Office Department to attract public atten- tion to the opportunities offered by the Parcel Post System for direct trading between producers and con- sumers. Apparently the consumer has been unwilling to anticipate requirements sufficiently in advance to assure the producer a continuous m.arket , nor has the producer shown sufficient willingness to assume the responsibilities for quality of product and assurance of service to command the consum.er's con- fidence. There are certain risks which neither the pro- ducer nor the consumer is willing to accept, which are now assumed by "middlemen," and which influence WHY WE HAVE A MARKETING PROBLEM 13 the price received by the producer and the price paid by the consumer. These will be considered in detail in a later lesson. Distribution involves Vno factors: (1) The move- ment of commodities from place of production to point of convenience for consumption; and (2) handling from the time of production to a convenient time for consumption. Why Such Marketing; Service Is High In Cost In the primary and terminal markets, commission men, v/holesalers, and buyers m.aintain warehouses, refrigeration, and facilities for the protection and conservation of commodities. The transportation agencies are required to provide facilities for pro- tection of commodities in transit. All of these activities involve investment and operating expense and require the employment of men and equipment. Practically all facilities in local, primary, and terminal markets are the result of individual initiative or the enterprise of a comparatively small group. This results in a lack of coordination of facilities, utilities, and operations. In the larger centers, railroad terminals are scattered to such an extent as to m.ake it necessary for shippers and receivers to transport perishable commodities through the city streets with much congestion, delay, and expense, causing an actual deterioration of perishable products and numerous duplications of handling. All of these things add materially to costs without adding either value or service to the commodity. While the large bulk of agricultural commodities coming into terminal markets represent the finished products of agricultural producers, they are raw materials to be converted into articles of food, clothing and finished products of great variety to satisfy the complex demands of modern society. Only a comparatively small portion of the agricultural 14 WHY WE HAVE A MARKETING PROBLEM products would be required to satisfy consumers' requirements for food in its raw state. As a consumer, you are interested in wheat only as the material from which flour and cereals are made, and much of the production of fruit and vegeta- bles comes to you in tin cans and glass bottles. Live stock is of interest to consumers only as the source of selected cuts of meat and as the source from which clothing materials, shoes, fabrics, and numerous articles of utility and convenience are derived. Our Standard of Living Higher Than Other Nations During the period of development of new commodi- ties and new services, the American standard of living rose to a higher plane than that of any nation on earth, and the cost of living advanced in propor- tion to the public demands for or acceptance of com- fort, convenience, and superlative service. More and more people entered the fields of indus- try and distribution, and competition became in- creasingly severe. A constantly increasing propor- tion of the population found employment in the activities of handling, transporting, storing, converting, and distributing commodities and meeting new demands for supplemental services. Out of the "spread" between the amount received by the producer and the price paid by the consumer, compensation for all of the people aiding distribu- tion, must be found, and this brings the American public face to face with the problem of devising a less expensive and more efficient system of distributing the absolute essentials - food, clothing, shelter, and fuel. How Marketing Costs Fluctuat e The cost of distribution is made up of an infinite number and variety of costs of material and services, each of which influences the others and all of which combine to make the price the final consumer pays. WHY WE HAVE A MARKETING PROBLEM 15 These factors vary in influence upon one another and upon the final price from year to year, from month to month, and even from day to day. They are each a part of a complex and flexible price structure which is extremely sensitive to gov- ernmental, economic, and psychological forces, such as taxes, interest rates, freight rates, custom, habit, usage, and practices of producers, consumers, manufacturers, and distributive agencies. There is no single factor in this complex price structure which can be said to be primarily or even principally responsible for the spread between pro- ducers' and consumers' prices. The elements which compose this spread must be attacked at every point in the chain of producing, manufacturing, and dis- tributing processes. How Marketing Costs May Be R educed Legislative panaceas cannot be effective in im- proving a situation brought about by the interplay of so many varied and complex factors. The cost of distribution can be reduced by a better understanding of the elements which com- pose it, the relationship of the agencies through v/ hich commodities are distributed, and a con- certed and conscientious effort on the part of p roducing, manufacturing, and distributing agen- cies to eliminate unnecessary and wasteful prac- tices and processes, to adopt more efficient methods and to relate more def initely these processes to one another, so that there can be a c ontinuous flow of commodities from p roducer to co nsumer in respo n se to known demands. In this effort, the understanding and co- operation of the producer and consumer is also an absolute essential. WHY WE SELL TO ALL THE WORLD The enterprise of Americans, together with our vast natural resources and comparatively small population, has brought the United States to the point where she supplies more of the world's needs of raw materials than any other nation. Indeed, in the case of some of the most essential products, she produces more than all the rest of the world com- bined. That makes it important for every student of marketing to know, at least in a general way, the importance of other countries in production and export, as well as their importance as buyers of American raw products. This subject is treated in a most interesting way in the first lesson. You v/ill be extremely sur- prised to learn some of the facts, and as you study Lesson A, you will undoubtedly be fascinated with what you learn, and the importance it will be to you in your study of marketing. lL2Sl.°^ CONGRESS Illllll I 002 671 S 7