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Prepared under the direction of the Industrial Commission by JOHN FRANKLIN

CROWELL, Ph. D., expert agent.

To the Industrial Commission :

The report submitted herewith covers the commercial disposition of the leading kinds of farm products-cereals, cotton, live stock, dairy products, tobacco, wool, and vegetables. The object has been twofold; first, to describe the distributive system by which these products are handled from producers to consumers; and, secondly, to determine as far as practicable the share of the consumers' price which goes respectively to producers and distributers, at any given time and place, in marketing any particular species of farm product.

In order to ascertain these facts it has been necessary to select representative places of production and consumption, and then to follow a standard grade of product from the one to the other through all the essential stages of its commercial disposition. With all of these stages some specific rate of charge is connected; so that, by taking a definite unit of product, whose charges of various kinds are known or obtainable, for particular localities, it has been possible to arrive at a definite statement of the expenses of distribution, as well as to describe the features of the market which influence the prices paid by consumers or received by producers. In the effort to get the data to show what proportion of the price paid by consumers goes to distributive expenses and what proportion to the producer, special agents have been employed in selected places.

The conclusions to which the inquiry has led may be summarized in the briefest form for those who do not have time to weigh the facts and analyze the conditions within the scope of this large subject.

SPECULATIVE DISTRIBUTION LOCALIZES RISKS.

(Parts First and Fourth.)

The first fact to be recognized in the survey of the American system of distributing farm products is that it is essentially a speculative system from beginning to end-speculative in the sense that after the products pass out of the producers' hands and until they pass into the consumers' control there is not a moment nor a stage in the distributive movement during which the one who has legal control over the property in question does not run the risk of a rise or fall in the value of the property. With the growth in the volume and scope of production and in the variety and the complexity of operations involved in the marketing of the products of the farm there have grown up gradually classes of men and commercial methods peculiar to the purposes and conditions which call them into existence; but in the vast army of men and in the infinite variety of methods there is not a single responsible agency engaged which is not in some way required to assume liability for loss or gain from changes in value occurring in

the course of distribution from the producer to the consumer. In brief, the risks of distribution are shifted by both producers and consumers upon the distinct class of speculators known as distributers, who make it a business to take such risks and to divide them up among themselves on the basis of net profit on capital and cost of business capacity. This, in the final analysis, is the underlying fact in the system of distributing farm products in the United States.

REDUCTION OF RISKS REDUCES RATES.

It may be true of a distributive system such as this that at any one time there are altogether too many men and too much machinery in it to operate it economically. The higher profits of speculative investment attract people in prosperous times, and the lower returns on productive enterprise in dull times tempt people with capital or capacity to become distributers. Both failures and successes elsewhere help to fill the ranks of the commercial distributer. This goes on until capital becomes abundant and competition among traders becomes too keen for any but the most capable organizers of commercial operations, who, on account of their superior efficiency, can command abundant capital to make themselves masters in some part of the distributive process. Then old methods make way for new men. The volume of trade under a single control is greatly increased, the size of the transactions is enormously enlarged, but the rate of profit on each unit of farm product is far less than under the older and more expensive system of many commercial agents. The facts examined show that in the course of the past 25 years there has been a constant tendency toward a reduction in the difference between what the producer receives and what the consumer pays. In other words, the existing commercial system of distribution of farm products inevitably tends, under equitable laws and responsible uses of capital, to cost society a decreasing proportion of the value of the farm products. With the reduction of risks of trade the reduction of rates is inevitable. Fifteen years ago the ranks of commerce in farm products were congested. Since then the rate of commission has been so much reduced that the old-style commission business has been doomed to disappear in the cotton and the grain trades, the hay trade, and, to a considerable extent, in many other kinds of distribution.

ELIMINATION OF THE MORE EXPENSIVE MIDDLEMAN.

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(Parts Second-Ninth, inclusive.) In the distribution of live stock, of cotton, grain, tobacco, and wool the main tendency is to eliminate the more expensive middleman. It is doubtful whether the Granger of 30 years ago recognizes how fully the ambitions and aims of that organization have been realized in bringing the consumer and the producer nearer together. The telegraph and mail bring to the cotton and grain producers the prices of the world's markets day by day. The shipper simply ascertains by what ways and means the transfer from producer to consumer can be effected most economically. To err is to eliminate himself. There is no important class of cotton or grain dealers that can interpose itself at any point or place in the distributive process of these products and exact compensation regardless of services rendered. If the compensation is greater than the service is worth, competition of capital will seek to supplant the favored agent or agency; if compensation is less than the services are worth, that in itself will be sufficient to drive out or keep out those employed therein. In almost every trading center and for almost every leading farm product handled largely, it has been necessary to lump charges in order to keep trading during the past ten years. An attempt to impose even a triflingly small excess of charges on cotton or grain at one distribution point will be taken advantage of by competing points. To such influences the Gulf movement of grain is to be attributed, the loss of live stock to Chicago through its terminal

charges, and the active conditions of competition under which most of the tobacco and some wool is marketed. Distribution of our main crops proceeds, on the whole, by the lines of least outlay between producers and consumers.

DEFECTIVE DISTRIBUTION OF FRUITS AND VEGETABLES.

(Part Fourteenth.) There are certain departments of distribution in which this competitive process does not get rid of the more expensive methods of distribution, or if it does eliminate them it does it far more slowly than in other distributive practices. Products whose dristribution involves the existence of a visible supply or reserve stock in market awaiting a rise or fall of price to move them, such as cotton, grain, tobacco, and wool, all exhibit a decided tendency to eliminate the more expensive middleman. On the other hand, products, such as fruits and vegetables, where no storable visible supply exists because of their perishable nature, have not shown any but a very slow tendency to get rid of the more expensive methods of distribution. There may be three reasons for this: First, the extraordinary risks of depreciation; secondly, insufficiency of capital characterizing such distribution; and, thirdly, the absence of anything like large-scale handling of these products—fruits and vegetables—with a view to the elimination of risks and the introduction of economies not apt to occur under the commission system of many dealers. Nothing but consolidation can economize costs of distribution. Owing to the absence of this factor the most unfavorably marketed farm products are fruits and vegetables.

The vegetable trade is much improved over former years by refrigerating transportation, but the losses are enormous to the producer, and his attitude toward commission men is one of distrust. There is no class of merchants against whom dishonesty is so constantly charged as against commission men, to whom farm produce of the class mentioned is sent. It is claimed by the shipping producer that the commission men sell to themselves when it is profitable and to others when it is unprofitable to buy, thus making profits and commissions in the former case and commissions in the latter case. At any rate the distributers and producers fail to cooperate and the consumer pays part of the cost of uneconomical methods. The probability is, however, that the entire business of selling on commission is antiquated and should have been abandoned long ago. In various kinds of trade in farm products it is beginning to disappear or has disappeared, much to the satisfaction of all concerned. Where it lingers it is due to the high integrity of particular representatives of the trade itself, or to the incapacity of producers to make better arrangements to sell their products. On the whole, however, with proper exceptions of commission men and commission markets that could be mentioned, the commission method of sales in the large cities is the most demoralizing feature in the entire range of distribution of farm products, as far as its effect upon the producer is concerned. Cooperative methods have not yet fully proved themselves available as substitute methods, though the Californian systems of marketing their crops of deciduous and citrus fruits is a successful development in the right direction. Any improvement whatever must be based either on an aggressive organization for producing interests or on a better organization of municipal distribution.

COMPETITIVE AND MONOPOLY GRAIN RATES.

(Part Second.)

In the matter of transportation there is no greater fallacy than that which assumes that grain rates all over the country have fallen anything like the rate on grain from Chicago to New York. Almost all reasoning on this subject takes

the decline in the Chicago-New York rate to represent the general decline through. out the country. This is not the case, because the Chicago-New York rate is a competitive rate of the intensest kind. The rates to Chicago from the corn and wheat fields of the cereal section are apparently monopoly rates to a certain extent, as most local rates are in comparison with through rates. The extent to which this partial monopoly rate can be enforced is very much limited by the fact that the railroads from the great interior grain markets cut into what is called each other's territory so generally as to make the so-called monopoly rate a competitive rate between the farmer's shipping station and the central market. Nevertheless, rates from these stations to the central markets—like Chicago, Minneapolis, or Kansas City-have not by any means declined to the extent of reduction in rates from the central markets to the seaboard. The great gain in the past 15 years to the consumer has been by the elimination of numerous charges at these central markets by concentrating the trade, and to the producer by the competition of these central markets themselves whereby the price tends to be kept up to a higher level than otherwise. The fact that dealers or buyers of grain on a large scale have been able to get lower rates to the central market than small dealers or individual shippers is in itself no economic loss to the producer or consumer. It is a means to which railroads have resorted to get control of competitive traffic. It may be illegal in some respects, but it is none the less inevitable in the main, and more economical than the system it tends to displace.

BOYCOTT BY GRAIN DEALERS' ASSOCIATIONS.

(Part Second.) One of the features of the grain trade deserving attention is the methods of local grain dealers'associations in boycotting the producers and dealers alike under the charge of what they are pleased to call “irregularity”in trade. This irregularity consists mainly in not using the local warehouses or elevators for shipping grain, or in having no dealings with such as do not use these facilities. Evidently these associations have served excellent purposes in improving the distributive system; they have done much to get justice at central markets for the country shipper; and the absence of such associations would be a public misfortune to both producer and consumer, but in spite of these beneficial results there are evidences of their having exceeded their limits of economic usefulness in certain directions, as shown by documents given in the body of this report. Whether they have gone beyond the legal limits of rightful association remains for the courts to determine.

RAILROADS AND COUNTRY ELEVATORS.

(Part Second.) A comprehensive inquiry was made into the relations of railroads to the country elevators in the handling of grain. It was found, as the report shows, that comparatively few of these elevators are under the control of the railroads themselves. Though located on their land, the local elevators are almost entirely owned or operated on lease by three different classes of interests: First, by local grain dealers; secondly, by the warehouse companies, whose central office is at the primary market; thirdly, by a comparatively small number of local farmers' associations. The Line Elevator Company and the Local Grain Dealers' Association constitute the two main features in the local elevator management. No evidence was presented or found that these two interests acted together in any way prejudicial to the producers on the basis of a mutual understanding. Each of these agencies, in a sense, overlaps the function of the other; but again, each has a distinct commercial field, which the other must regard as secondary. The local grain dealers operate with special regard to the handling of the crop at

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