•Zir'^^i ^.^ Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/cooperativeotherOOIIoyrich CO-OPERATIVE AND OTHER ORGANIZED METHODS OF MARKETING CALIFORNIA HORTICULTURAL PRODUCTS A THESIS ACCEPTED IN PARTIAL SATISFACTION OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY AT THE UNIVERSITY OF CALIFORNIA BY JOHN WILLIAM LLOYD 1917 UNIVERSITY OF ILLINOIS STUDIES IN THE SOCIAL SCIENCES Vol. VIII March, 1919 No. 1 CO-OPERATIVE AND OTHER ORGANIZED METHODS OF MARKETING CALIFORNIA HORTICULTURAL PRODUCTS BY JOHN WILLIAM LLOYD, Ph.D. Professor of Olericulture University of Illinois PRICE SI. 25 PUBLISHED BY THE UNIVERSITY OF ILLINOIS URBANA [Entered as second class matter, July 27, 1915, at the post office at Urbana, Illinois, under the Act of August 24, 1912. Acceptance for mail- ing at the special rate of postage provided for in section 1103, Act of Oc- tober 3, 1917, authorized July 31, 1918.] UNIVERSITY OF ILLINOIS STUDIES IN THE SOCIAL SCIENCES The * ^ University of Illinois Studies in the Social Sciences" are designed to afford a means of publishing monographs prepared by members of the faculty or graduate students in the departments of history, economics, political science, and sociology in the University of Illinois. Numbers are published quarterly, and constitute an annual volume of about 600 pages. The subscription price is three dollars a year. Vol. I, 1912 Nos. 1 and 2. Financial history of Ohio. By E. L. Bogart. $1.80. No. 3. Sources of municipal revenues in Illinois. By L. D. Upson. Out of print. No. 4. Friedrich Gentz: an opponent of the French Eevolution and Na- poleon. By P. F. Reiff. 80 cents. Vol. II, 1913 No. 1. Taxation of corporations in Illinois, other than railroads, since 1872. By J. R. Moore. 55 cents. 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Larson Published by the University of Illinois Under the Auspices of the Graduate School Urbana, Illinois Copyright, 1919 By the University of Illinois • •• • • • • • • • •* • • • Co-Operative and Other Organized Methods of Marketing California Horticultural Products By JOHN WILLIAM LLOYD, Ph.D. PREFACE This monograph is based on studies made during a residence of nearly two years in California. The chief sources of informa- tion have been: (1) personal interviews with officials of mar- keting organizations; (2) articles of incorporation, by-laws, agreements, crop contracts, and other printed documents; (3) detailed records of Boards of Directors and other official bodies ; (4) files of periodicals published in fruit producing regions or giving prominence to horticultural products; and (5) special literature bearing on the subject (see Bibliography). An effort has been made to give a true picture of the co-opera- tive movement in California as applied to the marketing of horti(!niltural products. This study was completed in March, 1917, and describes conditions as they existed at that time. Since then various new organizations have been formed, transportation conditions and rates have changed on account of the war, and the government has greatly extended its participation in matters pertaining to food distribution. No attempt has been made to include a discussion of these later developments, though some of them are directly in line with the possibilities suggested near the close of this report. The writer desires to acknowledge his indebtedness to the late Professor A. V. Stubenrauch for suggesting the undertaking of this study and for encouragement during its progress almost to its completion; to other members of the faculty of the Univer- sity of California for helpful suggestions; to the officers and managers of the various marketing organizations for their cour- teous assistance; especially to G. Harold Powell, General Man- ager of the California Fruit Growers Exchange, for the privi- lege of examining all the records in the office of that organiza- tion; to C. B. Messenger, Editor of the California Cultivator, for access to early files of the California Cultivator and the Rural Calif ornian; and to Joseph F. Daniels, Librarian of the Riverside Public Library, for access to files of the Riverside Press and Horticulturist and the Riverside Daily Press. J. W. Lloyd Urbana, Illinois December, 1918 CONTENTS Introduction 9 CHAPTEE I Advantages of Co-operative Marketing 13 how marketing costs have been reduced . . . . 13 how distribution of the product has been improved . . 20 how demand for the product has been increased ... 23 Standardization of the product 27 Protection of the individual, grower 30 Purchase of supplies 34 CHAPTER II Fundamental Principles of Co-operative Marketing ... 35 Statement of the principles 35 I Conditions in the industry at the time of organization . 37 impossibility of marked improvements 44 ^Volume of product needed 48 CHAPTER III J- Basis of Membership 51 California Fruit Agency 53 Other attempts to combine growers and dealers ... 65 CHAPTER IV Financing the Organization, Distribution of Benefits, and J* Basis of Voting 74 ^ Financing the organization 74 *? Distribution of benefits 81 Basis of voting 83 CHAPTER V Some Essential Details 87 ) Affiliation of local organizations 87 J^ Business ability needed 92 '^Methods of sei^ling 95 If Loyalty of members and employees 101 CHAPTER VI Other California Marketing Organizations 106 Comparison of commercial marketing organizations with growers' co-operative organizations 110 An example of government aid in distribution . . . 112 CHAPTER VII Relation of Growers' Co-operative Marketing Organizations to Control of Production, Distribution, and Prices . . . 114 CHAPTER VIII Reducing the Cost to the Consumer 123 CHAPTER IX Applicability of California Co-operative Marketing Methods to OTHER Producing Regions 128 Bibliography 133 Index 138 INTRODUCTION The permanence of horticultural industries depends primarily upon the successful marketing of the products. Many individual horticultural enterprises have failed, not because of inability of the operators to produce the crops, but for lack of efficient mar- keting facilities. When individual efforts at marketing have failed, growers have been obliged either to give up their horti- cultural pursuits or to co-operate with their feUows in the mar- keting of their products. The greater the distance of the grower from his market, the more helpless he has been as an individual in attempting to solve his marketing problems. It is not sur- prising, therefore, that California growers have been leaders in the development of co-operative marketing organizations in America. A study of the conditions which led to the formation of co- operative marketing organizations in California, and of the ac- complishments of these organizations should indicate the relative advantages of co-operative, as compared with other methods of marketing. Furthermore, the experiences of these organizations in the progress of their development illustrate certain principles which appear to be fundamental to the success of co-operative marketing enterprises. A detailed consideration of these prin- ciples as exemplified by the experiences of California marketing organizations will constitute the major portion of the present paper. Three methods of marketing California horticultural products may be noted: (1) outright sale to speculative buyers, (2) con- signment upon a commission basis, and (3) sale through a grow- ers' co-operative marketing organization. Each of these methods has characterized certain periods in the marketing of the various California products. In the early eighties of the last century, California fruit was usually purchased outright from the grow- ers by speculative buyers who shipped it to a few of the larger markets. California fruit in the eastern markets was then looked upon as a luxury to be indulged in only by the wealthy, and the 10 INTRODUCTION [10 limited shipments were sold at exorbitant prices. During this period, the buyers paid good prices to the growers, and at the same time made large profits for themselves. Within a few years, however, with increased production, the markets seemed to be easily oversupplied, and the former buyers refused to purchase fruit from the growers, but were -willing to handle it upon a commission basis, in addition to a fixed charge for pack- ing. This arrangement relieved the shipper of all risk and in- sured him a profit, but placed the grower at the mercy of an uncertain market, and finally resulted in such low returns that the entire fruit industry of the state was threatened with ruin. The crisis was reached during the financial panic of 1893. For a few years previous to that date, efforts had been made by growers to devise some better method of marketing their prod- ucts; and in a few places small local associations had been organized. A special impetus was given to the formation of fruit growers' co-operative marketing organizations in 1893, par- ticularly among orange growers in the southern part of the state. The various local organizations of orange growers became affili- ated, and in 1895 a central organization, known as the Southern California Fruit Exchange, was incorporated. This organiza- tion has been in continuous activity since that date (though in 1905 the name was changed to California Fruit Growers Ex- change), and furnishes the facilities by means of which a large part of California's citrus fruit crop is marketed. Besides the citrus fruit growers, producers of deciduous fresh fruits, raisins, dried peaches, walnuts, almonds, apples, berries, and cantaloupes, have formed marketing organizations which are at the present time in active operation. Some of the organiza- tions are general in character, attempting to serve the needs of the given industry throughout the state; others have confined their activities to a given producing region without regard to the same product in other localities. The following organizations of growers are concerned in the marketing of California horticultural products : 11] INTRODUCTION 11 Oalifoenia Co-operative Marketing Organizations Name General organizations: California Fruit Gro^ Exchange California Associated Raisin Co. California Walnut Grow- ers Association California Almond Grow- ers Exchange California Peach Growers Locality organizations: Sebastopol Berry Grow- ers, Incorporated Sebastopol Apple Grow- ers ' Union Turlock Merchants and Growers, Inc. Headquarters Los Angeles Years Product in Op- eration Citrus fruits 21^ Percentage of Crop Handled Sacramento Deciduous fresh fruits 16 dfO Fresno Raisins 4 -5 80-f Los Angeles Walnuts 1 7^/ San Francisco Fresno Almonds Dried peaches 1- 1 80f- 75 Sebastopol Berries 8/. Sebastopol Apples 6/^ Turlock Cantaloupes, etc. In addition to the above, the following have filed articles of incorporation, and are in process of organization: California Prune and Apricot Growers, Inc., California Associated Olive Growers, Inc., and Watsonville Apple Distributors.^ Mention should also be made of the California Avocado Association and the Coachella Valley Date Growers Association, organizations which are looking after the welfare of their respective industries, the products of which are not yet of sufficient volume to warrant any attempts at co-operative marketing. 1 This study was completed in March, 1917. Other organizations handling California horticultural products have been formed since that time. CHAPTER I ADVANTAGES OF CO-OPERATIVE MARKETING A study of the accomplishments of the organizations enumer- ated in the tabular statement on page 11, and of some of their predecessors in the same industries, indicates that growers' co- operative marketing organizations handling California horticul- tural products are capable of : 1. Reducing the cost of marketing. 2. Improving the distribution of the product. 3. Increasing the demand for the product. 4. Standardizing the product. 5. Protecting the individual grower. HOW MARKETING COSTS HAVE BEEN REDUCED In this discussion, ''cost of marketing '^ is assumed to mean the difference between the price paid by the jobber in the con- suming region and that received by the grower for a given prod- uct. It includes packing-house charges, transportation, and brokerage, commission or other form of compensation for doing the selling. In the early period when the fruit was handled principally by speculative buyers who purchased it outright from the growers, this cost of marketing included a large profit to the dealer. When market conditions changed so that large profits were no longer assured, the same firms continued to oper- ate as packers and shippers, charging the growers a fixed amount for packing and a commission for selling. This was the method in operation at the time the orange growers decided to organize for the purpose of doing their own marketing. One of the most tangible results secured by the orange growers upon assuming their own packing and selling was a marked re- duction in the cost of packing as compared with the charge exacted for that service by the firms who had previously handled 13 14 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [14 the crop and who continued to handle it for growers outside the organization. Reports of various associations of growers at the end of the first season's operations following the general move- ment toward organization in 1893, gave definite evidence on this point. At the annual meeting of the Eiverside Heights Orange Growers Association, October 2, 1894, the officers reported that ''the total expense per box for packing the fruit . . . was 29 cents. ' ' ^ The report of F. M. Douglass, Secretary of the Duarte-Monrovia Citrus Association, July 17, 1894, stated that, ' ' The charge to the growers for packing the fruit and loading on car was but 24 cents per box. Though the price was small, it proved sufficient to cover the expense. ' ' ^ The previous season, one of the largest commercial packers had charged growers 40 cents a box for the packing.^ In an address at a meeting of the Southern California Pomological Society, at Pomona, November 16, 1894, T. H. B. Chamblin, in reviewing the first year's opera- tion of the Exchange system,* stated that, "Previous to the ad- vent of the Exchange system, it cost from 35 to 50 cents per box to pick, pack, and haul to the railway. The average was about from 40 to 45 cents. During the past year it has not cost much over 28 cents per box. ' ' Fully as favorable results were attained the next season. Ac- cording to the Ontario Record,^ ''Mr. Adams [Manager of the Ontario Fruit Association] states that this year [1895] the ex- pense of packing, miscellaneous expenses and salaries [i.e. cost of operating the local packing-house] amounted in round num- bers to 28 cents per box. . . When the old commission system was the only selling medium, the grower paid from 35 to 60 cents for packing alone." The costs of packing in some of the Riverside associations for the 1894-95 crop were as follows: Riverside Heights Association, 25.68 cents per box; Brocton Square Association, 26.20 cents per box ; Navel Orange Co., 24-^ cents.® The same item stated that, ' ' The average cost throughout 1 Eiverside Press and Horticulturist, Oct. 6, 1894, p. 2. 2 California Cultivator, Aug., 1894, p. 229. 3 Eiverside Press and Horticulturist, Sept. 23, 1893, p. 2. * Eural Calif omian, Dec, 1894, pp. 635-636. 5 As quoted in Eiverside Press and Horticulturist, Aug. 31, 1895, p. 1. « Eiverside Press and Horticulturist, Sept. 28, 1895, p. 2. 15] ADVANTAGES OF CO-OPERATIVE MARKETING 15 the valley has probably not gone above 27 cents, as against 35 paid to outside packers the same season." At the close of that shipping season, Fred L. AUes, in an article entitled, ' ' California Fruit Exchanges vs. The Commission System, ' * ^ stated that, *'In no one thing has the exchange system shown its value more positively than in the cost of packing and marketing the fruit. It has reduced the cost of packing from the old commission sys- tem average of 43 cents per box to a present rate of 28 cents, a saving to the growers of nearly $200,000 on packing alone." In October, 1900,^ the stockholders of the Riverside Heights Association ''were most enthusiastic over the splendid showing made the past year . . . and the average cost per box for packing was 271/2 cents — lower than any other association by 11/2 cents." In a circular issued by the California Fruit Growers Ex- change, December 20, 1911, B. A. Woodford, General Manager, said : ' ' A brief review or comparison of conditions as they exist just prior to the formation of the Exchange and as they exist to-day is interesting. Then, the cost of packing a box of oranges and putting it upon the car was between 40 and 50 cents. Now, the same service, better done, costs on the average 30 cents. ' ' In a public address the same year,^ Mr. Woodford said : ' ' The cost of packing as compared with seventeen years ago has been reduced to all growers more than 10 cents per box, a saving of $2,000,000 annually on the present output." The low cost of packing as conducted by the associations which constitute the California Fruit Growers Exchange, was due mainly to two factors: (1) The elimination of the profits foi^ merly accruing under a system of commercial packing, since all operations are conducted upon a strictly co-operative basis at actual cost; and (2) the purchase of box material and other packing-house supplies in enormous quantities for the entire Ex- change system and their distribution to the various associations at actual cost. Some local co-operative associations of raisin growers which had been organized in the vicinity of Fresno about the time the 7 California Cultivator, Nov., 1895, pp. 381-383. 8 Biverside Daily Press, Oct. 3, 1900, p. 5. 9 Proceedings Thirty-nvnth State Fruit Growers' Convention, p. 89. 16 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [16 orange growers were organizing in the southern part of the state, likewise secured marked savings in packing expense. The report of W. F. Forsey, Secretary of the Producers' Raisin Packing Company, showed that in two years this co-operative company had ''saved enough in packing, as compared with the prices charged by commission packers, to build and equip their packing- house and pay for the land" on which it stood. In one year they had saved $6500 in packing 150 carloads of raisins. They ''packed 15,410 boxes Layers No. 1 of twenty pounds each at an average cost per box of 191/4 cents. The price charged by the commission packers is [was] 32% cents for doing exactly the same work. . . They packed 41,362 fifty pound cases at an average cost of 16^^ cents per case, and the price charged by the commission packer is [was] 25 cents.'' ^^ In the orange growers' organizations, not only the cost of packing, but also the cost of selling was materially reduced when the powers took their business into their own hands. The cus- tomary commission charge seems to have been 10 per cent on the gross sales, though 7, 8 and 12 per cent ^^ have also been men- tioned. "The Exchange charges the growei^ only actual cost for . , . . selling the fruit which . . . [in 1895 was] about 4 per cent, a saving of a full $150,000 this year to the growers." ^^ In a feature article" in the Los Angeles Herald, June 27, 1897, based on data furnished by the officers of the Southern California Fruit Exchange, the statement was made that, "Under the Exchange system the cost [of selling the fruit] the past season has been only 7% cents a box. The old [com- mission] system of charging would be about 25 cents a box on Navels and about 17 cents a box on seedlings. Here is a saving of 171/2 cents a box on Navels and 9i/^ cents a box on seedlings." In some of the early reports regarding reductions in the cost of marketing oranges, the savings made by the growers due to reduced costs of packing and of selling were combined into one item for purposes of comparison with other methods of market- ing. In a brief review of the first year's marketing of oranges 10 Pacific Bural Press, Mar. 9, 1895, p. 146. 11 California Cultivator, Nov., 1895. 12 Alles, Fred L., in California Cultivator, Nov., 1895. 13 Los Angeles Herald, June 27, 1897, pp. 16-17. 17] ADVANTAGES OF CO-OPERATIVE MARKETING 17 under the Exchange system, W. E. Collins said:^* ''. . . the charge to the grower for packing and marketing the fruit has been from 25 to 50 per cent less than the combined charge for packing and commission under the old system. ' ' Reports for the season of 1894-95^^ ''show that the Redlands growers [not in the Exchange system] paid 52 cents per box for packing and sell- ing their fruit, while the same item of expense in the Colton Ex- change was but 32 cents — a clear gain of 20 cents in favor of the Exchange system. " In a circular issued by a ' ' committee of the Orange Exchanges comprising the Pomona valley," in the fall of 1896,^^ it was stated that ''the expense of packing and selling [had been] reduced to the actual net cost, saving the growers 15 to 35 cents per box. " A circular issued by the River- side Fruit Exchange in the fall of 1898 ^^ said: "The entire cost of the box material, packing and selling . . . will not ex- ceed ... 35 cents a box to the grower [in the Riverside Exchange, for the season of 1897-98]." The low cost of selling instituted by the "Exchange system" in the early days has been consistently maintained to the present time, even though the service has been vastly extended and im- proved. December 20, 1911, B. A. Woodford, General Manager of the California Fruit Growers Exchange, issued a statement that "prior to the formation of the Exchange . . . the growers paid the California shipper 7 to 10 per cent on the gross proceeds for selling the fruit. Now, a better service is open to all growers for less than 3 per cent."^^ The annual reports of the present general manager, G. Harold Powell, show that the cost of selling citrus fruits through the California Fruit Growers Exchange, from 1912 to 1916, has been less than 3 per cent on the gross sales. In this selling cost has been included the cost of maintaining a comprehensive advertising campaign each sea- son. The continuance of this low cost of selling in spite of the greatly improved service has been made possible by reason of the 14 Rural Calif ornian, Oct., 1894, p. 533. 15 Rural Calif ornian, Nov., 1895, p. 594, 16 Rural Calif ornian, Oct., 1896, p. 413. 17 Riverside Daily Press, Nov. 16, 1898, p. 5. 18 Circular issued by the California Fruit Growers Exchange, Dec. 20, 1911. 18 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [18 large volume of business transacted, the thorough organization of all departments of the service, and the employment of salaried agents in place of brokers in the principal markets of the country, (in addition to reducing the costs of packing and selling fruit for its members, the California Fruit Growers Exchange was the principal factor in securing reductions in freight rates and re- frigeration charges on California citrus fruits. The orange freight rate was reduced 7 cents per box and the lemon rate 21 cents per box. Based on the output in 1911, this was equivalent to an annual saving of over $1,700,000.^^ Reductions in charges for the various kinds of refrigeration service were secured from time to time, and resulted in further reducing the cost of trans- portation. Since these savings in freight and refrigeration charges were available to all shippers alike, the Exchange has been of direct service to the entire industry in this connection, a|id not to its own members alone. ! I The California Fruit Growers Exchange has also been able, in its transactions, to reduce greatly the losses due to freight over- charges or damages in transit, and to bad debts or failure of purchasers, which losses might otherwise constitute an important item in the cost of marketing. The payment of freight over- charges is avoided by a thorough system of auditing instituted by the traffic department of the Exchange. This department also secures and compiles the data for the establishment of claims against the transportation companies for damages to fruit in transit whenever such damages have occurred. The importance of this service in saving money for the growers is indicated by a statement in the annual report of the general manager of the Exchange for the year ending August 31, 1916, as follows: ''There have been presented to the railroads during the year 11,364 claims, including those for pilferage, overcharge, and for loss and damage in transit. These claims aggregated $151,006.01, and during the year $111,557.31 have been paid and returned to the shippers. The expense of this service is included in the marketing cost." Losses due to bad debts and similar causes have been prac- tically eliminated by having personal representatives in all the 19 Proceedings of Thirty-ninth Fruit Growers' Convention, p. 89. 19] ADVANTAGES OF CO-OPERATIVE MARKETING 19 leading markets, by conducting the business on essentially a cash basis [requiring settlement in full for every car of fruit within 48 hours after the sale is consummated] , and by using local banks as depositories for funds, thus avoiding the possibility of loss due to failures while checks were being transmitted to and from California,. During the year ending August 31, 1916,. the grow- ers belonging to the California Fruit Growers Exchange lost only ''$102.73 due to bad debts and all other causes. This equals three-eighths of one-one thousandth of one per cent of the money returned to California [by the Exchange] . In thirteen years the Exchange has returned to California $192,500,000, and during this period the losses from bad debts and from all other [similar] causes have amounted to only $7,688.56. . . This business represents transactions with 2,500 jobbers in the United States and foreign countries. " ^° Other co-operative marketing organizations have adopted the methods of the California Fruit Growers Exchange in reducing marketing costs, in so far as these methods have been applicable to the business of the respective industries, in their present stage of development. The organizations composed of local associa- tions operating their own packing-houses purchase on the best possible terms the packing-house supplies needed by all their members. The California Fruit Exchange (handling deciduous fresh fruits) has for years had its fruit handled through the sales agents maintained by the California Fruit Growers Ex- change in the various markets. Since the heavy shipments of deciduous fruits occur at a season of the year when shipments of citrus fruits are comparatively light, this arrangement has been of advantage to both Exchanges. ^The California Walnut Growers Association, by establishing more direct connections with the jobbing trade than existed when each local association acted independently, has been able to reduce the selling cost to about 3 per cent,^^ whereas the brokerage alone was formerly from 5 to 6 per cent. The California Walnut Growers Associa- tion and the California Almond Growers Exchange are now co- operating in a mutual effort to secure a reduction from the pres- 20 AnnvMl Beport of General Manager, California Fruit Growers Ex- change, Aug. 31, 1916, p. 4. 21 Personal interview with C. Thorpe, Manager, Apr. 26, 1916. 20 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [20 ent freight rate of $1.40 per cwt. on walnuts and almonds from Pacific Coast producing points to eastern markets. ] HOW THE DISTRIBUTION OF THE PRODUCT HAS BEEN IMPROVED Before the formation of growers' co-operative marketing or- ganizations in California, the fruit shipped to points outside the state was sent almost entirely to a few of the larger markets, and difficulty was experienced in disposing of the crops to advantage, under the methods then employed, when the total annual ship- ments of oranges, for example, were only about 4,000 cars.^^ The shipping was done by a number of firms, each acting inde- pendently of the others. The result was that some markets were oversupplied and others undersupplied. This occasioned a great disparity in prices. Reports of low supplies and high prices in a given market incited such heavy shipments to that market that the best market might quickly be made the poorest market. It was even claimed that shippers sometimes purposely ** broke'' certain markets in order to dissuade their competitors from continuing to offer goods in those markets. This was done principally during the period when shippers were handling the fruit on a commission basis, and the losses due to low prices fell upon the growers whose fruit was sacrificed in the competition between different shippers for the control of certain markets. The shippers were sure of a profit on the packing, and received a commission on the gross sales, so that the losses resulting from the unsystematic method of distributing the crop fell principally on the growers. The returns to the growers were so low that the cry of ' ' over- production" was set up, and in some cases large areas of fruit plantations were uprooted because the crops were netting the growers less than the cost of production. This was especially true of the raisin industry before the formation of the California Raisin Growers ' Association. Almond growers had also begun to destroy their orchards for the same reason shortly before co- operative marketing of their product was instituted.^^ The orange growers did not pull out their orchards, but were greatly 22 Circular issued by California Fruit Growers Exchange, Dec. 20, 1911. 23 Personal interview with J. B. Davidson, of the California Almond Growers Exchange, Oct. 10, 1916. 21] ADVANTAGES OF CO-OPERATIVE MARKETING 21 concerned because of the apparent ease with which the markets were oversupplied and prices depressed; and rumors of over- production were rife. The trouble was not due to overproduction, but to lack of ade- quate distribution. Under the marketing methods then in vogue, the growers had no control whatever over the distribution of their products; the shipping firms dictated the time of harvest, each usually striving to place as much fruit as possible on an early market in the hope of securing high opening prices, instead of supplying the market through as long a season as possible, and thus affording an outlet for larger quantities of fruit at pay- ing prices. Moreover, the shipping firms confined their business principally to supplying the large cities with fruit, and made little or no attempt to develop markets in the smaller places. Thus for years California fruits were not generally distributed over the country as a whole, but their sale and consumption were confined principally to the large cities and immediately sur- rounding territory. One of the first and most important changes in marketing policy instituted by the co-operative organizations of growers was a widening of the dist ribution of their products, both as to time and place. The shipping season for each of the various products has been extended as much as the nature of the com- modity and the customs of the consumers will permit; and the latter are even being changed by the systematic effort of growers' co-operative marketing organizations. For example, the market- ing season for lemons was formerly confined almost exclusively to the hot summer months; now lemons are shipped from Cal- ifornia twelve months in the year. Oranges were formerly used principally during the winter and early spring, and shipping ceased entirely during the summer months; now they are han- dled the year round. Both these results have been brought about largely through the efforts of the California Fruit Growers Ex- change in persistently calling the attention of the consuming public to the winter uses of lemons and the summer uses of oranges. The area of distribution for their respective products has been greatly extended by nearly all the large co-operative marketing organizations of California growers, by establishing business con- 22 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [22 nections in practically every city in the United States and Can- ada which is large enough to handle the given product in carload lots. Thus many markets are supplied by direct wholesale ship- ments from California which formerly depended upon reship- ments from the larger cities, often in small lots and at high transportation rates. Moreover, these smaller cities now serve as distributing centers from which the products are sent to the sur- rounding villages in a much fresher condition and at less trans- portation expense than when the goods_ were distributed only through the larger cities; and many small places are now sup- plied which were never reached by the former method of dis- tribution. I It has been largely through the efforts of the growers' co-oper- ative marketing organizations that the railroads have been in- duced from time to time to improve their transportation and refrigeration service. This has been brought about partly as a result of conferences by representatives of the growers with the railway officials, in which it was pointed out to the railway com- panies that it was to their advantage as well as that of the grow- ers to maintain a character of service which would make it pos- sible to place the fruit in good condition in all markets of the United States and Canada. The position of the growers was further emphasized by the establishment and collection of claims for damages whenever it could be shown that the poor condition of fruit on arrival was due to any negligence or delay for which the railway company was responsible.) The relations between the railroads and the fruit growers have really passed through three stages. At first, the railroads did as they pleased, regard- less of what the fruit growers said, and the growers had no re- course because they were not organized. Then came a period during which the organized fruit growers were almost contin- ually fighting the railroad companies for better service or press- ing damage suits based on claims for losses due to inefficient ser- vice. The third stage has now been reached, in which the rail- road companies recognize that they and the fruit growers have mutual interests; officials of the leading fruit growers' organ- izations are advised with before new rulings or regulations affect- ing the shipment of their respective commodities are published ; and certain classes of claims are promptly paid without any court 23] ADVANTAGES OF CO-OPERATIVE MARKETING 23 proceedings.^* Thus the organizations of fruit growers have been instrumental in bringing about better relations between the railroads and the fruit industry, and in securing more efficient transportation service. HOW DEMAND FOR THE PRODUCT HAS BEEN INCREASED The production of California fruits, particularly citrus fruits, has been increasing much more rapidly than has the population of the United States. "The population of the United States increased 20.7 per cent from 1890 to 1900; the shipments of citrus fruits increased 195 per cent during the same period. From 1900 to 1910 the population increased 21 per cent, while the shipments increased 292 per cent during the same period." ^^ Foreign markets, particularly those of Canada, have been devel- oped to help take care of this increased production ; but the dis- position of the greatly increased quantity of citrus fruit has been made possible largely through an increase in the per capita consumption of oranges and lemons by the people of the United States. ''It is through the increase in fruit-eating habit of the people that the enormous increase in the fruit production is taken care of. ' ' ^^ This increased per capita consumption of oranges and lemons by the people of the United States is the direct result of systematic effort to that end by the California Fruit Growers Exchange. * ' There is no other force as powerful in increasing the use of citrus fruits as educational advertising to consumers. /For seven years the [California Fruit Growers] Exchange has been advertising . . . continuously, the or- ganization realizing that in times of financial depression adver- tising is a necessity, and that in times of prosperity it is an opportunity. During prosperous times, per capita consumption of oranges and lemons can be increased, new buying habits can be formed, and new uses developed more economically and more easily than under any other conditions. . . The Exchange 2* Personal interview with A. M. Mortensen, Traflfic Manager, California Fruit Growers Exchange, May 16, 1916. 25 Address of G. Harold Powell, before meeting of Western Fruit Jobbers Association, Feb. 16, 1915. Printed in The Western Fruit Jobl)er, April, 1915. 26 Address of G. Harold Powell, above cited. 24 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [24 advertising is increasing the use of oranges and lemons by edu- cating the public to their delicious and healthful qualities by repeating appeals to the appetite, by tempting illustrations and displays, by constant suggestions of new uses and new reasons for using. . . The opportunity to increase the consumption of citrus fruits is indicated by the fact that the total consumption of oranges during the Washington Navel season, including fruit from California, Florida, Porto Rico and other sources, is only two dozen per month for each family of five persons, and approx- imately one-half dozen per month during the Valencia season. Including imports the consumption of lemons is approximately one-half dozen per family per month throughout the year. ''The national advertising of the Exchange has been carried on during the year chiefly through seventeen magazines of which most are publications for women, and by a campaign in 333 daily newspapei-s. In the circulation of both magazines and news-, papers more than 450 million . . . advertisements have been printed. In connection with the educational campaign 300,000 orange and lemon recipe books were distributed on request. ''In addition to the direct publicity [advertising in magazines and newspapers], the Advertising Department is co-operating- with the wholesale and retail trade through the Dealer Service Department. . . Through the Dealer Service men the Ex- change is constantly studying the retail and wholesale conditions that effect the sale of citrus fruits, and applying the facts thus developed in connecting the advertising directly with the fruit trade. Merchants are shown how to make attractive fruit dis- plays, how to sell a larger volume of oranges and lemons, how to do a more profitable business on a lower margin, how to keep fruit fresh, minimize decay and wastage, and how to take advan- tage of the . . . national advertising. ' ' This year the sales promotion work of the dealer service men involved more than fifteen thousand personal calls on retail fruit merchants; [and] more than one hundred and thirty thousand pieces of window display material were distributed. . . In- vestigation . . . developed the fact . . . that 75 per cent of the oranges are retailed through local grocery stores. ' ' ^^ 2T Anniuil Report of General Manager, California Fruit Growers Ex- change, Aug. 31, 1916, pp. 12-13. 25] ADVANTAGES OF CO-OPERATIVE MARKETING 25 ' ' The thing that is of primary interest to the producer and the jobber is whether the retail dealer turns his stock over in the quickest possible time and thereby gives the maximum distribu- tion of fresh fruit to the consumer and at the same time reduces decay and waste to a minimum. . . One-half of the consumers of the country are served by the small town and country mer- chants. Oranges and lemons are self -sellers if artistically dis- played. . . Dealer service aids in the form of artistic window displays, which make the consumer a friend of the store and create a desire for the fruit. ' ' ^^ "The desire for fruit is awakened by suggestion, by seeing attractive displays of fresh, luscious fruit in the windows of the store, on the counters, or in other forms of display. . . It is promoted by prices which bring the fruit within the reach of the average consumer. The retail dealer, more than any other factor, creates this appetite appeal, because he comes in direct contact with the consumer, and he stimulates or retards it by charging reasonable or exorbitant prices. . . Attractive dis- plays and quick sales, at a reasonable margin of profit on each transaction, increase the per capita consumption and make a satisfactory profit for the dealer at the end of the year. ' ' ^^ In making their calls upon retailers, the dealer service men explained to them * ' how they could make more money by selling a large volume of fresh fruit on a low margin. . . The secret box of oranges or lemons was dragged out from behind the counter and displayed where people could see the fruit and buy while it was fresh. They showed how this method of selling would prevent loss from decay . . . and left-overs. ' ' ^® Thus the work of the dealer service men, employed by the California Fruit Growers Exchange, has supplemented the ad- vertising in magazines and newspapers in stimulating the con- sumption of California citrus fruits, and has also contributed directly to lowering the cost of these fruits to the consumer by 28 Address of G. Harold Powell before meeting of Western Fruit Jobbers Association, Jan. 18, 1916. 29 Address of G. Harold Powell before meeting of Western Fruit Jobbers Association, Feb. 16, 1915. 30 Letter from W. R. Watson, Manager Dealer Service Department, Cali- fornia Fruit Growers Exchange, Aug. 17, 1916. 26 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [26 encouraging the retailer to handle large volumes of fruit at a low margin of profit rather than a small volume at a high margin. Following the success of the California Fruit Growers Ex- change in advertising as a means of promoting the consumption of their products, some of the other marketing organizations have adopted essentially the same methods. The California Asso- ciated Raisin Company commenced advertising their product in 1914, and spent $117,452.64 in connection with the advertising campaign and other publicity work in disposing of the 1914 crop.^^ This was equivalent to spending $1.64 in advertising for each ton of raisins sold, but was looked upon as a very good in- vestment,^^ since it was considered the direct cause of increasing the sales of seeded raisins to bakers from 750 tons in 1914 to 7300 tons in 1915,^^ and also laid the foundation for future sales. In the course of the advertising campaign in connection with selling the 1915 crop, advertisements* were carried in 348 daily newspapers.^* The plans of the Company for the year commenc- ing June 1, 1916, contemplated the expenditure of $150,000 in advertising (including full-page advertisements in two national magazines) and $100,000 in publicity work. In over twenty cities the Company maintains men the year round ; and for sev- eral weeks during the fall has a large additional force of specialty men calling upon the trade, distributing window display mate- rial, demonstrating raisin bread, and otherwise giving publicity to the raisin as a food product.^^ It was planned to *'call upon the retail grocers and fancy home bakers in practically every town of 5,000 population and over throughout the country.''^® The keynote to the raisin advertising has been *' California Raisin Bread,'' and a large demand for raisins to be used in bread-making has been created. For example, a bakery in Flint, Michigan, ''within twelve days, built up a business of 800 loaves 31 statement to Growers; Eaisin Settlement, 1914 Crop, September 30, 1915. Sun-Maid Herald, Nov., 1915, p. 6. 32 Sun-Maid Herald, Dec, 1915, p. 2. 33 Sun-Maid Herald, Apr., 1916, p. 10. 3* Sun-Maid Herald, July, 1916, p. 4. 35 Personal interview with Wylie M. Giffen, President, California Asso- ciated Raisin Company, July 18, 1916. 36 Sun-Maid Herald, July, 1916, p. 1. 27] ADVANTAGES OF CO-OPERATIVE MARKETING 27 of California Eaisin Bread per day, starting from nothing;^' ^^ and after a campaign of advertising and demonstrating in Col- umbus, Ohio, it was estimated by the bakers that the quantity of raisin bread being consumed in that city was 15 or 20 times as great as before the campaign.^^ In May, 1916, it was estimated that the Company was selling at the rate of between 10,000 and 12,000 tons of raisins per year ''exclusively for use in raisin bread." 3« The California Walnut Growers Association and the California Almond Growers Exchange also have resorted to advertising as a means of increasing the consumption and extending the dis- tribution of their respective products. STANDARDIZATION OF THE PRODUCT Standardization of the product has been a large factor con- tributing to the success of the advertising campaigns above men- tioned and to the development of markets for the commodities in question. It is impossible successfully to advertise a com- modity unless it has certain definite desirable characteristics or qualities which are uniformly present in all the offerings. Such uniformity can be secured only through standardization of the product; and standardization of a horticultural product can be effected only by concerted action on the part of those who super- vise the preparation of the product for market. It is only by this means that uniformity can be secured throughout a large volume of product, and a definite brand on a fruit package be made to mean always the same thing. It is true that standards of grading and packing may be established by federal or state legislation, and the enforcement of such acts vested in civil authority. But such acts can seldom be passed without the sanc- tion of the producers of the commodity affected, or enforced without their co-operation. As a matter of fact, standardization of the products handled by growers' co-operative marketing organizations in California has usually preceded rather than fol- lowed legislative enactment ; and a much more rigid and definite standard can be maintained by a co-operative organization of 37 Sun-Maid Herald, Dec, 1915, p. 9. 38 Sun-Maid Herald, Jan., 1916, p. 15. 39 Sun-Maid Herald, May, 1916, p. 1. 28 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [28 growers whose interests are mutual than can ever be enforced throughout the state by government officials. Soon after the organization of the citrus fruit growers was effected, a box of a definite size and shape was adopted as the standard package for oranges and another for lemons; and all associations in the organization were required to pack their frait in these standard packages and no others. Three grades of fruit were also established and described. Later, the basis of grading was somewhat modified, and after systematic advertising was started, more complete descriptions were formulated to indicate the kind of fruit that might be packed under the advertised brands. Not only do all the managers of Exchange packing- houses have the same description as a guide, but each is visited every few days by a representative of the Field Department, one of whose chief duties is to promote as great uniformity as possible in grading and packing throughout the 162 local associations that compose the California Fruit Growers Exchange. By united effort, the Exchange has been able to so standardize -the grading that the ''Sunkist" brand is now recognized throughout the United States as synonymous with ' ' uniformly good oranges and lemons," and consumers are able to order this brand over the telephone without any uncertainty as to the quality of the f iniit they will receive. The California Walnut Growers Association has adopted def- inite regulations regarding the grading, bleaching and inspect- ing of their product, and identical methods are employed by all the affiliated local associations, thus insuring uniformity in the output. It has thus been possible to dispense with all local brands, and to market all the first grade nuts under the ''Dia- mond Brand," adopted by the organization. The organization has established a cracking test and guarantees that the nuts sold as first grade shall show at least 85 per cent of good meats. The local associations make cracking tests of each lot of nuts as brought in by the growers ; then when a car is being loaded, an inspector sent out from the central association takes a sample of nuts (consisting of a ''double handful") from every tenth sack, thus securing about twenty-five samples from the carload. He mixes all these nuts thoroughly ; then takes out and cracks four samples of 100 nuts each, and reports to the central office the 29] ADVANTAGES OP CO-OPERATIVE MARKETING 29 average percentage of sound meats. He also sends to the office a four-pound sample of the nuts, which is kept, together with the car number, until the close of the season. ''Near-grade" nuts are sold at a definite discount for each per cent they fall below the standard set for the ' ' Diamond Brand ; ' ' and still low- er grade nuts are run through a cracker and only the sound meats are sold.**' The association is thus able to market the en- tire product of all its growers, and to supply the trade with a product of known quality. Similar methods of securing uniformity in their product have been adopted by the California Almond Growers Exchange, and their ''Blue Diamond Brand" represents a highly standardized product, the reliability of which is recognized by the wholesale trade. Before the formation of the Almond Growers Exchange, California almonds were looked upon as inferior to those im- ported from Europe ; but the Exchange has demonstrated to the trade that the California unshelled almond, as now standardized, is superior to the imported article.*^ The California Associated Raisin Company has featured a spe- cial grade of seeded raisins under the "Sun-Maid" brand, and has depended largely upon the uniformly pleasing quality of this brand of raisins, together with extensive advertising and other publicity work, to increase the consumption of and demand for raisins throughout the country. The success attending this campaign has been made possible because of the uniform quality of the raisins packed under this brand — in short, because the brand represents a standardized product. Previous to the formation of the Sebastopol Apple Growers' Union, there was little uniformity in the grading or packing of apples in that locality. One of the principal objects in organiz- ing the Union was to bring together the products of the numer- ous small orchards and standardize the pack.*^ This has been accomplished by entirely eliminating orchard packing, and han- 40 Personal interview with C. Thorpe, Manager, California Walnut Grow- ers Association, Apr. 26, 1916. ■*i Address of T. C. Tucker, Manager, California Almond Growers Ex- change, at Berkeley, Cal., Sept. 18, 1916. 42 Personal interview with E. C. Merritt, Manager, Sebastopol Apple Growers' Union, July 21, 1916. 30 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [30 dling the whole crop under one management through the four packing-houses operated by the Union. So successful has this method been in securing a uniform pack that now the phrase ''Fancy Sebastopol Gravensteins'^ conveys a definite meaning to the trade, and these apples are eagerly sought in the markets of Chicago, New York, and Liverpool. Although it is usually considered impracticable to standardize a horticultural product unless the grading and packing can be done at central points by the employees of an organization rather than on the ranches by the growers themselves, the marked suc- cess attending the efforts of the Turlock Merchants and Growers demonstrates that such an attainment is not impossible, provided proper instruction and supervision are given and the growers are sufficiently mindful of their own interests to follow the speci- fications that have been mutually agreed upon. The cantaloupe growers in the Turlock district have usually confined themselves to small acreages of this product, and the packing is done for the most part by members of the growers' families. Such a situation is most favorable to extreme lack of uniformity in the packed product; and yet the co-operative organization, by employing expert inspectors to instruct the growers in grading and pack- ing, has been able to put out a uniform product, which has com- manded respect in the nation's markets because of its depend- able quality. i, PROTECTION OF THE INDIVIDUAL GROWER As long as the individual growers sold their crops directly to speculative buyers or had them handled by shipping firms on a so-called commission basis, each grower and each community of growers was open to exploitation on the part of the buyer or shipper. And if the individual grower consigned his fruit to a distant market, instead of dealing with a buyer or shipper, he likewise was obliged to accept for his fruit whatever the distant dealer saw fit to send him. The individual grower, acting alone, has very meager facilities for ascertaining the actual conditions in the markets of the coun- try at a given time. Very few growers have a sufficient volume of product for sale to warrant their incurring the expense of procuring telegraphic information regarding the condition of 31] ADVANTAGES OF CO-OPERATIVE MARKETING 31 the various markets at sufficiently frequent intervals to be of any material service in disposing of their products. Furthermore, such information as they might secure by this means could usu- ally be procured only from dealers in the respective markets who had no personal interest in the welfare of the grower, and whose reports to the inquiring grower might be influenced in a large measure by their own interests. In addition to this it would be impossible for each individual grower to make a sys- tematic study of the peculiar demands of the various markets or to secure reliable information regarding the quantities of supplies likely to be available from domestic and foreign sources. In short, it would be impossible for each grower to secure by direct means sufficient data to enable him to determine what his crop is really worth. It is also true that the representa- tives of buyers or shippers who are sent out to deal with the growers are often able to take undue advantage of the grower in any transaction involving the sale of the latter 's crop. A man who is dealing in fruit every day can drive a much better bargain from his own standpoint than can a grower whose ex- perience in selling fruit is confined to one crop each year. The buyer would thus have a marked advantage over the grower, by reason of being continually in practice, even if the grower were naturally as keen a business man as the buyer. As a matter of fact, it is usually those men who have a natural aptitude for bar- gaining who are engaged in buying fruit from growers; and while there are many growers who have business instinct, and have had business experience in other fields, there are many whose natural abilities lie in the direction of the production rather than the merchandising of fruits. On the whole, the average individual grower, situated at a distance from the ulti- mate market for his product, is in an extremely weak position so far as the selling of his fruit is concerned. However, by combining their interests, and forming co-opera- tive marketing organizations, the growers of various California products have been able to change the situation entirely. At relatively slight expense per member, or per unit of fruit han- dled, a large organization can secure reliable information regard- ing the peculiarities of given markets, and the condition of the crops, both domestic and foreign ; and can maintain during the 32 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [32 marketing season a thoroughly organized telegraphic service that will enable it to know the exact condition of each market every- day. It is the custom for the manager, or other representative, of each of the large organizations, to visit the various markets at least once a year, to confer with the ''trade" and secure first- hand information regarding any peculiar requirements of a given market. It is not unusual for an organization to send a representative to foreign lands in order to ascertain the condi- tion of given crops and the probable extent of competition from such sources. Telegraphic service that will give dependable in- formation regarding the exact condition of the various markets from day to day can be maintained only by such organizations as have personal representatives in those markets. Probably the most efficient service of this character is that of the Califor- nia Fruit Growers Exchange, which maintains salaried agents in 77 of the leading markets. These agents represent the growei^ in the selling of the product and the transmission of any information that Avill be helpful to the industry. They are in constant touch with the trade, and wire back to California daily reports citing the exact conditions. These reports are assembled in the Los Angeles office of the Exchange, and copies are sent within a few hours to every local association of the growers. The California Fruit Exchange, by special arrange- ment with the California Fruit Growers Exchange, makes use of the latter 's agents in the handling of its crop, and secures the same kind of telegraphic service. Thus growers of citrus and deciduous fruits who belong to the co-operative marketing or- ganizations above mentioned are kept in close touch with mar- ket conditions throughout the country. Since this information goes through the central office of the organization concerned, and since this same office has definite information regarding all Exchange shipments en route, it is unnecessary for any ship- ments to be made blindly. All the shipments of these two Ex- changes can be made in a systematic manner, with a view to securing proper distribution of the entire product through the various markets, even though the central office acts merely in an advisory capacity, and the ultimate decision regarding the 33] * ADVANTAGES OF CO-OPERATIVE MARKETING 33 destination of each particular carload of fruit rests with the local association that loaded the car. Thus the likelihood of oversupplying certain markets, while others are left undersupplied, is greatly reduced. Further- more, if supplies from other sources depress a given market, cars originally intended for that destination can be diverted to other markets, even after arrival and inspection. The pres- ence of the personal representatives of the growers in the various markets to detemiine the condition of the fruit upon arrival and wire for instructions in case of a depressed market, greatly facilitates the expeditious handling of the fruit, and avoids severe losses that might otherwise occur. If the fruit were being handled through brokers — who are essentially represen- tatives of the buyers rather than of the sellers — there would be no incentive for an agent to advise diversion if he could possibly sell the car by offering it at a greatly reduced price, for if the car were diverted from his market, he would receive no brokerage. On the other hand, the compensation of the salaried agents of the Exchange does not depend upon the num- ber of cars sold in a given market, but upon their ability to assist intelligently in that distribution of the product which will yield to the growers the highest average returns. Thus the Exchange growers are protected from the low price that might ensue from an inadequate method of distribution. In addition to this protection, the individual grower is pro- tected from any severe loss in case certain cars of fruit should deteriorate in transit or for any reason be sold at a lower figure than the average price for which fruit of the same grade was selling during the same period; for all the fruit of the same grade contributed by the different growers in a given local association during the same period is pooled, and each grower receives for his fniit the average net returns for the period. The element of chance involved in individual shipments of per- ishable fruits to distant markets is thus eliminated. In the case of the less perishable products which are harvested within a limited period, but for which the marketing season may extend over a considerable length of time, it is customary to make only one pool for the whole season and to place in the same pool not merely the product of a given local association, but the 34 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [34 pix)duct of all the associations which compose the general or- ganization. Thus no matter at what time during the season a given growers' product is sold, he receives the same price for the same grade as does every other grower in the organization.'*^ This eliminates the element of speculation and assures to each grower the average price for the season. PURCHASE OF SUPPLIES In addition to performing its function as a marketing agent, a co-operative organization of growers may serve its members by acting in the capacity of purchasing agent in securing or- chard or other supplies needed in large aggregate quantities by the growers. The chief advantages of such purchases are that by purchasing in large quantities under contract, the organi- zation is able to secure the goods at lower prices than could one individual; and that because of the large quantities purchased, the organization can afford to take time and incur expense to investigate thoroughly the sources of supply of a given article and the relative merits of different offerings before placing its orders, thus insuring the grower against inferior quality or ex- orbitant prices. An additional advantage is the ability of an organization to secure the goods needed in times of scarcity or emergency. For example, during the freeze of 1913, the Fruit Growers Supply Company, a subsidiary organization of the Cal- ifornia Fruit Growers Exchange, was able to secure oil in enor- mous quantities and on extremely short notice for operating the orchard heaters belonging to its members. Except for the es- tablished connections and prompt action of this organization, the loss to the citrus fruit growers from frost injury would have been much greater than it was. *3 The placing in one pool of the entire product of a large organization composed of a number of locals is possible only where the product is of such a nature that there are no material differences in the quality or finish of the graded product, due to differences in soil, climate, or methods of culture. Walnuts, or almonds from different localities may readily be pooled, but not oranges or lemons. CHAPTER, II FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING The results attained by certain co-operative marketing organ- izations in California show plainly that such organizations are capable of securing for the grower marked advantages by rea- son of reducing the cost of marketing, improving the distribu- tion and increasing the consumption of the given commodity, standardizing the product, protecting the individual against losses, and economizing in the purchase of supplies. Nevertheless, the experiences of these organizations during the process of their evolution, and of other organizations that have been at- tempted from time to time, indicate with fully as great certainty that, in order adequately to serve their purpose and continue in successful operation, it is essential that certain fundamental principles be observed in their organization and management. While certain organizations may continue with apparent success for a time, and others may attain a limited degree of success for a still longer time without conforming to all these principles, there is likely to be a fairly close relation between the degree of success attained and the extent to which the principles al- luded to are observed. These principles may be stated as fol- lows: 1. Organization for marketing purposes can be most readily effected when conditions in the given industry are such that the need of improvement is quite generally apparent to those en- gaged in the industry. .2. Unless at the time of organization, the conditions in the industry are so unsatisfactory that striking improvements are possible early in the life of the organizatiolti^ the organization itself is likely to die from inertia or succumb to attacks from outside interests. 35 36 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [36 3. At the time a local organization undertakes to handle a crop, there must be a sufficient volume of one product or closely allied products represented by the membership to enable ship- ments to be made in carload lots and to effect a sufficient aggre- gate saving in the cost of marketing to more than counter-bal- ance the expense of operation. 4. The organization must be composed of persons whose interests are similar. Membership in a growers' organization should usually be limited to actual growers of the crop to be marketed. 5. Definite provision must be made for financing the business of the organization. > 6. The benefits accruing from membership in the organiza- tion should be distributed among the members in proportion to the value of the products handled for each. 7. In a properly-constituted growers* co-operative marketing organization, it makes little difference whether the voting power is based upon individuals (one-man, one-vote), volume of prod- uct, or shares of stock, 8. For the purpose of marketing the product of a large hor- ticultural industry, an affiliation of local organizations is pref- erable to a single large organization made up directly of indi- vidual growers. In such an affiliation, the identity of each local should be preserved and its interests fully represented in the central organization. 9. Each organization must possess — represented either in its membership or its employees — a degree of administrative ability and business acumen commensurate with the volume of the business to be transacted and the intricacy of the problems to be solved. 10. The details of handling, selling, and distributing the crop must be adapted to the nature and volume of the product. 11. Loyalty of the individual members and mutual confi- dence among all factors in the organization are absolutely es- sential to the permanent success of any co-operative enterprise. These principles will now be considered somewhat in detail. The remainder of the present chapter and the three succeed- ing chapters will be devoted to this phase of the subject. 37] FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING 37 CONDITIONS IN THE INDUSTRY AT TIME OP ORGANIZATION Organization for marketing purposes can he most readily effected when conditions in the given industry are such that the need of improvement is quite generally apparent to those en- gaged in the industry. As long as growers as individuals are receiving satisfactory returns for their products, there is no particular incentive for them to combine with their neighbors for marketing purposes. Some special difficulty which he is powerless to overcome is usually necessary to induce an American farmer to depart from his individualistic tendencies and join forces with his companions in a common cause. Prices below the cost of production, fre- quent "red ink'* returns in the case of perishable products, accumulation of unsold products, depreciation of property values, and threatened financial disaster have characterized the conditions which led to the formation of some of the co-operative marketing organizations in California. This was true of the citrus fruit industry, the deciduous fresh fruit industry, the raisin industry at two different periods, the dried peach indus- try, and the almond industry. Less disastrous, though suffi- ciently trying, conditions prevailed among the walnut growers, Turlock cantaloupe growers' and Sebastopol berry growers im- mediately preceding the formation of their respective organiza- tions. Attempts to start organizations for marketing the prod- ucts of a given industry at a time when that industry was en- joying a period of prosperity, have usually been unsuccessful. In any case the difficulties of securing membership and perfect- ing the organization are much greater in times of prosperity than of depression. To illustrate the circumstances that gave rise to some of the organizations, the following may be cited : In the citrus industry the conditions had been becoming worse and worse, aiid the returns to the grower lower and lower until the season of 1892-3, when about half the shipments of the season resulted in "red ink."^ Before the next crop was ready to harvest, the growers organized, feeling that such a course was 1 Statement of C. D. Adams, Upland, Cal., in personal interview. May 15, 1916. 38 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [38 the only thing that would save the citrus industry from utter ruin. In a circular issued by a ''Committee of the Orange Exchanges comprising the Pomona Valley, " in the fall of 1896, the following statements were made: ^ ''Beginning with 1890, when the vol- ume of our crop was only nominal as compared with the present one [1896], we find an unequal distribution of returns from the different commission firms. This inequality increased in 1891, and more so in 1892, but in each case the average price decreased, so that in the season of 1893 not only did growers have returns from 100 cents per box to nothing, but many actually had to pay money in addition to their entire crops of fiTiit for the privilege of marketing them, and instead of revenue a deficit was the result. "Had this state of affairs continued, bankruptcy was inevi- table for every orange grower. Forced by necessity, many of the leading growers held meetings and conventions where these mat- ters were discussed, which terminated by the forming of Associ- ations and Exchanges on the co-operative plan. That this movement has been successful, can be attested by every grower who became a membqr, and its benefits are admitted by all others. It at once gave every member a fair average return for his crop and no deficit." "The [citrus] fruit growers . . . discovered that the commission men in sharp competition with each other, were flood- ing certain markets with fruit while others were bare, and when natural congestion followed ... the commission men began to belabor one another, using the fruit growers as clubs with which to beat their business rivals. ... It was absolutely necessary to change the system of marketing the crop or dig up the orange trees. ' ' ^ ^ "The commission houses grew strong, prosperous and ambi- tious . . . each desiring to . . . monopolize the Califor- nia trade. . . . Their rivalry grew sharp and reckless of the interests of the consignor and his profits grew less and less, till 2 As quoted in Bural Calif omian, Oct., 1896, p. 413. sAlles, Fred L., ''California Fruit Exchanges vs. The Commission Sys- tem." California Cultivator, Nov., 1895, pp. 381-383. 39] FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING 39 . . . losses began to figure in the returns, . . . Such was the situation . . . from eight to six years ago. " * /^''The most disastrous year . . . that the citrus-fruit in- dustry in California has ever experienced was 1892-3. . . . As a result of this failure of speculative shippers to sell the year's crops at fair prices ... a convention of growers assembled ... in Los Angeles on the 4th of April, 1893. . . . Following the recommendation of this convention of growers, organization of associations and district exchanges was effected in all the principal citrus-fruit districts. ' '^ ' ' The panic year of 1893 hit the orange growers hard. Thou- sands of statements came from eastern commission houses show- ing, in red ink, that the fruit consigned to them had been dis- posed of for less than the amount of the freight and selling charges. As a consequence the growers that year turned their backs upon the commission merchants and speculators, organ- ized the California Fruit Growers Exchange and proceeded to take the marketing of their fruit into their own hands. ' ' ^ Preceding the formation of the California Fresh Fruit Ex- change,^ the conditions in the deciduous fresh fruit industry were somewhat similar. "Frequently the year's returns failed to pay the year's expenses. Mortgages increased until the banks refused to lend, and discouragement approached desperation in its intensity. Men found themselves possessed of debt-laden orchards and vineyards and without the means of giving them proper care. ' ' ^ During this period many fruit growers gave up operating their own ranches and rented them to Orientals, because they could not themselves make any money from the growing of fruit under the existing conditions.® *'In the Fall of 1900, a State Convention of fruit growers was *Hoag, I. N., *' Marketing Citrus Fruits. '^ Eural Calif omian^ Mar., 1898, pp. 54, 55. 5 Cyclopedia of American Agriculture, Vol. IV, p. 265. 6 Woehlke, Walter V., ' ' In the Orange Country. ' ' Suiisct Magazine, Mar.,. 1911, pp. 251-264. 7 The name was lat«r changed to California Fruit Exchange. ^A Brief History of the Deciduous Fruit Industry of California, pub- lished by the California Fruit Exchange, Jan., 1913, p. 9. 9 Address of J. L. Nagle, Manager, California Fruit Exchange, at Berkeley, Cal., Dec. 11, 1916. 40 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [40 held at Fresno, under the auspices of the State Board of Hor- ticulture. The question of 'Marketing Fruit' was on the pro- gram for discussion. At all of the annual Fruit Growers' Con- ventions of the preceding years, this same subject of 'Market- ing' had been an issue of importance. At the convention of the previous year a statement had been presented showing the re- turns of a typical foot-hill fruit ranch in one of the most cele- brated districts of the State for that season. The total returns for something over twenty thousand boxes of peaches, pears, and plums, partly sold for cash to a dealer, and partly sent East on commission by the same dealer, averaged less than twenty-two cents per package. ''This twenty-two cents had to pay (as far as it would go), for labor, farm supplies, and equipment, water for irrigating, box lumber, paper, nails, etc. . . Ensuing discussion revealed that this was not an exceptional case. It was merely typical of existing conditions among a large proportion of the 'merely growers. ' "At the Fresno meeting of 1900 the discussion on the subject of 'Marketing' developed an interest of unusual intensity. . . The result was the appointment of a committee clothed with power to call a meeting early in the following year. "This meeting . . . was held . . .in the City of Sacramento, on the 15th of January, 1901. . . Earnest de- liberation resulted in the formulation of a set of by-laws" and the appointment of an executive committee "with authorization to organize the [California Fresh Fruit] Exchange. "^° In the Seventh Biennial Report of the State Board of Horti- culture (1899-1900) appeared a "Review of the Raisin Indus- try," furnished by M. T. Kearney, former president of the Cali- fornia Raisin Growers' Association. It stated that for five years prior to the panic of 1893 raisins had been sold by growers in the field at an average of five cents per pound. From that time till 1897 the price decreased until it was as low as % cent per pound, and farmers fed raisins to their horses, in place of bar- ley. In Fresno County alone 20,000 acres of vineyard were uprooted. ^0 A Brief History of the Deciduous Fruit Industry of California, pp. 10-11. 41] FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING 41 ''Much of this demoralization in prices was due to a system of shipping raisins on consignment to Eastern brokers. . . To place the industry on a paying basis, the farmers organized them- selves into the Raisin-Growers' Association. . . The move- ment was an entire success the first year, ' ' and prices advanced to 2% cents per pound in 1898. ''The success of their efforts in 1898 induced them to reorganize again for 1899 and 1900, and assisted by the fact of there being a short crop in 1899 . . . they were enabled to advance their prices to an average of 41/^ cents per pound. " " The conditions obtaining in the raisin industry prior to this organization of the growers are further illustrated by facts men- tioned by Wylie M. G-iffen,^^ president of the California Associ- ated Raisin Company. Mr. Giffen took up his residence in the Fres- no district twenty-eight years ago. At that time the raisin crop was relatively small and prices high. Speculators usually bought the crop. A few years later raisins became more abundant, and the buyers manipulated the market. They would contract with the growers to take their product at a specified price. If the market advanced, the growers delivered their raisins at the con- tract price; but if it declined, the buyers forced them to accept a lower price or stand the expense of a suit, which usually would have cost more than the difference in price of the raisins, in the case of a small grower. When the hard times occurred in 1893, the packers, who had been handling the crop, refused to buy, but were willing to handle the raisins on commission. Under this arrangement the growers sometimes received II/2 cents per pound and sometimes "red ink.'' This continued for a few years, and the whole raisin country became nearly bankrupt. The depreciation in property values was so great that Mr. Giffen bought a vineyard of 20 acres at $50 per acre, in a location where six or eight years before the bare land would have sold for $125, and such a vineyard for about $400 per acre. He also bought a quarter section of land for $11,000, the buildings on which had cost more than that sum. Banks held mortgages on vineyard property, but would not foreclose because they would lose money by so doing. 11 Seventh Bien. Bep. Cat. State Board of Hort., pp. 39, 40. 12 Personal interview, July 18, 1916. 42 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [42 The organization which started to handle the raisin crop in 1898, known as the California Raisin Growers' Association, con- tinued until 1904.^^ Then there was a period, with no general organization of the growers, during which the packers handled the crop as they saw fit. The conditions during this period were thus described by Walter V. Woehlke : ^* ' * Two hundred miles north of the citrus belt in the San Joaquin Valley lies a compact district which supplies more than half the raisins consumed in the United States. Here, also, large buildings filled with costly machinery are in operation. . . But these buildings and their contents do not belong to the growers; they are the property of individuals and corporations, and they are operated solely for the pockets of these individuals and companies, with no regard for the welfare of the producer. The California orange-growers, owning the appliances for preparing their fruit for the market, are prosperous and smile. The California raisin-growers, pay- ing annual tribute to the firms operating the packing-houses for profit, are unable to make the product of their fertile acres pay expenses. . . Co-operation saved the citrus men from the fate of the raisin-growers." Following this second period of depression in the raisin indus- try, a new organization was formed in the spring of 1913 and commenced business at a time when the unsold portion of .the 1912 crop still remaining in the hands of the growers amounted to about 35,000 tons. This was the California Associated Raisin Company. It undertook the handling of this carrj^-over as well as the new crop coming on, and has continued as the principal factor in marketing the California raisin crop since that date.) In the dried peach industry the price paid the growers for the product kept getting lower and lower until in 1915 it was only 21/2 cents per pound. This was approximately one cent below the average cost of production. Low prices were due to the fact that the packers speculated with the crop, and influ- enced prices to their own advantage whether buying or selling. They would tell the grower that there was not much demand for 13 The causes which led to the disruption of this organization will be con- sidered under another heading (see pp. 67-71). 14 Woehlke, Walter V., "In the Service of Quality.'' TJw Outloolc, Oct. 23, 1909, pp. 417-427. 43] FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING 43 peaches, and tell the jobber that the crop was very short.^^ The growers rebelled against this treatment, and at a mass meeting in August, 1915, appointed a committee of five to investigate conditions. Subsequent meetings were held, a membership cam- paign conducted, the ''California Peach Growers" incorporated, and business commenced by the new organization in May, 1916. As in the case of the Associated Raisin Company, one of their first acts was to take charge of the marketing of the carried-over product from the preceding year. They have also successfully handled the 1916 crop. Preceding the formation of the California Almond Growers Exchange in 1910, the almond crop had been handled almost entirely by a few San Francisco dealers whose principal business was the handling of dried fruits. Although local associations had previously been formed for the purpose of pooling the crop of given localities and inviting bids from dealers, the desired results were not attained, for the dealers would agree among themselves and only one would bid for the crop of a given asso- ciation.^^ Prices kept getting lower, until the almonds were being sold for less than the average cost of production, and growers had begun to grub out their orchards. At this junc- ture, the Almond Growers Exchange, an affiliation of the local associations, was formed. Since that time the growers have made good profits from their orchards every year.^^ Previous to the organization of the ''Turlock Merchants and Growers, Incorporated," in the spring of 1915, buyers had handled the cantaloupes and other products offered by the farm- ers of the Turlock district. These buyers demanded wide mar- gins for their services, and took over the products at their own prices. Under these circumstances, although the farmers grew good crops, they were unable to realize sufficient amounts from the sale of their products to pay their regular expenses. This affected the business of the merchants in Turlock, since the 15 Personal interview with J. F. Niswander, Manager, California Peach Growers, July 18, 1916. 16 Personal interview with J. B. Davidson, of the California Almond Growers Exchange, Oct. 10, 1916. 17 Address of T. C. Tucker, Manager, California Almond Growers Ex- change, at Berkeley, CaL, Sept. 18, 1916. 44 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [44 farmers were unable to meet their obligations. It was, there- fore, partly as a matter of self-preservation that the Turlock merchants (grocers, diygoods merchants and other business men) took the initiative in forming an organization through which the farmers could market their products without being obliged to accept any price the dealers happened to offer.^^ The fact that the present organizations of growers represent- ing the citrus fruit, deciduous fresh fruit, raisin, dried peach, and almond industries of the state, were without exception ef- fected during periods of depression in the respective industries, forcibly illustrates the general principle that co-operative mar- keting organizations can more readily be formed at times when the given industry is in an unprosperous condition, due to the failure of existing marketing methods to bring satisfactory re- turns to the growers. POSSIBILITY OF MARKED IMPROVEMENTS Unless at the time of organization, the conditions in the in- dustry are so unsatisfactory that striking improvements are possible early in the life of the organization, the organization itself is likely to die from inertia or succumb to attacks from outside interests. Unless thought and effort are given unstintingly by somebody to the affairs of a co-operative organization, the organization will not prosper, or even persist; and unless it can be demon- strated early in the life of the organization that it is capable of rendering its members a distinct service that will improve their financial condition, the necessary incentive to thought and effort will be lacking. Men do not persistently put forth effort without hope of reward; and hope of future reward is best engendered by attainment of present reward. The worse the condition of an industry at the time a co-operative organization undertakes the marketing of the product, the more forcibly can the organization demonstrate its ability to serve its members, and the more pronounced will be the support it will elicit ; and unless striking results can be attained there is likely to be in- sufficient support to enable the organization to persist. 18 Personal interview with David F. Lane, President, Turlock Merchants and Growers, Incorporated, July 19, 1916. 45] FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING 45 It is also triie that a co-operative organization is likely to meet severe opposition from, those interests which have previously- handled the product to their own advantage. Men are loath to relinquish control over a certain source of revenue which they have previously enjoyed. This opposition is likely to take such extreme and insidious form as to result in the disruption of the organization unless its right to survive has been strikingly dem- onstrated to its members by reason of marked improvement in their financial condition under its operation. Especially pernicious attacks were made against the organiza- tion of citrus fruit growers during the early period of its ex- istence. The representatives of the shippers used almost every conceivable means in their attempt to kill this movement of the growers. They made attacks upon the integrity of the local managers and directors, trying to convince the growers that the men they had placed in charge of affairs were scoundrels and not handling the business in the interests of the growers. The purpose was to make the growers dissatisfied with the manage- ment, so that they would depose the leaders in charge and substitute some mediocre material that would be unable to handle the business successfully; and thus lead to the breaking down of the Exchange movement. Nearly every man of real ability in the Exchange was attacked in this way; and such attacks were continued by the shippers through all the early years of the Exchange.^® **It was quite to be expected that every attempt of the pro- ducers to organize would meet with bitter opposition from the middlemen. ... It is not strange that these speculators . . . would spend large sums of money to break down or- ganization among growers. ''It is well known that the Southern California Fruit Ex- change has, ever since its beginning, been the object of most bitter and unscrupulous opposition from fruit speculators. Every form of abuse, denunciation and falsehood have been em- ployed to create distrust. Defamation of private character and grossest libels against individuals who have teen prominent in the Exchange have been the common weapons of the opposition. ' ' ^^ i» Personal interview with 0. D. Adams, Upland, Cal., May 15, 1916. 20 Eural Calif omian, Mar., 1898, pp. 61-62. 46 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [46 Another method reported to have been employed by the oppo- nents of the citrus growers' organization was the intentional glutting of certain markets in anticipation of the arrival of fruit which had been sold by the growers f. o. b. California, to dealers in those markets ; ' ' thus demoralizing the market and causing dissatisfaction in the minds of Exchange customers. "^^ In reviewing the first year's operation of the organized orange growers,^^ T. H. B. Chamblin said: *'No movement among fniit growers for the purpose of enabling them to handle their own business, was ever so maliciously misrepresented and maligned as the Southern California Fruit Exchanges, and no organization ever accomplished so much in so short a time. It is no exagger- ation to say that the organization saved to the growers of oranges no less than $750,000 to $1,000,000 that but for the organization would never have materialized." So persistent were the enemies of the citrus fruit growers* organization in disseminating their misrepresentations that defi- nite action to counteract their influence was deemed necessary. Nov. 13, 1895, a committee was appointed to formulate a *' cir- cular to the trade contradicting the statements made in anony- mous circulars and other circulars and publications in which the Exchanges have been placed in a wrong light before the trade." " Feb. 5, 1896, the Board of Directors voted ''that the matter of the misrepresentations in the newspapers be referred to the Chairman, and he be authorized to make such corrections as he deems proper i"^* and June 24, 1896, it was voted ''that a committee be api>ointed to formulate some plan of repudiating incorrect statements which may be published and to issue such repudiation in circular or publication as they may deem best. ' '^^ At a called meeting of representatives from the various ex- changes and local associations, August 5, 1896, the following 21 Minutes of Meeting of Executive Board of Southern California Friiit Exchanges, Dec. 19, 1894. 22 Eural Calif oniian, Dec, 1894, pp. 635-636. 23 Minutes of Board of Directors, Southern California Fruit Exchange, Nov. 13, 1895. 2* Minutes of Board of Directors, Southern California Fruit Exchange, Feb. 5, 1896. 25 Minutes of Board of Directors, Southern California Fruit Exchange, June 24, 1896. 47] FUNDAMENTAL PRINCIPLES OF CO-OPERATIVE MARKETING 47 resolution was adopted: ''Resolved: That it is the sense of this meeting that the interests of this organization demand a more direct medium of communication with the growers whose interests are involved to the end that they may be more promptly and fully informed as to the methods, objects and purposes of the Exchange, the conditions of the markets, the disposition of the fruit, and such other mattei*s as shall tend to bring them into closer relation with the system. To this end we recommend that the Board of Directors commence at once the publication of a paper of such character as shall in their judgment best meet the requirements above outlined." Before the end of September, 1896, arrangements had been completed for the publication of this paper, to be known as the ''Fruit Exchange Review," under the editorship of T. H. B. Chamblin,^® and the first issue appeared in either September or October of that year. Admission to the mails as second-class matter was denied this publication ;27 and on June 30, 1897, publication was "temporarily suspended" ^^ and was never resumed. A few years later, at a time when one of the leading daily newspapers of Southern California was largely owned and con- trolled by one of the fruit shippers who was a bitter enemy of the Southern California Fruit Exchange, arrangements were made by the Exchange with the California Cultivator for the conducting of a department in that paper for the direct purpose of counteracting the influence of matter derogatory to the Ex- change appearing in other papers.^® This department was called "From a Business Standpoint." It was started May 18, 1900, and was continued until July 1, 1904. Thus for years, the Southern California Fruit Exchange was obliged to fight its way against misrepresentation to the trade and to citrus fruit growers both without and within its own ranks. 28 Minutes of Board of Directors, Southern California Fruit Exchange, Sept. 9 and 23, 1896. 27 Minutes of Board of Directors, Southern California Fruit Exchange, Apr. 28, 1897. 28 Minutes of Board of Directors, Southern California Fruit Exchange, June 30, 1897. 29 Personal interview with C. B. Messenger, editor California Cultivator. 48 MARKETING CALIFORNIA HORTICULTURAL PRODUCTS [48 Somewhat similar conditions of misrepresentation and an- tagonism by shipping interests obtained for a time in reference to the California Fruit Exchange (the growers' organization handling deciduous fresh fruits) and the California Almond Growers Exchange. The steady progress of the Southern Cali- fornia Fruit Exchange, in spite of opposition, and at times seri- ous depletion of its ranks caused by that opposition, has been a source of encouragement to these other organizations during their early struggles for existence. VOLUME OP PRODUCT NEEDED At the time a local organization undertakes to handle a crop, there must he a sufficient volume of one product or closely aU lied products represented by the membership to enable shipments to be made in carload lots and to effect a sufficient aggregate saving in the cost of marketing to more than counter-balance the expense of operation. While shipments to nearby markets might be made in less- than-carload lots, the principal volume of California's horticul- tural products must be placed in distant markets; and econom- ically to reach such markets carload shipments are essential because of the wide difference in freight rates on carload and less-than-carload lots. The loading of a car of perishable fruits must be completed at the point where the shipment originates, for the car cannot be properly braced to insure the safe carriage of its contents until the loading is completed.