1930s

Cooperatives Help Farmers Survive the Great Depression, Position Themselves for New Marketing Opportunities

Census figures and other data reveal that cooperative farm supply purchasing has skyrocketed from $75.9 million in 1924 to an estimated $250 million in 1934.Dr. Joseph Knapp, principal agricultural economist in the Farm Credit Administration, says the most striking development has been the spread of purchasing to almost all parts of the United States. "Cooperative purchasing of farm supplies is now an important farm activity in as many as 8,000 communities," says Knapp. The door was opened for rapid expansion of cooperative business activity by the Cooperative Marketing Act of 1926. It was opened still wider by the Farm Credit Acts of 1933 and 1935. This legislation "recognized the increasing importance of cooperative purchasing by providing equal financial services to farmers' marketing, purchasing and service associations."
        Knapp also notes that there has been rapid growth in large-scale purchasing cooperatives. In 1925, for instance, farmers purchased $6 million in supplies from Eastern States Farmers' Exchange in New York. The amount increased to $14 million a decade later. Likewise, farm supply purchases increased from $6.6 million to $25 million for Grange League Federation in new York. Illinois Farm Supply Co., which didn't even exist in 1926, did $10 million in farm supply sales in 1935. Other new farm supply co-ops developed during the previous 10 years include: Midland Cooperative Wholesale in Minnesota, Farmers' Union Central Exchange, Minnesota; Cotton Producers Association, Georgia; North Carolina Farmers Cooperative Exchange; Consumers Cooperative Association, Kansas; and National Cooperatives Inc., an Ohio-based interregional cooperative serving 25 regional coops. Land O'Lakes Creameries, Minnesota, also emerged during this time as a significant regional dairy marketer.
        The increasing use of motor-driven equipment by farmers gave rise to petroleum cooperatives starting in 1921. Their growth has been particularly dramatic in the Midwest, fueled by the extensive use of tractors, trucks and other motorized implements. By 1935, about 2,000 associations supplied petroleum products valued at $40 million. This period also marked the development of regional or statewide wholesale federations of local fuel cooperatives.
     Large petroleum associations are blending their own brands of oil in cooperatively owned plants. Standardized systems of local distribution have been developed by large-scale centralized cooperatives such as Southern States Cooperative in Virginia. Cooperative manufacturing of supplies - feed, fertilizer, insecticides, package materials, and paint - has also gained prominence. The State Farm Bureau cooperatives in Illinois, Indiana, Michigan and Ohio share in the profits of a company manufacturing fertilizer for them. West Coast marketing cooperatives are often using subsidiary companies or departments to purchase supplies.

W.I.. Myers, governor of the Farm Credit Administration, is encouraging farmers - whose economic condition has improved in the past two years - to turn their attention to strengthening their cooperative organizations. This is vital, he says, because marketing farm commodities and purchasing "are as much a part of farming as producing crops and livestock products. In case of weakly financed cooperatives, a plan should be established which will gradually build on members' contribution to the co-op, thus increasing the net worth that is essential for the continued success of the cooperative and its members.

        Cooperatives would be better off, Myer says, if members turn to Federal Land Banks for mortgage credit and Production Credit Association for production credit.
        "With several hundred thousand farmers keeping their hands on the control of the farm credit system, there will be a far greater degree of success for cooperative credit and a far greater degree of service to farmer-borrowers throughout the country than at any time in the past.
        "Farm land associations best withstood the Depression and operated at a lower cost basis in districts that had been developed into strong cooperative organizations and were used to not only making loans, but to service and collect loans."

A supplemental statistical overview of agricultural cooperatives - started by R. H. Ellsworth, agricultural economist with the Farm Credit Administration - made its first appearance in 1935. This report set the pattern for future annual reports on the state of the nation's farmer cooperatives for the rest of the century. The number of active associations at the close of 1935-36 was 10,500, with 69 percent of them located in the 12 north-central states and 8 percent operating in western states. Minnesota lead the nation with 1,401 associations, followed by Wisconsin with 1,086, and Iowa with 954. About 69 percent of the estimated membership of 3.66 million participated in marketing cooperatives and the balance in farm supply co-ops. Total business volume of the associations topped $1.8 billion, 86 percent of it conducted by marketing cooperatives. The top business volume states were California, Illinois, Minnesota and Iowa.

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This cartoon took a light-hearted look at the difficulty some co-ops have getting enough board members to attend meetings to constitute a quorum. The best way to avoid this situation: keep meetings educational and encourage director input.

"Most cooperative failures result from a lack of a thorough understanding that a cooperative marketing organization is a business institution and should be regarded as such," says Cooperative Bank Commissioner S.D. Sanders. "Many associations have gone under because members were demanding too much cash - cash that management needed to market their products. Members have deserted [their co-op] to get better prices outside," he says.
        As a solution, Sanders recommends the board and management use retains or stock ownership in the cooperative to stress to members the stake they have in their business association. "Let the members know how much is being taken off [prices] and give them a stock certificate to show their ownership in the association. In time, they will see that it is a savings account for members and they will take a greater interest in the cooperative."
        Stressing that farmers are more dependent than many think, Sanders says, "They can produce until they are blue in the face, but until they bring some of the pluses (from marketing) to their side of the ledger, they will not get as large a part of the consumer's dollar as is possible from their crops."
        Some cooperatives operating with neither advance member capital nor retains from the businesses, Sanders says, were forced to forego profits during the Depression. These co-ops even endangered their capital structure to hold a sufficient volume of business to warrant continued operation. Contrasting with these businesses were associations that built up sufficient reserves through regular retains and annually retired the oldest stock by the new investments generated through member retains. This type of cooperative, with annual distributions, helped underwrite the financial success of member farms, Sanders says.

More than $10 million in farm supplies were sold in 1935 by 60 locally owned service companies associated with Illinois Farm Supply Company, up by about 25 percent from 1934. The bulk of the sales were petroleum products, which generated $1.4 million for Illinois from gasoline and sales taxes.
About 68-million gallons of petroleum products - including gasoline, kerosene, distillate, lubricating oil and grease were sold by member co-ops in 1935. Sales of soyoil paint jumped 65 percent, to 175,000 gallons. Farmers' investment in the 60 companies reached $981,595. They had a combined accumulated surplus of almost $1.2 million for use as working capital.
Nearly half of the companies operated service stations for petroleum products. Three-fourths of the business in 1934 was with 80 percent of the members. Each company set aside part of its earnings for working capital purposes. Cash dividends to members totaled $805,000.

Texas cooperative activity was on the upswing in 1935, reports the Houston Bank for Cooperatives. Cotton farmers led the way by organizing new cooperative cotton gins. Bank President Sterling Evans says the move toward cooperation was so strong that 75 new co-ops were formed in 1934-35 despite earlier cotton crop failures. The crop rebounded in 1935. The state's 150 cooperatives have a total membership of nearly 30,000 members.

A mother taking part in the cooperative teaches her children about its importance in the family's financial and social future. This, in turn, helps them become better future citizens.

Walnut Growers Market
50 Million Pounds

California's Walnut Growers Association markets 50 million pounds of walnuts valued at $8 million for it 39 member associations. This accounts for about 87 percent of the state's total walnut crop.
Shelled walnuts are being sold on the export market while unshelled nuts are primarily sold for domestic consumption. Most of the business is being transacted by mail and wire. Sales were made direct to wholesale grocers, chain stores and the wholesale produce trade through a group of 128 food brokers. Most of these brokers have been with the association since its formation. While trade outlets had been well established in Canada, new ones were being developed for northern Europe.

Walnuts are sorted at the California Walnut Growers Association, which marketed 50 million pounds of walnuts for its 39 member associations in the mid-1930s. That was equal to about 87 percent of California's tonnage.

Of the 13 major state or regional fleece-wool associations - including five formed in 1938 - all (with the exception of one based in Ohio) belong to the National Wool Marketing Corporation, headquartered in Boston. The bulk of fleece wool is processed within a 400-mile radius of Boston. The association is owned and controlled by the local wool cooperative associations. All of these co-ops are providing financing, marketing and educational services to members.
The average flock in the East and Midwest is currently about 50 head. Associations handling one- to two-million pounds of wool are grading in car-lot quantities, as preferred by manufacturers. Most associations are offering tours to growers, led by county agents and extension workers, to better acquaint them with how their wool is graded and handled.
Local marketing pools are proving to be advantageous to farmers and stockmen with small herds who operate near irrigation projects in southern Idaho. Most of the growth has occurred since 1930. Changes in agricultural production methods in the past decade caused by low prices, reduced yields and unsatisfactory market outlets for cash crops have led to increased livestock feeding and production.

Serving the credit needs of California farmers' water mutual companies is fast becoming an important part of business for the Berkeley Bank for Cooperatives. The bank's first such loan in 1935 was soon followed by 10 others, totaling $1.2 million. The figure was expected to reach $3 million by year's end after some companies reorganized as cooperatives.

Cooperative institutions loaned farmers $119 million during the first half of 1936,or more than a third of the $343 million loaned by the Farm Credit Administration. The 550 associations had a 21-per cent increase in business compared with 1935. This was the third consecutive increase in spring crop and livestock financing since the organizations formed in 1933-34.

Drive-in business is speeding ahead for the Central Cooperative Association livestock sales agency in South St. Paul, Minn. Increased truck transportation resulted in drive-in business jumping from 17 percent of total business in 1929 to 59 percent in 1935. Given the growth in livestock trucking, local shipping associations which rely on railroads are almost extinct. In 1935, 83 percent of the livestock receipts from Minnesota and Wisconsin arrived at St. Paul by truck.
About 60 percent of the 200 livestock associations shipping to Equity Cooperative Livestock Sales Association at Milwaukee, Wis., are moving their livestock by truck, causing the gradual disappearance of shipping associations. Twenty years earlier, nearly all livestock destined for Milwaukee was moved by rail.

"Get them involved in the movement financially," is Oklahoma banker M.H. Howard's suggestion for involving youth in cooperatives. Howard, who manages Farmers National Bank in Enid, Okl., says "If people can't be interested in a project in which they have money invested, then they can't be interested at all." Howard says there is too much preaching at young people "instead of giving them a chance to participate actively in the program on a par with the grownups."
Howard suggests wheat producers give their children an allotment of acres from which the crop would be marketed through a cooperative elevator in which their parents own stock. The elevator would sell a share to these youngsters One or two of these youths in every community would be named directors at large on the board.
"There is no more sobering and wit-sharpening experience ... than to match minds with thinking men on the board.' And dads bringing their children to the annual meeting would get and keep the interested, he said.

"Your husband will gladly explain Revolving Credit. But if he can't he'll set about getting some information on it."

This cartoon illustrated a 1939 magazine article about the increasing interest of women in the business side of farming and in attending the annual meetings.

Even though patronage refunds help build volume and hold member interest, "You can't build successful cooperatives by appealing to producers with an unsound, inadvisable business action," cautions S.D. Sanders, cooperative bank commissioner. "Failure to build up sufficient surplus and reserve is one of the frequent causes of financial stress among cooperatives." The reserve must be large enough to enable the cooperative to meet unforeseen circumstances.
"Every association is subject to emergencies when some reserve cash is badly needed to tide the organization over a difficult period." Despite pressure on management and directors to disburse surplus funds, in order to survive, an association's financial structure must be placed on a sound basis. Members and management must understand the financial needs of the association, he says.

Cooperative livestock marketing is gaining a foothold in the western states that produce a large surplus of cattle and sheep. Leading the way is the Farmers Union Livestock Co. in Denver. Cooperative development has been slower in the "range states" of the West than in the Midwest or East, but the trend began to increase in the West after 1930.
By 1936, 10 large livestock associations were operating nationally. Between 1931 and 1935, the volume they handled more than doubled, to 2.2 million head. These cooperatives have reduced profits skimmed off by speculators and reduced unnecessary handling costs in moving feeder cattle and lambs direct from range to feedlots.

Sales, excluding supplies, for 1,063 fruit and vegetable marketing associations serving 166,000 growers reached nearly $200 million during the 1935-36 season. About 83 percent of that amount was handled by fruit cooperatives. Among the major problems they face are: private fruit marketing businesses are gaining control of crop share offering production loans to growers; greater use of trucks to transport crops is making it more difficult to gauge the quantity of a commodity moving to market; some truckers are also becoming itinerant salesmen; concentration of bargaining power by chain stores is presenting a challenge and opportunity best met by concentrated selling.

Farmers Cooperative Exchange (FCX), formed in 1934 as North Carolina's statewide marketing and farm supply cooperative, now has three separately incorporated departments: FCX Seed Service, FCX Fruit and Vegetable Service, and FCX Poultry Service. Each has to be self supporting. The 13-member FC board represents growers, state agricultural institutions and the State Grange and Farm Bureau.
Producers Mutual Exchange, an earlier attempt to federate about 75 local mutual exchanges, failed for lack of capital and trained management and merged with FCX. Those exchanges and FCX branches serving 22 of the state's 100 counties continued operations. In an agreement with Virginia's Southern States Cooperative (SSC), which had been operating in part of North Carolina, FCX will handle the marketing program and provide wholesale and retail farm supplies. SSC provides manufactured goods, such as fertilizer, feed, and seed. Three SSC directors also serve on the FCX board. Directors have agreed to pay half of the annual savings in stock and the rest in cash.

The five cooperative cottonseed oil mills operating in the Cotton Belt crushed about 100,000 tons of seed in 1937, double their 1936 crush. Plains Cooperative Oil Mill in Lubbock, Texas, and Delta Products Co. in Wilson, Ark., have just begun operating. Assets of all these cooperatives total nearly $1 million.
Most of these co-ops incorporated under their state's laws. Members and non-members are treated alike in the annual distribution of savings. Nearly all the voting stock is held by members. Stock dividends are limited to 8 percent. Member equity in the five mills is almost $700,000, or almost three-fourths of the total investment. The cooperatives serve nearly 2,000 members.

The first cooperative-owned oil refinery opened in 1939 at Phillipsburg, Kan., by National Cooperative Refinery Association, a subsidiary of Consumers Cooperative Association (CCA), based in Kansas City. A 70-mile pipeline connects the refinery with oil fields. The $700,000 plant uses 3,000 barrels of crude oil per day, or the daily equivalent of 11 railroad-car loads of refined fuels.
The refinery supplies 40 percent of the refined fuel needs of 440 local cooperative members of CCA located in nine states. In 1938, the locals marketed more than 6,000 carloads of gasoline, kerosene, tractor fuel and distillate. And during a 1939 membership drive, CCA added 69 more local cooperatives with 2,498 members.

There is no shortage of good will toward patrons of Farmers Cooperative Company at Oneida, Ill. For the donut dunkers, Manager Leo Windish had the answer: free coffee at a local restaurant. Oneida's population - primarily people of Scandinavian descent - enjoy their coffee, he says.
Windish says it was the best promotion the cooperative ever had. He feels little things that humanize the cooperative are just as important as following sound business practices, such as posting livestock receipts and prices at the office - even though the cooperative handles no livestock. A dozen phone calls still come in every morning about the postings. Periodically, patrons receive a small token gift from the cooperative, such as a key ring or pencil.

Whether sizing up a dairy cow, farm tractor or automobile, the principles for appraising are similar to those needed to appraise your cooperative. These nine factors were suggested by J.E.Wells, Jr., deputy cooperative bank commissioner o the Farm Credit Association: Is there a economic need for the co-op? Is the management good?; Are the association' membership relations satisfactory?; Are the operating policies strong?; Are the directors qualified for their jobs?; Is the association's financial condition satisfactory?; Do past history and present conditions point toward successful future operations?; Is the business volume satisfactory?; Can the cooperative meet or overcome competition?

Since 1931, the number of member associations in Michigan has multiplied tenfold. By 1938, about 40,000 Michigan farmers were using the services of 139 local cooperatives affiliated with Michigan Farm Bureau Services, the state wholesale farm supply cooperative and its 10 branch retail farm supply stores. Sales for fiscal 1938 reached $2.8 million, plus $800,000 from the retail stores.
Among the members and branches are farm supply associations, cooperative elevators, and cooperative oil associations. The locals mix much of the feed they sell from ingredients obtained for state associations which purchase supplies from two interregional cooperatives: United Cooperatives and National Cooperatives.

California's Challenge Cream and Butter Association was formed in 1910 in Los Angeles by a small group of dairymen renting a basement storeroom. They put a horse-drawn delivery vehicle on the streets as a "challenge" to butter marketing interests. Today, in 1939, it operates a "silver fleet" of 225 streamlined trucks working out of a dozen modern warehouses. Deliveries of dairy products are valued at $20 million annually.
The organization, owned by 23,000 farmers through 23 local creamery cooperatives, handles 70 percent of the Los Angeles market and a substantial part of the San Francisco market. Since 1922, it has used a revolving capital retains plan to finance facilities. By fiscal 1938, nearly $2.2 million had been retained. By Dec. 31, 1938, the cooperative had paid dividends of $1 million and held stock certificates totaling $1.2 million.
Challenge has had consistent growth. Butter production, its main line, was 4.5 million pounds in 1920. By 1938 its butter production has jumped to 41.5 million pounds. By then, it was also producing cheese, butterfat in cream and milk, sweetened condensed milk, powdered milk, whey powder, casein, cottage cheese, evaporated milk, condensed skim milk, and 2 million dozen eggs. Challenge also processes and packages dairy products, including bottled pasteurized milk for distribution on wholesale routes in Los Angeles and Oakland, and processed cheese. An ice cream business was the latest addition to the product line.

The 1,000 grower-members of the National Pecan Growers Exchange at Albany, Ga., produced 1 million pounds of paper-shell pecans in 1939, enough to make a line of pies stretching from Atlanta to Washington, D.C. Almost since its inception in 1915, the exchange has been trying to devise better ways to prepare nuts for the market. It used its plant as a laboratory for testing ideas to catch the consumer's eye. In the early 1930s, the exchange developed a method of bleaching and dyeing nuts. By 1938, it began stamping each nut with the exchange's trademark and, by 1939, nearly all of the fall and winter nuts were branded. Even the equipment was trademarked. Most pecans were marketed in the East and Midwest.
The organization operates on a "pool" basis. After nuts are graded according to size and variety, each grower receives an advance payment according to the grade and size delivered. After nuts are marketed, final payment to members is based on the quantity and quality of nuts in the particular "pool" which contained the grower's pecans. Most of the co-op's members farm in Georgia and Florida.

These illustrations promoted an easy way to pay off a farm mortgage by using 4 percent Federal Land Bank loans, repayable in small regular installments suited to the individual farmer's income. Producers were encouraged to plan ahead on what crops or livestock to sell to meet payments, to set up an interest-paying reserve to protect them from the drought or insects, and to get out of debt sooner by paying more on the mortgage than required in good years.