Jry C, o, HoSEzf. Recent Changes in Cotton “Co-Op” Practices AMERICAN COTTON GROWERS EXCHANGE Dallas, Texas RECENT CHANGES IN COTTON "CO-OP” PRACTICES By C. 0. Moser President-General Manager, American Cotton Growers Exchange Dallas, Texas. Reprinted from Commerce and Finance, New York, September 12, 1928 HE “Co-Ops” represent to cotton farmers their best efforts of organization. They and their genuine friends are gradually realizing that the unit of modern civilization so far as their economic welfare is concerned is no longer the in¬ dividual, but rather the group or the commodity. They are realizing more and more that the great progress which has been made by man up to this time has been the bringing of the benefits of mod¬ ern science and invention to the largest number of people through their acting together in harmony with natural economic laws for the benefit of the group. It is becoming clearer to the thinking men in every industry that, after all, all barter is the ex¬ change of labor among the producers of the vari¬ ous commodities which find their way into com¬ merce, and that the exchange value of the various commodities represents the relative buying power of the different types of producers. It is further recognized that an unorganized group is incapable of dealing on a basis of equal¬ ity with an organized group in the exchange of their respective units of production. It is generally recognized by economists and others who are inter¬ ested in the economic welfare of the various neces¬ sary elements in our national life that the great problem of society in the future will be that of adjusting the relations between the various organ¬ ized groups in such a way as to bring about pro¬ gress and prosperity among the workers in all our essential industries. By progress we mean the participation of more and more people in the good things of life. It is with this idea in mind that the cotton farmers have organized themselves into a modern business group. In this endeavor it is significant to note that they are applying to their business the same principles of organization and conduct that are being success¬ fully used by big business in every line of industry. The purpose is to bring the benefits of business organization to them through the rendering of a greater service to the cotton industry. In whatever way it is legitimately possible to assist the farmers along these lines, that is the legitimate function of the “Cotton Co-Ops” according to the views of their existing leadership. There is perhaps no better test of the line of activities of such an organiza¬ tion than the answer to the question: In what way may the cotton farmers contribute a larger service to the cotton industry, which service will reflect back to them the appreciation of the trade and society in larger returns for their efforts? Analyzing the activities of the Cotton Co-opera¬ tives from this point of view, there is perhaps no better point of beginning than to say that it is the function and responsibility of the cotton producers to produce both economically and in sufficient abundance to meet the world’s cotton requirements, but in return for this service to society, the cotton farmers are entitled to a fair share of the wealth they create. Production beyond the world’s needs, excessive costs of production and distribution and innumerable wastes from the producer to the con¬ sumer are largely responsible for the fact that the cotton farmers as a whole are among the lowest paid skilled workers of the country, even when compared with other branches of the agricultural industry, which, as is generally known, ranks at the bottom, or nearly so, of all the essential in¬ dustries of the nation. The limiting factors in the success of the individual cotton grower are as follows: 1. His cost of production. 2. His volume of production. 3. Price received for his products. There are many points to be considered in the study of the cost of producing cotton by the indi¬ vidual farmer. Space will not permit a detailed discussion of this important phase of farmer pros¬ perity. While the American farmer is the lowest cost producer among the farmers of the world, on account of machine and large scale methods used, there still remains room for improvement along the lines of both quality and volume of produc¬ tion, increased acreage yields and generally reduced costs. The work of the state and Federal govern¬ ments, state experiment stations and others for a long period of years has resulted in much progress along this line. The exercise of intelligence, practi¬ cal judgment, energy and managerial ability in this field will ever be as important to the success of the individual farmer as they are essential to suc¬ cess in other lines of business. The volume of production of each individual is an important factor in the prosperity of the indi¬ vidual farmer. No reasonable price for cotton can Southern Pamphlets Parc Book Collection UNC-Chapel Kill bring prosperity to the producer of four or five bales per annum. Such a small volume of busi¬ ness, however economically conducted, will not support an economy in line with our American standard of living. On the other hand, the problem of the cotton grower is far from being solved ex¬ clusively either through economical production or medium or large scale production, but can be solved through a combination of such practices as bring about low costs, a reasonable turnover and a price obtained for the product in excess of such costs. The price of cotton to the farmer is the price at the point of consumption less all inter¬ vening costs and profits. It will therefore be ob¬ served that as the business organization of the cot¬ ton growers, the responsibility of the “Co-Ops” is to assist the growers in producing a quality of cot¬ ton which will command the highest possible price, produce it at the minimum of cost and distribute it with the least waste and at the minimum expense in its journey to the consumer. We are now beginning the eighth year of this most interesting experiment in agricultural eco¬ nomics. Through the years which have past it has been necessary to revise and modify many of the original ideas of conducting the business and some of these ideas have not only affected the policies of the organization, but its very fundamentals. We have found that there are three limiting fac¬ tors in the success of Co-operative Cotton Market¬ ing, and during the years which have passed we have endeavored to profit by our experience and to adjust our views and policies in line with what appeared to be necessary to the success of the un¬ dertaking. With this idea in view it has appeared to be wise to broaden the activities of the organ¬ ization in a number of particulars, but it should be borne in mind that of the various subsidiary activities of the “Cotton Co-Ops” they have all had their direct bearing either upon the cost of produc¬ tion or distribution, or upon the quality and value of the products grown by our members. The limit¬ ing factors in the success of Co-operative Cotton Marketing referred to above are: 1. Loyalty of members. 2. Volume of business of the organization. 3. Ability of the management. LOYALTY OF MEMBERS AND VOLUME OF BUSINESS Loyalty of members and volume of business han¬ dled by the “Co-Ops” are so closely related that for the purpose of this discussion they may be con¬ sidered together, and it has been along these lines that a number of new practices and changes in policies have taken place. We have found that loyalty of our members is no different from that of the loyalty of the stock¬ holders of any corporate enterprise—that is the members, like stockholders, expect the business to assist them in making money. Some years the re¬ sults of the organization have been completely satisfactory to the members and the movement has grown and prospered—in other years the results have not been satisfactory and the organization has lapsed insofar as membership morale is concerned. In some States practically all of the certified cottonseed produced by the best plant breeders has been purchased by the “Co-Ops” and distributed to their members at cost. This has resulted in im¬ proving the quality of the cotton grown by the members on the average as compared with the nom members, and, of course, has reflected itself in in¬ creased prices to 1 them. In some sections of the Cotton Belt, and particu¬ larly in the Eastern portion, the use of commercial fertilizer is a limiting factor in yield and therefore important to the cost of production. Upon making a careful study of the subject it was found that our members in that section used several hundred thou¬ sands of tons of fertilizer annually. In the interest of assisting our members in reducing the cost of production and assuring them of a high quality of fertilizer, subsidiary organizations have been set up in this section with satisfaction and profit to them. In a similar way those subsidiaries distribute poisons for combating insects—thereby in both instances taking advantage of large scale buying and financing opportunities. These buying transac¬ tions of fertilizer, poisons, cotton seeds and other plant seeds aggregate approximately $5,000,000 annually. Recognizing that he who provides production credit controls the movement of the crop, and, un¬ fortunately it sometimes occurs that the credit mer¬ chant or local banker is more interested in the profits out of handling the cotton of his borrowers than he is in the interest which his loans earn, and in other places where the local banks are unable to properly finance production, it has become neces¬ sary to set up in practically each of the State Or¬ ganizations a subsidiary finance corporation. The agencies loan money to members on chattels and other securities for production purposes. The ag¬ gregate of this type of subsidiary activity of the Co-operatives, while not large in comparison to* the total credit requirements of our members, never¬ theless runs from a negligible amount in some of the State Organizations to as much as $2,000,000 in others. It is well known to all spinners that cotton is frequently considerably cut and otherwise dam¬ aged in the process of ginning. Where the ginner is more interested in the number of bales which he may turn out of his gin than he is in the quality and excellency of his ginning, great losses have been and are still sustained by the cotton industry. Generally speaking the “Co-Ops” prefer to patronize the existing channels of trade wherever they may do so without loss or penalty to the organ¬ ization or to the members as individuals, but where experience proves that they may not obtain reme¬ dies for abuses in the practices of processing cot¬ ton, it has been found advantageous to set up sub¬ sidiary corporations for processing the cotton and cottonseed. With this idea some of the State Organ¬ izations are entering into quite an extensive pro¬ gram of operating gins and in two States they have acquired interest in a group of oil mills. The subsidiary activities along these lines have been so satisfactory and profitable to the organizations that the profits from these enterprises are becoming a matter of great importance in reducing the operat¬ ing expenses of the parent association. ABILITY OF THE MANAGEMENT The criterion of managerial ability in a co-opera¬ tive may be measured by its ability to obtain a high average net return to the members as compared to non-members. This, of course, must include the conduct of the business in such a way as to keep costs at the minimum and to sell the cotton at its full value and to perform such other incidental services along the lines of subsidiary activities of the organization, as explained in this article, as will serve the members. Other important changes in operating policies may be of interest to the public. First—Originally the organizations depended up¬ on the unquestioned authority contained in the marketing contract and co-operative marketing law to enforce deliveries. The theory was adhered to that wherever there was absence of a disposition to voluntarily stick together, this would be supplied by legal coercion; but experience has proven that while the organization has the power of injunction and specific performance, it may be built into a powerful and influential enterprise only through the rendering of a satisfactory service to the mem¬ bers, which will induce them to desire to deliver rather than to require them to do so. Thus, through the spirit of service satisfactory to the membership and to the business advisors of the members, this is now the accepted policy, and only occasionally is the instrumentality of the law invoked in our mem¬ bership relations. A number of the State Organiza¬ tions go so far as to give the members the right of withdrawal at certain seasons in place of the origi¬ nal long time legally enforceable ironclad contracts. Second—Experience has proven that many thou¬ sands of cotton growers and their friends believe in the principle of co-operation, but their financial necessities require that they retain the option to determine the day upon which their cotton is sold, rather than to leave to the organization complete discretion as to the possible time for making sales. This change in policy has resulted in securing the widespread approval of many of the most sub¬ stantial cotton producers of the Belt to the plans of the organization and, in addition, has met the ob¬ jections of many bankers and business men, who heretofore have withheld their approval of cotton co-operation. Third—The “Co-Ops” are now endeavoring to substitute reliable information concerning the cot¬ ton industry through their research and statistical studies for less reliable and less dependable judg¬ ment of even the best men obtainable. Modern business science determines the course of business procedure largely from the knowledge of facts per¬ taining to the various industries and relies only up¬ on the interpretation of the facts by the best trained minds, who are devoting themselves full time to analyzing and dissecting the factors of supply and demand which determine business trends. En¬ couragement of the first order has accompanied the use of this information almost universally by the State Organizations during the past year for the first time, and where used has proven highly beneficial. We have, however, kept the developments in the industry under close observation through this de¬ partment during the past three years. Fourth—The broadening of our policies with reference to selling the mills and the trade gener¬ ally on such terms as have been used by the oldest and best conducted private cotton concerns in the trade, and the use of all the facilities and service known to the industry and complete latitude of operation, is a step forward in Co-operative Cotton Marketing that bids fair to be an important factor in the future success of our merchandising program. Fifth—The consolidation of our sales activities under one central control so as to bring the full force and power of the combined volume of busi¬ ness of all the organizations to bear on the market is in the interest of stability of price and continuity of service policy, and of reduced cost of distribu¬ tion. Space will not permit the details of many im¬ portant changes in policy along the lines of opera¬ tions, but it will be observed from the foregoing statement that the “Cotton Co-Ops” are approach¬ ing the problems of serving their members and the industry along the lines referred to above in com¬ plete harmony with the trends and development of modern business. The ramifications of the Organization extends wherever cotton is bought and sold—America, Europe and Asia—its volume of business has varied from $75,000,000 to considerably over $100,000,000 a year during the past seven years—its influence in the industry has been to purify and elevate the standard of ethics in the trade. It is always con¬ servative in its plans, purposes, service and general policy, and, yet, progressive in its attitude towards serving its members and in its organizational methods. OFFICERS C. 0. Moser. President-General Manager S. L. Morley. . Vice-President D. G. Hill, Jr. ..Secretary-T reasurer Rae Epstein. ..Assistant Treasurer