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Extensive c o p y i n g o r p u b l i c a t i o n of t he t h e s i s in w h o l e or in p a r t r e q u i r e s a l s o t h e c o n s e n t of t h e D e a n of t he G r a d u a t e S c h o o l of N o r t h w e s t e r n U n i v e r s i t y . h a s b e e n u s e d by the f o l l o w i n g a t t e s t t h e i r a c c e p t a n c e of the its persons, whose signatures above restrictions. A L i b r a r y which borrows p a t r o n s is e x p e c t e d to s e c u r e NAME AND ADDRESS t h i s t h e s i s f or u s e by the s i g n a t u r e of e a c h u s e r . DATE NORTHWESTERN UNIVERSITY TOBACCO MARKETING COOPERATIVES IN THE MIAMI VALLEY, OHIO A DISSERTATION SUBMITTED TO THE GRADUATE SCHOOL IN PARTIAL FULFILLMENT OF THE REQUIREMENTS for the degree DOCTOR OF PHILOSOPHY S CH OO L OF C O M M E R C E DEPARTMENT OF MANAGEMENT BY HAROLD BRUSS BAKER EVANSTON, ILLINOIS JULY 1940 P ro Q u e st N u m b e r: 10060860 All rights reserved INFORMATION TO ALL USERS The quality o f this reprodu ction is d e p e n d e n t upon th e quality o f th e c o p y subm itted. In th e unlikely e v e n t th a t th e author did not send a c o m p le te m anuscript a n d th e re a re missing p ag es, th ese will b e n o te d . Also, if m aterial h a d to b e re m o v e d , a n o te will in d ic a te th e d eletio n . uest, ProQuest 10060860 Published by ProQuest LLC (2016). C opyright o f th e Dissertation is held by th e Author. All rights reserved. This work is p ro te c te d ag ain st unauthorized cop yin g under Title 17, United States C o d e Microform Edition © ProQuest LLC. ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106 - 1346 PREFACE The Miami Valley, Ohio, tohacco district, although small, is important in the cigar leaf market. Yet its his tory and its experiments in cooperative marketing have not received the attention of writers in any degree comparable to that devoted to the districts in Kentucky, Tennessee, Virginia, the Carolinas, and Wisconsin. In this study of the tobacco marketing cooperatives in this district, I have sought to discover and present the factors involved in the organizing of the associations and the reasons for their failures to accomplish the purposes which led to their creation. The formation, management, and operations of these associations, rather than the methods of marketing the tobacco, have been my concern. To provide an adequate background for this analysis, I have sketched briefly the history of the district from the introduction and development of the cultivation of tobacco through the periods of prosperity and depression which have been experi enced. I have described in much detail many of the opera tions of the associations, for I have felt that only through this means would the reader be able to secure an under standing and appreciation of the basic factors involved in ii iii the rise and fall of these cooperatives. It has not been my aim to compare the experiments in cooperative marketing in this district with those in other districts. However, where comparisons have seemed to add to the analysis, they have been made• The first two chapters of this study present a brief description and analysis of the development of tobacco cul tivation in the district, of the market for this cigar leaf tobacco, and of the marketing methods. Chapters III-VII take up in chronological order the different associations which have existed, and analyze their formation and opera tions. Chapter VIII is devoted to a summary of the chief features of the operations of the associations and to the conclusions drawn from the study. As this report makes no attempt at a complete analy sis of the marketing methods In this district, it appears that this field remains a fruitful one for future research. Studies might well be made of the changes in marketing meth ods, of the relative importance of the different middlemen and of the marketing channels, and of the relation of the Cincinnati tobacco auction to this district. Since little has been written about the cooperatives In this district, I have relied mainly on my experience in the district, on interviews with those closely associated with the undertakings, and on the records of the associa tions to secure my information. The early years of my life were spent on a farm in iv the district. My father was a large tobacco grower and was a° member of the Miami Valley Tobacco Growers’ Co-operative Association. I well recall the stirring events connected with its creation and dissolution. In 1933-1935 I was accountant for the Ohio Cigar Leaf Tobacco Growers* Market ing Association. Since 1935 I have maintained the connec tion by assisting in the analysis of the records and the preparation of reports. These contacts with the growers, with the members and officers of the associations, and with the actual operations of the one association have given me opportunities to know the attitudes and problems of the tobacco growers and to learn much about the earlier associa tions, as well as the present one. It is impossible to acknowledge my indebtedness to all who have provided information and given assistance in the preparation of this study. Those who were most helpful in Interviews and In making available the records of the associations are listed in Section VI of the Bibliography. Out of a long standing interest in this problem I have ques tioned many other growers and buyers in casual meetings since 1933* Special acknowledgment must be given three men who, as leaders in the district and in the associations, were most generous In their assistance: M. E. Stern, tobacco bro ker of Dayton, Ohio, and sales manager (1924-1927) of the Miami Valley Tobacco Growers* Co-operative Association; Fred Sheaffer, Germantown, Ohio, director and president (1924- V 1927) of the Miami Valley Tobacco Growers' Co-operative Association; and Jesse T. Landis, Pleasant Hill, Ohio, secretary-treasurer (1931---) of the Ohio Cigar Leaf Tobacco Growers' Marketing Association. I wish to express my appreciation and great indebtedness to Professor James R. Hawkinson, School of Commerce, Northwestern University, who has guided the preparation of this study. To Dr. Wm. R. Spriegel and Dr. D. J. Duncan, both of the School of Commerce, Northwestern University, I give acknowledgment for valuable suggestions. My wife, Annabelle Powell Baker, has given encour agement and assistance in all stages of the work. Evanston, Illinois, July 8, 1940. OUTLINE OP CONTENTS PREFACE Page ii LIST OF TABLES viii LIST OF ILLUSTRATIONS Ix Chapter I. THE PRODUCTION OF TOBACCO IN THE MIAMI VALLEY 1 Introduction and Development of Local Types of Tobacco Development of Production Diversified Farm Economy 4 12 17 II. THE MARKET AND MARKETING- METHODS Competition with Other Cigar Leaf Districts Competition from Imports Decline of Cigars Exports of Cigar Leaf and Cigars Relation of Production and Consumption Price and Farm Value of Tobacco Marketing Methods Sale and Delivery Criticisms of Country-Buyer System Other Marketing Agencies Changes in Cigar Manufacturers III. EARLY COOPERATIVE VENTURES The National Cigar Leaf Growers* Union Warehouse Companies Purpose Management Warehouses Handling the Tobacco Financing Selling Growers Tobacco Sales Company Miami Valley Leaf Tobacco Growers Association Success, Failure, and Dissolution vi 21 21 30 33 37 40 44 48 53 58 60 62 66 68 73 75 77 80 80 83 85 88 89 91 vii IV. THE MIAMI VALLEY TOBACCO GROWERS* CO-OPERATIVE ASSOCIATION - FORMATION AND STRUCTURE Organizing the Association Membership Contract and Relations Maintaining Membership Relations Management Equipment V. THE MIAMI VALLEY TOBACCO GROWERS* CO-OPERATIVE ASSOCIATION - OPERATIONS Financing Miami Warehousing Corporation Receiving and Handling Sales Expenses Returns to Growers Accounting Methods Dissension and Dissolution VI. OHIO CIGAR LEAF TOBACCO GROWERS’ MARKETING ASSOCIATION - FORMATION AND STRUCTURE Formation of the Association Membership Contract and Relations Increasing the Membership Maintaining Membership Relations Management Equipment VII. OHIO CIGAR LEAF TOBACCO GROWERS* MARKETING ASSOCIATION - OPERATIONS Financing Handling the Tobacco Sales Receipts of Tobacco Returns to Growers Expenses Accounting Methods Special Activities Removing Trash from the Market VIII. SUMMARY AND CONCLUSIONS 98 101 109 113 117 124 123 123 130 136 143 148 150 153 156 169 172 182 188 191 195 206 210 210 223 226 235 240 245 249 252 254 257 APPENDICES 2?Q BIBLIOGRAPHY 319 LIST OF TABLES Table 1. Estimated Percentage of Gross Cash Income From Sales of Tobacco and Other Products on Ohio Farms by Selected Counties for the Year 1929 2* Imports of Cigar Leaf Tobacco and Cigars in Selected Years 3* Per Capita Consumption of Tobacco Products in Selected Years 4* Cigar Factories and Production in Certain States and the United States in Selected Years 5* Summary of Data on Cooperative Warehouse Companies of 1912 6, Tobacco of the 1930-1939 Crops Received by the Ohio Cigar Leaf Tobacco Growers1 Marketing Association 7* Summary of Operations of Ohio Cigar Leaf Tobacco Growers* Marketing Association of Type Pools on Which Final Settlements have been made 8. Analysis of Expenses of Ohio Cigar Leaf Tobacco Growers* Marketing Association in Type Pools on Which Final Settlements have been made (To May 1, 1940) viii LIST OF ILLUSTRATIONS Figure 1* Miami Valley Tobacco District in 1869 Page 9 2. Miami Valley Tobacco District in 1909 10 3* Miami Valley Tobacco District in 1934 11 4. Acreage and Production of Tobacco in Miami Valley 1863-1939 14 5* Cigar Leaf Tobacco Districts 22 6. Leaf Tobacco Used in Manufacture of Cigars 35 7* Percentage of Leaf Tobacco Used in Cigars, Cigarettes, and Other Products 35 Production and Disappearance of Miami Valley Tobacco 1912-1938 42 Stocks and Disappearance of Miami Valley Tobacco 1912-1938 42 10. Average Price of Miami Valley Tobacco 1909-1939 45 11. Farm Value of Tobacco Crop in Miami Valley 1909-1939 45 Marketing Channels of Miami Valley Tobacco 51 8# 9* 12. 13* 14. 15. 16. Locations of Cooperative Warehouse Companies in Miami Valley 1912 72 Organization Chart of the Miami Valley Tobacco Growers' Co-operative Association 121 Warehouses of the Miami Valley Tobacco Growers' Co-operative Association for the 1923 Crop 133 Miami Valley Tobacco Growers' Co-operative Association - Summary of 1923 Crop 146 ix X 17* 18• 19# 20. 21. Miami Valley Tobacco Growers' Co-operative Association - Summary of 1924 Crop 147 Organization Chart of Ohio Cigar Leaf Tobacco Growers' Marketing Association in 1931 198 Organization Chart of Ohio Cigar Leaf Tobacco Growers' Marketing Association after 1931 201 Receiving by Types for Crop Years 1930-1939 by Ohio Cigar Leaf Tobacco Growers' Marketing Association 239 Time Required for Payments and Final Settlement on 1930-1939 Crops by Ohio Cigar Leaf Tobacco Growers' Marketing Association (To May1, 1940) 239 CHAPTER I THE PRODUCTION OF TOBACCO IN THE MIAMI VALLEY Cooperative ventures in tobacco marketing in the Miami Valley of Ohio have had a history marked by fluctu ations in activity and by difficulties. Under the stimulus of recurrent periods of interest and agitation a number of marketing associations have been formed. These have been: the few warehouse associations established about 1900; the eleven cooperative warehouse companies of 1912, with the related sales agencies; The Miami Valley Tobacco Growers' Co-operative Association, Dayton, Ohio, 1923-1927; and the Ohio Cigar Leaf Tobacco Growers' Marketing Association, Greenville and Brookville, Ohio, 1931-— , with the contract ing group which preceded it. These organizations have dif fered widely in structure and operations, but all of them, except the last, have ceased to function after a brief life. In order properly to analyze the activities of the various associations and to discover the factors involved in their creation and dissolution, an understanding of the nature and problems of this tobacco district must be secured. An essential part of this understanding is provided by a description of the production of tobacco in the district. The Miami Valley tobacco district is located in 1 southwestern Ohio and southeastern Indiana in the valleys of the Great Miami and the Little Miami rivers* Production centers in seven counties In Ohio— Butler, Darke, Greene, Miami, Montgomery, Preble, and Shelby— and one county in Indiana--Randolph. Other counties in the district which at times have produced a sizeable quantity of tobacco are: Champaign, Clark, Clinton, Logan, and Mercer counties in Ohio, and Jay and Wayne counties in Indiana*1 The class of tobacco grown in the district is cigar leaf, which is sun-grown and air-cured. The leaves are rel atively coarse in texture and heavy in body. the cured leaf is dark and often uneven. The color of Because of these characteristics the tobacco cannot be used for cigar wrap pers;2 and only in those years when an unusually high grade of leaf is produced can the select grades, which even then are a small percentage, be used for cigar binders.2 The tobacco possesses the qualities of a good b u m and a pleasing aroma, features making it suitable for fillers for cigars. purpose. Of the total production 85^-95$ Is used for this The farmers and warehouses in the district ordi narily sort and pack the tobacco In three grades# The first, or best, grade leaves, designated as Grade C in the classi fication established by the U. S. Department of Agriculture, are locally called wrappers or binders. As indicated above, 1See Figure 1, page 9, for location of these counties 2 Wrappers: Tobacco used for outside cover of a cigar. Binders: Tobacco used to bind and shape the fillers. Fillers Tobacco used to form the core of a cigar. Chas. E. Gage, American Tobacco Types. Uses, and Markets. U. S. Department of Agriculture Circular No. 249, p. 37. 3 very little is actually used for these purposes* Most of this grade is used to make the core in long-filler cigars* The second grade, U. S. Department of Agriculture G-rades X and Y, is called fillers* It is used in cheaper cigars, such as short-filler cigars, and in chewing and smoking tobacco.*** In some years, when the price is very low or the crop is poor, the farmers strip these two grades together* The low grade, or "trash,” leaves, which constitute the local third grade, U. S. Department of Agriculture Grades Y, S, and N, are the leaves from the bottom of the stalk and the leaves which have been damaged by weather, insects, and handling* p These leaves are used partly in the manufacture of chewing and smoking tobacco and partly in the manufacture of insecticides and feeds* During the depression following 1929 a number of small manufacturers in the district used some of this grade in the production of very low priced cigars which were sold chiefly in the South. The proportion of a crop which falls into this grade varies from year to year depending on the ravages of insects and on weather con ditions* Hail storms and high winds during the growing sea son gnd an early frost before the tobacco can be harvested may place a high percentage of the leaves in this grade* The percentage may be as low as 3% in a good year and as high as ■**Gage, op. cit., pp. 37# 4-3; and U. S. Department of Agriculture, Annual Report on Tobacco Statistics. 1938. P* 5* p Ibid. The Grade Y of the Department of Agriculture includes parts of both the filler and trash grades of the farmer. 4 15^-20^ in a poor year. Introduction and Development of Local Types of Tobacco The growing of Burley tobacco along the Ohio River in Ohio and Indiana had reached a high stage of development by 1810,1 but the start toward commercial production in the Miami Valley did not come until 1838. At that time Mr. Thomas Pomeroy of Suffield, Connecticut, moved to a farm in Montgomery county and brought with him some seed of the o Connecticut Seedleaf tobacco. He planted a small patch and the results were so satisfactory that its cultivation spread among his neighbors in the following years. Before this time some tobacco of the Virginia Seed type had been raised by the farmers in the district for their personal consumption.^ Its cultivation apparently did not justify attempts at commercial development. After the successful introduction of Connecticut Seedleaf tobacco, other types were tried and there began the process which led to the development of the types now pecul iar to this district. In order to appreciate the significance of the differences in types and to understand the relations among 1W. W. Garner and Others, "History and Status of Tobacco Culture,” Yearbook of Agriculture 1922t p. 404. 2 .. J. B. Killebrew, "Report on the Culture and Curing of Tobacco In the United States," Tenth Census of the United States 1880, Volume on Agriculture, p. 726. 3rbid. 5 the tobacco districts, the factors which led to the differ entiation of types and to the development of the taste of the market for these types must be examined. Many of the types of tobacco have a common origin, but they have become individualized through adaptation to and development in var ious localities. A tobacco expert has described the process as follows : No crop is more susceptible to slight changes in soil and subsoil than tobacco. Soil is the chief deter mining and limiting factor........ The different vari eties of tobacco have been bred under certain soil con ditions to meet specific requirements. These varieties, if transfered to a new environment, would immediately lose some of their characteristics and consequent value.^ Likewise soil drainage and climate, including the temperature range, the amount and time of normal precipi tation, the relative humidity and the relative number of hours of daylight, have been found to be important in creat ing a different type of tobacco in a few years after its introduction into a district. Methods of cultivation, fer tilization, harvesting and curing which are peculiar to the district become established through experimentation and p custom and tend to particularize further the product. Y/hen the extension of tobacco to a new district results in a leaf of the texture, flavor, and aroma which find favor with smokers, commercial production tends to ^G-age, op. clt., p . 6 5 . Dr. Gage has charge of the Tobacco Division, Agricultural Marketing Service, U. S. Department of Agriculture. 2Ibld., pp. 1, 65. 6 develop in that district and the custom or taste for that tobacco becomes established. Since the tobacco of each district tends to have peculiar characteristics the compe tition among the districts is limited. This situation and the fact that smokers are very sensitive to taste of tobacco and become set in their smoking habits make it difficult for a new district to enter the field. This condition is accen tuated by the reluctance of tobacco manufacturers to sponsor products with new qualities which may not meet consumer approval or at least may be very expensive to establish on the market. Dr. Gage has said: Over a period of years the tastes of tobacco consumers have become accustomed to certain qualities. The trade that has developed by catering to these tastes looks to certain well-defined areas for continued sup plies of the grades and qualities of leaf upon which depends the continued popularity of the manufactured product .3Tobacco is grown very widely. At various times every state in the union has reported some raised. In Ohio the reports of the State Board of Agriculture show a quan tity, although small in most instances, grown in every county in almost every year--especially from 1880 to 1920. However, these factors of soil, climate, and market taste have resulted in a limitation and localization of commercial production. The early Connecticut Seedleaf underwent changes through adaptation to the soil and climate and through selective breeding. The present general type is classified ■^Gage, op. clt. , p. 1. 7 as: Type 42 by the U. S. Department of Agriculture. It is commonly known as Gebhardt, Graham Seed, Seedleaf, and Ohio Broadleaf• There are some slight distinctions within the type, but in general it is characterized by a tall plant with broad, fairly thin leaves and by an even burn and a fairly mild flavor. A new type, known as Dutch or Little Dutch, was introduced about 1869 It is reported that this type, which was to become of great importance in the district, was brought from Germany by a Mr. Rayendorf.2 This tobacco, now designated by the U. S* Department of Agriculture as Type 44, is distinct from the other types. In comparison with the other types the plant is smaller and the leaves narrower and heavier bodied. It has a unique flavor and aroma, variously characterized as "stronger," "sweeter,11 and "having more bite," which have led to its use in a particular style of cigars known as stogies. The average yield per acre for this type is about 800 pounds in comparison with an average of about 1100 for the other types. Early production was centered around Miamisburg in Montgomery county and was comparatively small in volume.^ In the development of the district the center of production of Dutch tobacco has shifted to the Darke-Miami counties section.^ Type 44 ^M. L. Floyd, "Tobacco," Twelfth Census of the U. S . 1900. Vol. VI, p. 501. 2Killebrew, op. cit., p. 730 . A. ^Ibid. See Figure 1, page 9, **or map of the district. 8 tobacco makes up about 10^-20$ of the total pounds produced each year.**Type 43, variously known as Spanish, Zimmer Spanish, and Ohio Zimmer, was introduced about 1870. The seed was brought from the West Indies to the cigar leaf districts of Connecticut, Pennsylvania, Wisconsin, and Ohio at about the same time. In each district it soon differentiated itself through adaptation. One variety, known as Baltimore Cuba, was developed in the district by a Mr* Sinclair and his son. The U. S. Department of Agriculture was sufficiently impressed with the results to distribute the seed among the farmers.^ Jacob Zimmer, a resident of Montgomery county, is credited with the development in 1878 of the type now grown in the Miami Valley.^ In the process of development the Spanish plant and leaf became very similar to Type 42. Some supposed advantages in curing and in the aroma pushed Type 43 to the fore so that at first it threatened to replace Type 42, entirely.^ Until about 1933 Type 43 constituted from 45^ to 55^ of each year’s crop.^ Gradual improvements in Type 42 kept it a strong competitor of the Spanish. As a result of market development and changes in the taste of cigar smokers, Seedleaf has gained and held the lead in production from ^Gage, op. cit., p. 43. 2W. W. Garner and Others, "Superior Germ Plasm in Tobacco," Yearbook of Agriculture 1936, p. 816. ^Killebrew, op. cit., p. 729. 5Ibid., p. 504. ^Floyd, op. cit., p. 501. Gage, op. cit., p. 43. MIAMI VALLEY TOBACCO DISTRICT IN 1869 Red lane encloses ch ief a rr a A MERCER : a. < #- ^jo ,A“-.^000 oil j a y i r RANDOLPH of product a'on u g l a iz e : j a. I 6s . /, OOO i ! L Ocj/q EL6Y DARK I C ^ ^ M p /q,<5N) I ' ooo VAVNE MON ; u n i o n i B U T 12 Cl i n t o n a . i 30 IAs. !jOOO TotaJs - •8 6 9 |a. 5,^58 j/6s.5,212^000 a- - acrej harvested, l b s . — pounds p ro d u c e d S o u rce: Ninth Census of the U.S. 1870. V. H I, pp. 140-1+, 22.^ 0, a n d Annual 'Report of Ohio State Board. of A^rifi Jture, 1B69 . PP -573-6 Piq- I MIAMI VALLEY TOBACCO DISTRICT IN 1909 Red line enc-loses chief area of production *1 t— t A U G LA IZ.E CL. 9 5] m e r c e r . ■ / 4-7 ibs.zii., j a y CL. a. I6s . I 2.,O O O <*■3 Y j| ^ <* 3 O OrA NJ | I ib s . & % o o o 2,ooo RANDOLPH CL. 69 /< -> '5■65, G O O J i WAYNE MONT /6s. Z Q ^ O O Q IU n i o n I > a .2. I j /6s. /, O O O U/AFLFLE V T o ta ls ja . 72, y I t s . •9 0 9 o 3 5 5 , ^ 3 2 ., OOO T U C K Y cc - curea, h c L r v e s b e d lb s ~ p o u n d s -Scale - rni Ids pt-ocLuucecL \3 o a rc e . Thirteenth) Census of the U.S^ 1910 , Vo/ 3ZH fp .^ -5 8 * 6 , ^92- •S’OO MIAMI VALLEY TOBACCO DISTRICT IN 1934 Re_d line encloses c h ie f T• <! 2 Ja y , a..2 0 | of production A u g la iz e .J. MERCER 1 ; ° <|j | q !° j ^1---------- !T Ra n d o l p h area, I ---------- I j r v /oo Itos./6,000 I I W A YNET a. 4165.ij000 CL.3 1 1t > s . Lr/lL'fNt' 6 5 . /, 59,000 .UNION Q..13 3, 0 0 0 3 M ONTGO 1 i-OGyA/V 1 I /OS '3,000 ---------B U T L E R C LI N T O N a. 6 3 4 T o t a b -i93^ | a. 13; S O 7 i>6s. 7^3/6,000 TUCKY ao a.- a c r e s h a r v e s t e d lbs.- p o u n d s h a r v e s t e d .S o u r c e : 1J .S . C e n s u s S c a l d o R A t j r i r i J tu J -e ■ 1935. Flo . 3 V o l. X , - cn 3.0 i les pp. I I 2. e, I3 P - 'P I 12 1933 to the present time (1940).1 Development of Production The cultivation of tobacco spread from its early center in Montgomery county into all the surrounding coun ties. In a few years following 1850 it was introduced suc cessively into Greene, Warren, Preble, Miami, and Darke countibs. p With the development of the district the center of production gradually shifted to the northern part of the district. The maps on the preceding pages show the extent and shape of the chief area of production at three selected dates. The volume of production by counties is also indi cated. The graph on page 14 shows the general trend of production in the district since 1863. Both acreage and Based on surveys made by the writer while with The Ohio Cigar Leaf Tobacco Growers Marketing Association (1933-1935), and on statements of several dealers interviewed in August 1938 and August 1939. 2Killebrew, op. cit., p. 726. ^Reliable figures on acreage and production are difficult, if not impossible, to secure. The task becomes extremely hazardous when the period covered is long and several sources have to be used. On many points no data are available for the years before 1909. Information for the years after 1919 is more complete and can be used with greater confidence than that for previous periods. Reports of state and federal agencies and personal records and estimates of dealers and brokers were the sources of the data used throughout this study. A table of the production and acreage figures used in Figures 1-4 and a list of the various sources of data on production in Ohio 13 pounds harvested are presented to provide a better picture of the trend. Weather conditions may result in a production entirely out of line with normal yield and so give an errone ous impression of the trend. At the same time acreage alone is not sufficient, for its trend may be influenced to a cer tain degree by the pounds produced in previous years. For example, a high acreage with a low yield in one year may lead to an even higher acreage the following year. Of course it is the pounds produced which are Important to the and Indiana are presented as Appendix A. The figures from these various sources were compared and effort was made to secure comparable data for the whole period to be used in the graphs and statements herein. The figures reported by the states were obtained by the township tax assessors. It was revealing and also astonishing to find that the figures published by the federal government were consistently above those reported by the states by about the same percentage for every year. In fact at seven points of comparison from 1869 to 1934 the federal figures were the larger within the range of 16% to 20%. The figures of the Bureau of Census and the U. 8. Department of Agriculture are used as the basis in this study for they seemed likely to be more reliable and consistent, especially for the latter part of the period which is of most concern in this study. Since the general trend rather than exact amounts is the concern here, the figures obtained are considered adequate. Some support for the use of the figures for this purpose is found in the following statement of the Ohio State Board of Agriculture In the Annual Report of Ohio State Board of Agriculture. 1864, p. cii. The correctness of the returns made of crops has been doubted by many very excellent citizens of the state and held by them as mere ’guess work’. No doubt they are not precisely correct in every respect, but they have one merit at least, and that is that they have been uniform,* when there is a good crop it never fails to be indicated in the returns, and a poor one is equally certain to do the same...........Upon the whole we are inclined to believe that the crop returns, as made in the state of Ohio, are as nearly correct as the returns of merchandise, capital in vested in trade or manufactures, and more reliable than the returns of personal property generally." 14 15 market. Figure 1, page 9, shows the district in 1869 when total production had reached approximately five and onequarter million pounds. From 1850 until the opening of the Civil War expansion had taken place at a rapid rate. Dur ing 1861 and 1862 the disturbance of the war cut production to about 750,000 pounds from the previously attained peak of nearly four million pounds. In the following year, in re sponse to a great demand and some adjustment of the economy, production rose to nearly fifteen million pounds. A combi nation of an oversupply on the market and special taxes the next year reduced it sharply to about two million pounds from which level it rose gradually until 1869. At this date large scale cultivation of the crop had not spread very widely from the vicinity of its introduction, for over 70% of the total pounds was grown in Montgomery county. A bumper crop in 1871 marked the beginning of a new high level of production which, with various fluctuations, showed only a slight tendency to rise until about 1898. Following this date an expansion began which led to the peak production in 1917 when, under the influence of a war market, about sixty-two million pounds were produced. Figure 2, page 10, shows the district in 1909 near this point of greatest expansion* The extension, after 1869 of large sbale production to the surrounding counties is shown by these facts: Darke county now produced nearly as much as ^Killebrew, op. cit., p. 726. 16 Montgomery county which had multiplied Its output five times; and Miami, Preble, and Warren counties each grew far more than the whole district had at the earlier date. After the World War there was a contraction in pro duction which, in general, has continued since 1920, although there is some indication of a slight Increase in 1939. The reduction up to 1939 is indicative of the difficulties which the district has experienced. These troubles have been instrumental In leading to the formation of cooperative marketing associations. Figure 3, page 11, shows the production by counties in the district in 1934. The chief area of production had now shifted to Darke county with Montgomery second and Miami third. The northern part of the district had become more important than the southern part. This was reflected in the locations chosen for headquarters by the cooperative associ ations organized in 1923 and 1931. The first had offices in Dayton in Montgomery county while the second established itself in Greenville in Darke county. Since 1933 annual production has averaged about fifteen million pounds. The agricultural program of the federal government in this period has greatly influenced production. The plan to in duce farmers to grow less tobacco has meant a sharp curtail ment in acreage and pounds produced, as shown In Figure 4, page 14. The continuation of the program on about the same basis has tended also to stabilize production at the lower level• 17 Diversified Farm Economy Tobacco is part of a diversified farm economy in the Miami Valley as it is also in the cigar leaf districts of Wisconsin and Pennsylvania.^ other crops* It is grown in rotation with The usual three year cycle is tobacco, wheat, and hay or pasture# Because tobacco is soil depleting it usually requires heavy applications of commercial fertilizer or manure and it is almost never grown on the same ground two years in succession. Tobacco has been an important money crop in the district. Its ranking as a source of cash income and the diversified nature of farming in the district are shown in the table on the following page. Figures are given for the five counties which in 1929 accounted for 97.6% of the tobacco grown in the district* The year 1929 was not an exceptional year for tobacco production. The pounds were low but the price was a bit above average with the result that the value of the product was about average for the period 1921-1931.3 The diversity of the economy is shown by the fact that in only one of the counties does one source provide ^E. Ela, "Selling and Price Problems in Northern Wisconsin Cooperative Tobacco Pool,” American Cooperation 1925, I, p. 513. 2W# Frear and E. K. Hibshman, The Production of Cigar Leaf Tobacco in Pennsylvania. U. S. Department of Agriculture Farmers Bulletin "4ld, "p. 7* 3 U. S. Department of Agriculture First Annual Report on Tobacco Statistics, p. 15. 18 as much as one-third of the cash income. Although tobacco occupies a position of great impor tance in only Darke, Montgomery, and, to a lesser extent, TABLE 1 ESTIMATED PERCENTAGE OF GROSS CASH INCOME FROM SALE OF TOBACCO AND OTHER PRODUCTS ON OHIO FARMS BY SELECTED COUNTIES FOR THE YEAR 1929* Darke Source Hogs Tobacco Dairy Poultry Wheat Cattle Other % 29 20 15 15 10 4 7 100 Miami Source Dairy Hogs Wheat Tobacco Poultry Com Other % 19 15 14 14 12 10 16 100 Montgomery Source % Dairy Tobacco Poultry Wheat Hogs Cattle Other 28 23 12 12 12 5 8 100 Preble Source % Warren Source % Hogs Dairy Wheat Poultry Tobacco Cattle Other Dairy 28 Hogs 27 Poultry 13 Wheat 9 Tobacco 8 Cattle 6 Other 9 100 38 15 12 11 9 9 6 100 R. E. Strazheim and J. I. Falconer, The Estimated Gross Cash Income From the Sale of Agricultural Products from Ohio Farms by Counties--1929. Ohio State University and Ohio Agricultural Experiment Station Mimeograph Bulletin No. 27, pp. 6-10. Miami counties, it has, as the accompanying table shows, a very real part in the farm economy. It has played an impor tant role in the prosperity of this district. The average gross cash income per acre in 1929 for the five counties listed in the table was $21.80. This appears very favorable in comparison with an average of $18.24 per acre for eight surrounding counties which produced smaller quantities of tobacco, and with the state average of $15 per acre.-** -^Strazheim and Falconer, op. cit.. pp. 6-10 The 19 above-mentioned decrease in production of tobacco since the World War1 has necessitated difficult adjustments in the economy* The farmers have had either to find new crops or to expand the production of old ones. New methods of farm ing and new routines have had to be learned. Old tools and equipment, such as the curing sheds, have had to be disposed of or converted to new uses. Markets have had to be found for the products to which the farmers have turned. The transfer has been slow and painful. The majority of the farms in the district vary in size from 20 to 200 acres. The average in 1934- for the five leading counties was 78.7 acres, in comparison with a state average of 89.6 acres.2 In recent years tobacco growers in the district have each raised an average of about four acres — 4.3 acres in 1924 and 3*4 acres in 1934.-^ This average is much smaller than it was at the peak of expansion of produc tion. Some growers raise less than an acre while a few attempt as much as twenty or twenty-five acres. Very few have raised as much as ten acres in any one year since 1933The small quantity of tobacco produced by each grower has created several problems for the cooperative marketing asso See page 16. 2U. S. Census of Agriculture 1935. Vol. I, pp. 100107. 5Ibid., pp. 112-118, and U. S. Census of Agriculture 1925. Part I, pp. 367-378. ^Based on records of The Ohio Cigar Leaf Tobacco G-rowers ’ Marketing Association, Brookville, Ohio, and on personal experience of the writer. 4 ciations• In the first place, a large number of members have to be secured to furnish a sufficient volume of tobacco to make efficient operation possible. Secondly, the many individuals with whom the associations have to deal make it more difficult to maintain membership contacts and loyalty. The general mechanization which has taken place in farming has not altered the intensive cultivation and the great amount of manual labor required in growing tobacco. These factors have come to be of great importance in connec tion with the decrease in the size of the family, with the tendency of farm youth to go to the cities, and with the problem of securing farm labor for seasonal work. The district is free from the problems of sharecropping, lack of diversification, extremely low incomes with their accompanying perpetual crop debts, and low educational standards which have characterized some other tobacco districts. These problems have been important in the Kentucky-Tennessee and the Virginia-Carolina districts where they have presented difficulties in the formation and operation of cooperative marketing associations.^ Although tenancy exists in the Miami Valley it has not been of such a nature or amount as to influence the possibilities of co operative marketing. J. J. Scanlan and J. M. Tinley, Business Analysis of Tobacco G-rowers Cooperative Association, U. S. Department of Agriculture Circular No. 100, pp. 23-26, and A. Sapiro, “Rolling Their Own,” Survey. Vo. 50, April 1, 1923, P* 15- CHAPTER II THE MARKET AND MARKETING METHODS Since about 1900 the market for Miami Valley tobacco has undergone certain changes which have created problems for the producers and have played a part in the cooperative marketing movement* Most important among these changes have been an increase in the competition from other tobacco dis tricts and a decrease in the demand for cigar leaf tobacco* As was indicated in the previous chapter on production of tobacco, the tobacco grown in the district is used primarily for fillers for cigars with a small percentage used in other manufactured products and in non-tobacco items* The cigars made from Miami Valley tobacco are almost entirely Class A cigars, those selling for five cents or less* Competition with Other Cigar Leaf Districts In supplying the raw material for cigars and other tobacco products, the Miami Valley district has met a certain amount of competition from the cigar leaf tobacco grown in the Connect!cut-Massachusetts, the New York, the Pennsylvania, the Georgia-Florida, and the Wisconsin-Minnesota districts and in Puerto Rico, Cuba, and the Philippine Islands. The locations of the districts in the United States are shown 21 22 CIGAR LEAF TOBACCO DISTRICTS M INW. W»5C 52 . 6 / JO W VA OHIO MO- TENN AKK WIW. ALA. yp«s W?nn. Seed leaf Crehhardt •Spanish D>-ttch G ffl - Tjfl. 5uriC|^ow Binder Typas Conn. oroadJeof «&62. Conn HavCLna S e e d NY' Pa Havana O. W>5C No Wise Wrapper Typ«s Co o p . Shadeorown Adapted U.S. Dept. from m a p in A onua.I R eport on Toba-ciO 5tatisti«-S, 1939, P- 2. Fig. 5 23 on a map on the preceding page. The amount of this compe tition is limited to a degree by the differentiation which occurs in the leaf in each district as a result of adapta tion and cultivation.^ The Miami Valley and the Connecticut Valley districts are unusual in having three different types of cigar tobacco which can be grown i n t e r c h a n g e a b l y T h i s means that within the districts there can be a certain amount of shifting, which is advantageous for the growers of the district. However, in view of the differentiation just noted this shifting is not important in the competition among the districts. At the same time certain of the types grown in different districts are near enough alike in essential qualities to permit some substitution of one for another in the manufacture of tobacco products. The most important competitor of the Miami Valley district and at the same time the most important district in the production of cigar leaf is the Pennsylvania district. Lancaster county, which is the largest producer of any type of tobacco in the United States,3 and York county form the main portion of this district. The cultivation of tobacco was begun there as early as 1689, but it made very little progress until about the time production started in the Miami Valley in 1838*^ Until ■^See pp. 4-6. 2G-age, op. clt., p. 65* ^1bid., p . 42. ^Floyd, op. cit., p. 501. 24 1875 the two districts produced nearly the same quantity of tobacco each year* About; that time there developed in the Pennsylvania district an expansion which resulted in an average- production approximately twice that of the Miami Valley district in the years preceding 1900# Then a period of expansion in the Miami Valley area raised its production and the two districts once again grew about the same amounts. In several years between 1900 and 1917 the Miami Valley district surpassed its rival* The peak of Pennsylvania production was reached in 1918 with a total of about seventy million pounds* Since that date it has kept its commanding position by producing, on the average, two-thirds of the tobacco grown in the two districts* A reduction similar to, although not as great as, that in the Miami Valley area took place after the close of the World War, but the contraction did not assume very great proportions until after 1930*1 The tobacco grown in the Pennsylvania district is classified as Type 4l, Pennsylvania Seedleaf or Broadleaf* It is a cigar filler tobacco similar to Types 42 and 43 grown in the Miami Valley, but is of a somewhat finer texture ^To compare Pennsylvania production as indicated in these statements with that of the Miami Valley see Figure 4, page 14, or Appendix A, Table I. Data on Pennsylvania pro duction are subject to the limitations mentioned for Ohio and Indiana, in footnote 3, page 12. For this study refer ence was made to the following sources: Pennsylvania Depart ment of Agriculture, PennsylvaniaJ s Farms, Crops, and Live stock. 1926, Bulletin ^45, p. 101; U. S. Department of Agriculture, Annual Report on Tobacco Statistics, First, p* 14, and 1939, p. 9 1 U. S. Bureau of Census, Census of the United States. Ninth to Fifteenth; and statements and figures in personal letters from Dr. W. S. Beach, Plant Pathologist, Pennsylvania State College. 25 and thinner leaf.1 Because of the similarity and these advantages it offers serious competition through the possi bility of substitution to a considerable extent in the manu facture of cigars. MA large or small production in either one of these areas naturally has an influence on the price received in the other area."2 The tendency of smokers to prefer a lighter smoke has favored the milder Pennsylvania tobacco. The G-eorgia-Florida district raises some cigar filler tobacco, Type 45. Production has never been large, averaging about one and one-half million pounds since 1919.^ This has been approximately 6% of the amount raised in the Miami Valley. The differences in texture and aroma of the tobaccos prevent any appreciable competition.^ The Wisconsin-Minnesota area, producing Types 54 and 55, is a competitor chiefly in the scrap chewing tobacco market. Ordinarily about 70^ of the crop is used for the manufacture of chewing tobacco and 30^ for the manufacture of c i g a r s . 5 on the average, 80^ of that used for cigars is 1Gage, op. cit., p . 42. 2C. R. Arnold, The Tobacco Situation. Report of the Agricultural College Extension Service, Ohio State University, Jan. 11, 1932, p. 1. ^Based on figures of production given in the U. S. Department of Agriculture, Annual Report on Tobacco Statistics, First, p. 15, and 1939. p. 9* 4 i G-agef QP* cit., p . 45. 5w. Collins and H. H. Bakken, The Cooperative Tobacco Marketing Situation in Wisconsin, Farm Credit Administration Special Report 19^ 5. 26 for "binders and 20$ is for fillers. These percentages vary widely depending on the favorahleness of the growing season. In a poor crop year there are few binders, a higher percent age of fillers, and a very high percentage of scrap or Grade X. Type 55, raised in northern Wisconsin and in Minnesota, averages a higher percentage of binders than does Type 54.1 The proportion of the crop used as cigar fillers— about 6%--has meant an average of approximately two million pounds a year for this purpose. Although this is a rather small quantity, only Q% of the average production in the Miami Valley since 1919, It is sufficient to furnish some competition for the Miami Valley tobacco.^ Type 43 of the Miami district Is most seriously affected, for its flavor and aroma are similar to those of Types 54 and 55. Grades X and S of the tobaccos of the two districts are in most direct competition. The Wisconsin-Minnesota district dominates the market in supplying the manufacturers of chewing tobacco. The Miami Valley furnishes a relatively small amount, from 10$ to 25% of a year's crop, for this purpose. As a result the price of scrap leaf tobacco Is determined very largely by conditions in the WisconsinMinnesota district.-* *^Based on figures of tobacco stocks given In U. S. Department of Agriculture, Annual Report on Tobacco Statistics. First, p. 82, and 19397 P ^ 7 » 2Personal letter from J. M. McCulloch, Viroqua, Wis., manager of Northern Wisconsin Co-operative Tobacco Pool, July 2, 1939. ^From statements by J . T. Landis, Pleasant Hill* 27 Although the quantity of scrap leaf tobacco grown in the Miami Valley district ordinarily is small, it is important to the producers as indicated in the following paragraph. The scrap-chewing industry is a valuable adjunct to the cigar industry for it provides the grower with an outlet for large volumes of leaf not suited for cigar manufacturing purposes# This is an important consider ation, for even in the most favorable season some tobac co, because of the position of its growth on the stalk or because of damage will lack the quality requisite for manufacture into cigars ; and in years of unfavorable growing conditions and times of hail injury the quantity of such low-grade tobacco may be great* Low as the prices for this so-called stemming tobacco sometimes are, they save the growers from partial or total loss Cof these l e a v e s ? .......... The prices paid for stemming tobacco are not always low. In years of scant supplies they may be high enough to afford actual competition for some grades usable in cigars.1 The grower in the Miami Valley has regarded his 11trash'* or Grade S tobacco as a significant item in his crop and his income. It is the first part of the crop ready to sell; and he usually tries to dispose of it in time to get money for Christmas shopping. In good marketing years this grade may bring from two to four cents per pound. Since 1930 the price has seldom been over one and one-half cents a pound. for it. In several years there have been no offers At various times movements have gained considerable strength to induce the farmers to return the trash leaves to the land as fertilizer and thus aid the sale of the better Ohio, secretary-treasurer of the Ohio Cigar Leaf Tobacco Growers Marketing Association, during the seven years the writer has had connections with the Association. ^Gage, op. cit., p. 37. 28 grades of tobacco by removing this potential competition from the market The cigar leaf tobacco grown in the Connecticut Valley district, Types 51, 52, and 61, in the New YorkPennsylvania district, Type 53, and in a small area in Georgla-Florida, Type 62, is used for wrappers and binders. As in the Miami Valley and Pennsylvania districts, a small percentage falls into Grades X and S. The amounts in Grade C are very small except when an unfavorable growing season makes a quantity of the leaves unsuited for wrappers or binders.2 In any event the competition has not assumed significant proportions in recent years. The competition among the cigar leaf areas is of long standing. In the following statement the Miami Valley appears at a disadvantage with the others as early as 1880 when Seedleaf was the leading type. The seedleaf of Ohio, which has been established in the Miami Valley for 40 years. . . . . has a permanent status in the market but is not generally sought except in seasons when superior quality has been attained in curing. It is not equal to the Connecticut or the Pennsylvania........ 5 Other authorities indicate a similar ranking at ^-This movement has been sponsored since 1931 prima rily by the Ohio Cigar Leaf Tobacco G-rowers Marketing Association, Brookville, Ohio. 2Based on figures of tobacco stocks in U. S. Department of Agriculture, First Annual Report on Tobacco Statistics, pp. 80, 81, 83* 3 j . R. Dodge, "Statistics on Manufactures of Tobacco,” Tenth Census of the U. S. 1880, p. 893* 29 that time.^- This position of secondary importance, to the Pennsylvania field in particular, seems to have continued since the early period. Although the Miami Valley types have heen accepted and established on the market, they seem never to have been very secure in their position. They appear through most of the period to have played a minor role in the market from which they frequently were in danger of being forced by the competition of the other types. The Miami Valley types have usually been on the defensive, fac ing competition from the other types, rather than on the of fensive, providing serious competition for the other types.2 *4cillebrew, op. cit., p. 746. Reporting a statement of a Mr. E. H. driest, Cincinnati tobacco dealer. p Based on the writer's study and experience in the field and on statements of several dealers and important producers interviewed during August 1938 and August 1939. It is extremely difficult to draw any conclusions about the relative standing of each district and about the changes in this standing. Fluctuations in production and consumption of the various types are occurring constantly but the trends are not very clear. Incomplete and inaccu rate data make a careful and reliable statistical analysis impossible. The productions in the two chief filler leaf districts— Pennsylvania and Miami Valley— were compared on pages 23-25 above./ Perhaps some indication of the position of the Miami Valley types in the whole cigar market is afforded by a comparison of the apparent amount of Miami Valley leaf used in manufacture each year with the total amount of tobacco leaf used in cigar manufacture each year. Of course these items do not cover exactly the same parts of the market but they are the best ones on which to base the calculation. Since the proportion of Miami Valley types which goes into cigars does not seem to have changed to any great degree, any trend revealed in such a comparison should show the change in the part which the Miami Valley tobaccos have had in the cigar market. From 1912 to 1921 the annual amount of Miami Valley tobacco used in manufacture averaged 34% of 30 Type 44, of the Miami Valley district, because of its distinctive qualities, has been practically free from compe tition from the other types but its market has been limited by the size of the market for the stogie style cigars. Competition from Imports Competition has come also from imports of cigar leaf and cigars from Cuba, Puerto Rico, and the Philippines. The table on the following page gives the imports for certain years since 1909.^The trends and fluctuations to be noted are the results of demand changes in periods of war and depression and of tariff regulations and revisions. Since the Civil War the general tariff policy has been to give increasing protection to domestic leaf and finished tobacco products. The importations from the Philippines show some effects of the total amount of tobacco leaf used in cigar manufacture. P o t 1922 to 1933 the percentage was 20^, and for 1934 to 1937 it was 15$. A similar comparison for Pennsylvania Type 41 tobacco for the same periods gives the following: 36%, 30%, 2b%. This supports the tendency noted in the comparison of productions. If any conclusion is Justified in view of the reservations already indicated it would seem to be that both of the main domestic filler districts have lost but that the Miami Valley has suffered the more severe ly. These calculations are based on the figures of produc tion, tobacco stocks and tobacco manufactures, found in U. S. Department of Agriculture, Annual Report on Tobacco Statistics, First, p. 86, 89, 1938, 7oland 1939, p * 7 1 J J. V. Morrow and Dudley Smith, Tobacco Shrinkage and Losses in Weight in Handling and Storage, pp. 53, 55; Gage, op. .cit., p. 46, and references in footnote 1, page 24 above. •l1909 is the first year for which data by classes is available. 31 the changeableness of the tariff policy of the United States toward the Islands* TABLE 2 IMPORTS OF CIGAR LEAF TOBACCO AND CIGARS IN SELECTED YEARS (unit 1,000 lbs*) YearJuly 1 1909-10 1913-14 1917-18 1921-22 1925-26 1929-30 1933-34 1937-38 Leaf Tobaceoe Cubaa 25,147 26,618 20,367 21,365 20,961 21,772 11,371 10,085 Puerto Rieob Cigars and Cheroots^ Philippines0 2,924 6,308 13,125 17,438 20,514 18,929 14,087 16,376 ' 7 32 7,323 504 1,129 4,007 1,925 5,395 Cuba Puerto Rico Philip pines (n<Dt repor :ed) 902 2,898 623 3,222 4,018 479 38ld 2,520 1,505 3,870 3,281 479 2,628 1,878 331 1,170 34 2,523 42 216 3,546 aStemmed and unstemmed filler leaves ^Stemmed filler leaves CA11 cigar leaf ^Contains about 6,000 lbs* from other countries eUV S- Department of Agriculture, Annual Report on Tobacco Statistics* First, pp. 114-117, and 1939* p. 100. ^Ibid, First, pp. 119-120, and 1939, P* 101. Cigars and cheroots may be converted from pounds to numbers on the basis of 1000 cigars or cheroots per 18 pounds. From 1902 to 1909 Philippine tobacco leaf and finished tobacco products paid an import duty which was lb% of the existing general rates on these products* this preferential treatment was discontinued* these items have been admitted duty free • In 1909 Since 1914 However, from 1922 to 1930 they were subject to the United States internal revenue tax. Imports of tobacco leaf and tobacco products from Puerto Rico have been free of duty since 1901. At the same time It should be noted that the federal farm program on tobacco since 1933 has applied to production in Puerto Rico. Since 1903 the tobacco imports from Cuba have gener ally been charged duties 20% below full rates. A trade agreement with Cuba, in effect from 1934 to 1936, applied special rates and quotas on imports.1 In 1939 a new agree- merit on rates was placed in effect Type 81 tobacco from Guba is mainly wrappers with some small percentage of fillers. The cigars from Cuba have been mostly of the higher grades and so have not competed with the products of Miami Valley tobacco.3 Type 46 from Puerto Rico and Type 83 from the Philippines are mostly filler or Grade C tobaccos. Their finer texture and milder flavor and aroma have given them advantages over domestic filler leaf. Low production costs in those territories have enabled them to enter the market in the United States.^ Although the amount imported each year has remained about the same in the period since the 1 Summary on Rates of Duty on Tobacco Imports into U. S. is given in U. S. Department of Agriculture, Annual Report on Tobacco Statistics, First, pp. 121-122, and 1939, pp. 102-103. N e w s w e e k , Jan. 1, 1940, p. 43. 3L. M. Coleman, U. S. Tobacco and its Market. U. S. Department of Commerce, Trade Information Bulletin No. 757, pp. 4, 12. 4 Ibid. 33 World War, it should ho noted that this average quantity has been equal to the total produced in the Miami Valley and that it has not declined as has the production in the latter district. The cigars from Puerto Rico and the Philippines compete directly with those made from Ohio and Pennsylvania tobaccos— with the exception of Type 44, The amount imported since the World War has fluctuated rather widely, as shown in Table 2, with some indication of a level being estab lished since 1929* There appears to be a tendency for the imports from the Philippines to expand to make up for the reduction in the imports from Puerto Rico resulting from a decline in cigar manufacture t h e r e A s in the case of cigar leaf these imports have come into a market which has been declining. Decline of Cigars To the competition from other districts and from imports has been added the even more serious damage result ing from a change in the taste of smokers. The cigar, which provides the main market for Miami Valley tobacco, has been declining in smokers' favor. Figure 6, page 35, shows the amount of leaf tobacco used in the manufacture of cigars by years since 1900. The decrease after 1920, becoming very pronounced after 1929, reveals the market loss which has had 1Chas. E. Gage, The Tobacco Industry in Puerto Rico, U. S. Department of Agriculture, Circular ^fo. 519, P* 4-5. 34 to be faced* It must be remembered also that with impor tations of filler leaf remaining about constant in this P©**iod, the Ohio and Pennsylvania districts have had to share a decreasing percentage of a diminishing amount* TABLE 3 PER CAPITA CONSUMPTION OF TOBACCO PRODUCTS IN SELECTED YEARS* Year Cigars 1902 1906 1910 1914 1918 1922 1926 1930 1934 1938 no. 77.7 84.4 76.7 75.3 72.0 65.7 59.7 50*1 38.4 40.9 Chewing Tobacco lbs • 2.59 2.62 2.71 2.40 2.26 1.94 1.76 1.35 .91 .90 Smoking Tobacco lbs. 1.20 1.55 1.76 1.72 1.75 1.53 1.43 1.32 1.52 1.45 Ciga rettes no. 33.6 A4»5 93.7 168.5 366.0 487.5 767.6 972.0 992.0 1,256.9 *U. S. Department of Agriculture, Annual Report on Tobacco Statistics 1939. p. 7& • When population changes are taken into account the loss In popularity of the cigar becomes even more pro nounced as shown in the accompanying table of per capita consumption of tobacco products. The decline in the consumption of cigars is in marked contrast to the rise in the consumption of cigarettes. Although the Miami Valley district is not primarily concerned with the chewing tobacco market, the fall in consumption of 35 •70 I 70 160 (60 150 (30 IOO 1900 °8 02. Flg.6. LEAF TOBACCO USED IN MANUFACTURE OF CIGARS ( S o t t r c e : U - S . D e p a r t m e n t c f AcjricxilOure, A nr illoJ R epo rt, on Tobacco 'Statistics. P~j r s t j p .S 9, >938j p. 7fc* D o - ta f o r <93 7 la s t a v a ila b le .) ' Cigarettes 192.4 190 0 * PERCENTAGE OF LEAF TOBACCO USED IN CIGARS, CIGARETTES AND OTHER PRODUCTS* 1937 O t h e r pracUxctvs inc.lu.ct.es cbevvi'rm and. s m o k in g toba-cco a n d . s n u f f ( S o u r c e ■ L). S . D e p a r t m e n t of" A a r ic u J tu r e j A n n u a J R e p o r t on Tobacco v S ta tis tie s , First, p.8§, < 9 3 6 , P-76 ; Pi,. 7 36 chewing tobacco, shown in the table, has curtailed the mar ket for the lower grades of Its tobacco. Since only a very small quantity of the Miami Valley types is used in manufac turing smoking tobacco, the slight changes in the per capita consumption of smoking tobacco— constituting an increase in total amount consumed on account of population increase— is of no importance for the Miami Valley producer. A further indication of the change in smokers’ taste is given in Figure 7, page 35 ■ The proportions of the total amounts of* leaf tobacco used in these selected yeans in the manufacture of the various items reveal the trend away from cigars and chewing and smoking tobacco to cigarettes. The Miami Valley has been unable to get any part of the ciga rette market, for its tobacco is unsuited, so far as present curing and processing methods have developed, for use in cigarettes. Agitation by cigar manufacturers and growers to stimulate cigar consumption1 has not been able to reverse or even stay the trend. Introduction of new styles of ci gars, such as small cigars, have at times provided some hopes, which, however, have been short lived. 1Typical of such agitation was the plan of a group at Dayton, Ohio, to sponsor "National Cigar Week" in 1925. On one day of the week designated, shops were to give a cigar to every man who came in. Older men were to be urged to pre sent cigars to the young smokers with the comment, "Have a cigar. It’s manly1’. In 1934- another group distributed placards bearing the slogan, "Boost Your Own Business— Smoke Cigars Made from Ohio Tobacco" . The tobacco manufacturers and farmers generally were opposed to prohibition for they feared that the next attack by the prohibition forces would be made against the use of tobacco. 37 The change to cigarettes has been accompanied by a preference for milder cigars. This has favored the Pennsylvania, Puerto Rican, and Philippine tobaccos and has encouraged their use in place of Miami Valley tobacco. Although Type 44 has no competitor in another type of tobac co, it has suffered because of the loss of popularity of the highly flavored stogies in the production of which it is used. In recent years this decline has been very serious. The market is restricted pretty largely to the steel mill and coal mine workers in the Pittaburg-V,'heeling district.1 The shift to cheaper cigars since the World War2 would seem to favor the Miami Valley types. No definite information appears to he available on this point* However* it would seem likely that it has meant a greater opportunity for Philippine tobacco and has forced down the price of the tobacco formerly used in higher priced cigars without ex panding the market for the Ohio tobacco.3 Exports of Cigar Leaf and Cigars The export market has not been of great importance for the tobacco of this district.^- Lack of data by classes ^From statements by J. T. Landis, op. cit. 2 Shown by withdrawals of various classes of cigars in the records of The internal Revenue Bureau, reported in U. S. Department of Agriculture, First Annual Report on Tobacco Statistics, (1937), pp. 91-99. ^Agreeing with the trend noted in footnote 2, p. 29. ^Coleman, op. cit., p. 4. 38 of tobacco for years prior to 1923 prevents a determination of the quantities of cigar leaf exported before that time. Since that date exports of all types of cigar leaf have never exceeded 4.4 million pounds (1928-1929) and for the period July 1, 1923 to July 1, 1939 averaged 1.6 million pounds each fiscal year.^- The amount of this which came from the Ohio area is not a matter of record, but it would appear to be very small. An important part of this export is binder and wrapper leaf sent to the Philippines to be used with Philippine fillers for cigars^ many of which are imported into the United States. At certain periods in the earlier history, exports seem to have attained considerable size although the precise condition cannot be determined. The situation about 1880 is described as follows: Ohio Seed-leaf is a favorite for export to Germany, and a small quantity is taken experimentally in France. The average export amounts to between 20,000 and 30,000 cases, and it has happened, when there has been an accumulation of stocks, that 70,000 cases have been exported in a single year.3 This would indicate annual exports at that time ranging from approximately 6 to 21 million pounds.^ The 1U. S. Department of Agriculture, Annual Report on Tobacco Statistics. First. p. 113* and 1939a P« 98* 2U. S. Department of Agriculture, Annual Report on Tobacco Statistics. First, p. Ill, and 1939, p* 97; and statement by Ghas. E. Gage, of the Department of Agriculture, in a personal letter of Dec. 22, 1939• •^Killebrew, op. cit.. p. 746. ^A case of Miami Valley tobacco ordinarily weighs 300-350 pounds net. 39 lower figure would have been nearly one-half of the average annual production in the district, while the larger amount would have exceeded the total production in all hut a few years before 1880* it would seem that the exports mentioned had particular reference to the seedleaf raised in Medina and Wayne counties in north central Ohio. These counties raised a type of seedleaf which in the curing process de veloped a mottled effect which made it much in demand for export.1 However, the total production in this Wayne-Medina district appears never to have been over a few million pounds, and by 1900 had declined to a relatively small p amount.^ The report indicating that as late as 1910 one-half, of the Miami Valley crop was exported^ would appear inaccu rate unless it referred to only a few .years. .11* E. Stern, tobacco broker of Dayton, Ohio, stated that, exports have been of considerable size only in occasional years since the beginning of the century, and certainly would not average more than a few hundred cases each year since the War.^ All indications are that the export market has not been an important item in the history of the district since the World War and is most unlikely to provide an outlet for the 1Killebrew, op. cit., p. 601. ^Based on figures given in Ohio State Board of Agriculture, Annual Report of Ohio State Board of Agriculture9 volumes from 1§63 to 1909 « ~~ ^Dayton Daily Hews, Feb. 25, 1910, p. 4. ^Personal interview, Aug. 28, 1939. 40 product In the foreseeable future. The exports of cigars have not been large in compar ison with the imports# The average annual export from July 1, 1908 to July 1, 1939 was 268,000.pounds• The only great variation in the period was the peak from 1917 to 1921 when an average of 765,000 pounds was exported# A lesser peak of 396,000 pounds was reached in 1937-1938#1 There is no way to determine how much of the exports was Miami Valley tobacco, but it would not appear to be of such size as to be Important in the market# Relation of Production and Consumption Further light on the general market condition faced by the district is provided by a study of the relationship of the production of tobacco to the quantity taken by the outlets investigated above. An indication of the quantity taken is given by the figures showing the disappearance from the market.2 The relationship over a period of years ^U# S. Department of Agriculture, Annual Report on Tobacco Statistics, First, p. 144, and 1939» p. 99* 2 Disappearance includes all withdrawals from the supply of leaf tobacco on the market both for export and for use by domestic manufacturers. Its computation is made from the U. S. Department of Agriculture reports of tobacco stocks on hand at designated times. To the production for a given year is added the stock on hand at the beginning of the mar keting year— October 1 in the case of Miami Valley tobacco— to secure the total available supply. From this figure the stock at the end of the period— October 1 of the following year— is subtracted to secure the disappearance for the mar keting year. These are at best approximations. Production figures are mainly estimates. The stocks held by small manufacturers and dealers are not reported. The pounds 41 between the consumption thus indicated and the production shows the adjustment which has prevailed in the market for the tobacco* If production exceeds consumption the excess becomes part of the stock carried over to the succeeding year* If the situation is reversed, the stock carried over to the following year is reduced. Figure 8, page 42, pre sents a comparison of production with disappearance in cor responding marketing years.1 So many forces, such as the weather and the prospective prices of tobacco and of alter native crops, influence the amount of tobacco grown in a year that any attempt by statistical methods to establish a cause and effect relationship bdtween these two factors would lack scientific basis. Any adjustment between pro duction and disappearance could not be expected to occur Immediately, but because of the other factors involved and reported may be stemmed or unstemmed tobacco and may or may not allow for shrinkage. A particular problem arises be cause the quantities held by farmers are not reported. This means that in years such as 1930 and 1933 when farmers hold their crops, the stocks at the ends of such years are under stated and the disappearance for the year overstated. When this accumulated supply is sold and reaches the dealers to be reported as stocks, the disappearance for that year is understated. Unfortunately no other method of finding the amounts consumed each year appears to be available. The reporting of stocks by types began in 1912. Various revisions have been made to secure greater accuracy. The latest re vision occurred in 1936. (U. S. Department of Agriculture, First Annual Report on Tobacco Statistics, note 1, p. 88) . 1Thus 1919-1920 refers to 1919 production. This means that tobacco produced in 1919 and harvested by October 1, 1919 is reported in the period Oct. 1, 1919-Oct. 1, 1920 to correspond with the marketing period for that year’s tobacco. No overlapping with 1920 production is involved since a crop, though harvested by October 1, is not ready for the market until the first of December at the earliest. 42 43 the limitations of the data no attempt was made in the graph in Figure 8 to allow for lag. Although rather large differences appear between production and disappearance in certain years, a general tendency for the two to move together is evident.1 As disappearance tended to decline from 1915 to 1925, produc tion also declined, but its decline began in 1917 and con tinued until 1927* The rise after 1925 in disappearance was accompanied by an increase in production. In 1930 and 1931 production exceeded disappearnce, for while the latter was decreasing the amount grown was increasing. From 1935 to 1938 disappearance and production remained about constant with disappearance a bit the larger. The degree to which a close adjustment in this relationship between production and disappearance obtains is shown by a comparison of stocks on hand at the beginning of a marketing season with disappearance during the season. This is presented In Figure 9, page 42. Here is revealed any tendency toward exhaustion or accumulation of supply It seems unlikely that the actual fluctuations in the amounts used in domestic manufacture and in exports were as great as the changes in disappearance would indicate. The method which had to be used to find the amounts consumed is probably the cause of these wide deviations from a gen eral trend. Although the figures for disappearance in cer tain years.may be inexact, the trend shown for a period of years is a reliable Indication of the conditions in the market. The marked variations noted in production can be explained to a certain extent by the nature of the growing season. In 1927 and 1928 the yield per acre was very low while in 1930 and 1931 it was above average. (u. S. Depart ment of Agriculture, First Annual Report on Tobacco Statistics, 1937 P- 15•) 44 on the market because of the failure of production to follow consumption. From the two charts it can be seen that, while production tended to follow the decrease in disappearance after 1917, it did not do so rapidly enough to prevent the accumulation of a very large stock. This condition had been righted by 1929 when the same cycle was begun again. The curing process through which filler leaf must pass before manufacture requires about two years. This results in a normal stock two or three times as large as annual consumption* Analyzed in this way, the data used in Figure 9 show an average stock for the period 1912-1938 2*5 times average disappearance. The stock was far below average in 1913-1918, as production failed to expand as rapidly as consumption. The situation was reversed in 1933-1934 when stocks averaged 4.95 times average disappear ance. The average stock for 1935-1938 was 2.75, represent ing a decline from 2.87 in 1935 to 2.55 in 1938. This would indicate that the normal relationship between stocks and disappearance was being re stored. ^ Price and Farm Value of Tobacco The price received by the growers has fluctuated widely in response to changes in demand for the finished ■^It should be noted that these figures of tobacco stocks are given as of October 1 when the stock is the low est. The new crop is placed on the market soon after this date. Figures on production and disappearance for 1912-1938 are given in Appendix A, Table II. 45 17 2.1 ie '5 ,s •’ 19 AVERAGE PR.ICE (■for d ftta »< >3 *' yea^ crop*35 « OF M I A M I V A LLEY TOBACCO jw Appeodijc Aj T * 6te J t ) PoMari ■7 1909-1939 "Dol la r j i I I Ions ) lb C fVi;11 ions) year crops FARM VALUE OF TOBACCO CROP IN MIAMI VALLEY I90Q-39 (for da.to. t o o Append I* A , 7at>Je 3L) ' 46 products, in production and supply of the leaf, and in gen eral price level# The average price by years from 1909 to 1939 is shown in Figure 10, page 45.^ With the exception of the boom years 1927-1929, there has been a downward trend from the war prices. A comparison of price with the annual production shown in Figure 8 reveals tendencies both for price to lead production and for price to complement produc tion in good and poor years. Price changes can be associated to a certain degree with changes in the relationship of production to disappear ance and of stocks to disappearance as shown in Figures 8 and 9, page 42. When the ratio of stocks to disappearance was very low in 1915-1918 the average price was high. Of course another cause of this high price level was the World 'War. The price decline from 1917 to 1925 occurred while production tended to exceed disappearance even though both were declining. In the same period stocks were at a high level compared to disappearance. Again after 1929 when an excessive stock accumulated as production surpassed consump tion the price fell to a very low level. As the excess stock was reduced from 1935 to 1938 the price rose• What changes in price and production have meant to ■^These prices are the averages for fillers and wrappers for all three types together since prices are not reported separately for types and grades. Type 44 usually brings a higher price than the others and so compensates for a lower yield per acre. The 1909 figures are the earli est available from reliable sources. Data on price and farm value were secured fromj Chas. E. G-age, op. cit., p. 4o j and U. S. Department of Agriculture, Annual Report on Tobacco Statistics, First, p. 15, and 1939, p. 9. 47 the growers in the Miami Valley is indicated by the fluctu ations in total farm value of the crop shown in Figure 11, page 45* The peak in 1917 was the result of the largest crop produced and the highest price received per pound in the history of the district. The decline since that date has meant a great finan cial loss for the farmers and has called for a shift in the economy of the district. The shrinkage in the dollar value of the tobacco crop from the pre-war level to the post-1929 period was approximately 7 0 When the decline in the pur chasing power of the farmer* s dollar from an index of 100 in 1910-1914 to an average of 79 in 1930-19381 is taken into consideration, the shrinkage in purchasing power from this source between the two periods was approximately An index of 117 in 1917 had accentuated the abnormal income from tobacco in that year and made the subsequent decline in dollar income more noticeable. The amount of income from tobacco even in the later years gives evidence of the importance of this crop to the district. The decline in that income has been a factor in the cooperative marketing movement. In addition, the stand ing of Miami Valley tobacco in competition with other types and the decline in consumption of cigars have not only influ enced the formation of cooperatives but have had a decided bearing on their operations. •^Figures for the purchasing power of the farmer's dollar by years from 1910 to 1938 are given in Appendix A, Table II. 46 It is significant that cooperative marketing associ ations were started in the two periods, 1920-1925 and 19291935 when stocks were excessive, production exceeded con sumption, and prices were low* The growers turned to co operative marketing as a possible means of escape from or remedy for the situation.1 Marketing Methods The country-buyer system has dominated the marketing of Miami Valley tobacco as it has that of cigar leaf in the other districts.2 Under this system the buyers visit the farms and purchase the tobacco in the growers* sheds* There are three types of buyers: the agent or representative of the manufacturer, the dealer or dealer’s agent, and the independent buyer. The independent buyer, sometimes called the local buyer, is a merchant middleman, but he ordinarily operates without making a very large investment. He has no storage or processing facilities of his own and expects to turn his contracts at a profit to a dealer or manufacturer by delivery time. Thus, he frequently has no investment except his trav eling expenses and such payments as he may make to bind the contracts.^ His most important function is the assembling ^This significance will be seen in the consideration of the cooperative associations in later chapters. p Gage, op* cit., p. 78. ■^This is very rarely done. Occasionally the buyer-- 49 of title to a sizeable quantity of tobacco by making con tracts with the individual growers* In periods of changing prices his risk-bearing function is very important* The independent buyer usually limits his activities to his local community• The tobacco dealer also Is a merchant middleman, but he performs more functions in the marketing process than does the independent buyer. According to the scale of his operations, the dealer does his own buying or employs agents to do it for him. He operates one or more warehouses in which to store and process the tobacco. He has usually re handled and resweated the tobacco before selling It to the manufacturer. In fact, he is often referred to as a packer. His activities may be confined to a local area or may cover the whole district or even several districts. Ordinarily he has made his profit from processing the leaf or serving as an assembling agency, rather than from engaging in specula tive buying. He does not manufacture any finished products. At times manufacturers depend on the dealers and the independent buyers for their supply, and at other times they place agents in the field to buy direct from the farmers. The very small manufacturers depend on the dealers since they can use only certain grades. Larger manufacturers any one of the three types mentioned— will use a small pay ment of to secure exceptionally good crops or to start the buying in the field when the growers are reluctant to accept the offered price. It is seldom an option payment. Usually it is a secret payment to Just a few growers and as such is a bonus above the price. In the trade It is re ferred to as "sweetening." 50 often use their own agents* Some buyers operate certain years as independent buyers and other years as agents for dealers or manufacturers. Which they do depends on the opportunity for profit in buying independently and on the commissions dealers and manufactur ers offer them* The agents of dealers and manufacturers are usually local residents who know the community and the tobac co growers and thus are in a position to purchase efficiently the types and grades of tobacco desired* Payment for the agent* s work is a commission of one-fourth to one-half cent per pound of the tobacco purchased. A drawing account is frequently provided so that no financing or risk-taking is done by the agent* In some instances the agent maintains his connections with the same dealer or manufacturer for many years, while in other cases the agent is employed by different firms in succeeding years, depending on which firms are active in buying in those years* During several periods cooperative associations have had a part in the marketing process* Because these associ ations ordinarily buy no tobacco but act merely as selling agents for the growers, they are not classed here among the buyers* In their other functions the associations resemble the dealers. The development of and the experiences with cooperative marketing are treated in the following chapters. Another middleman in the marketing process of leaf tobacco is the broker. He usually operates as a functional middleman between the dealers or the cooperative associations 51 and the manufacturers. He may serve either party, by locat ing a source of supply or by finding a purchaser. His charge may be based on the quantity or value of the tobacco, but customarily it is a flat fee of one dollar per case. Upon rare occasions the broker purchases the tobacco in his own MARKETING- CHANNELS OF MIAMI VALLEY TOBACCO Manufacturer's Agent Producer Manu facturer Figure 12 name and pays the seller from his own funds. He does this either as a speculation or as a device to conceal the iden tities of the purchaser and seller from each other. The broker is the most active middleman in the export trade. The marketing channels between the producer and the manufacturer are indicated in the accompanying diagram. relative importance of the different channels has changed The 52 during the history of the district. The dealer or dealer’s agent appears to have been the most important buyer in the early period, although how the country-buyer system devel oped in the district is not certain. It is reported that the crops grown about 1850-1852 were ’’all marketed in New York." No explanation is offered as to whether the produc ers or some middleman brought the tobacco to New York or how it was handled there« By 1880 the practice of dealers buy ing the tobacco in the country seems to have become estab lished. Three-fourths of each crop was said to have been bought and packed by the dealers.2 No mention is made of the manner of marketing the remaining fourth. After 1900 the Independent buyer rose in Importance and until 1953 shared the primary market with the dealer or the dealer’s agent.^ An exception to this was the crop years of 1923 and 1924 when a cooperative association was the most important marketing agent In the field. Since 1930 another cooperative association has been a minor factor in the market.^The most significant change which has taken place in the marketing channels in recent years has been the virtual disappearance of the Independent buyer and the decline in the Importance of the dealer and the dealer’s agent. 1Killebrew, op. cit., p. 726. The 2Ibid., p. 733* •^Personal interview with M. E. Stern, tobacco broker of Dayton, Ohio, Aug. 25, 1939. ^The part which these associations have had in the market is indicated in the following chapters. 53 manufacturer* s agent has become the dominant middleman. It is reported that at present (1940) only one independent dealer of any size, the National Leaf Tobacco Company, Dayton, Ohio, remains in the district. The five other deal ers of good size have practically ceased to operate on their own account. Instead, they now buy on commission for the large manufacturers. Recently manufacturers have tended to send agents from the home or branch offices to purchase the tobacco rather than to hire local tobacco men to do this work for them*1 Sale and Delivery During the growing season the buyer ”rides" the dis trict to keep informed on the acreage and the crop prospects. Particularly desirable crops are "spotted" for possible pur chase. In some instances elaborate records have been kept on the development of the crop. For a number of years one p large manufacturer with local offices used a wall-size map of the district on which individual farms were shown. With colored pins the acreage and condition of the tobacco crop on each were indicated. At the buying season the company's representatives were instructed to buy selected crops on the basis of its needs. Another guiding factor on which infor mation is kept is the care with which the different farmers 1Personal interview with M. E. Stern, op* cit. ^General Cigar Company at Miamisburg, Ohio, between 1925 and 1935* 54 handle their crops from cultivation to final packing. Past experience of buyers with a farmer and inspection at various stages of cultivation and handling provide this information. In a prime crop year when demand is strong the crop may be contracted in the field or at cutting time. This method, the farmers maintain, has never worked well for them. If the price rises later in the season, the grower loses. If it falls, the growers claim that many buyers manage to evade the contracts. Some of the methods buyers are accused of using to do this are: bluffing the farmer into a lower price; rejecting the tobacco on the claim that, because of improper handling or similar cause, it did not meet the con ditions set in the contract; failing to set a delivery date; or, in an emergency, resorting to bankruptcy. The independ ent buyer is criticized as the most serious offender, for he is often a speculator and does not have large financial re sources -1 Because of the lessened demand and the accumulated stocks very little field contracting has been done in the district since the World War. The normal sale time has been the stripping season in December and January. The buyer usually prefers to make the contract at this stage, for he has an opportunity to see the tobacco after it has been shed-cured and to observe the manner in which the farmer sorts and packs it. If the sale Personal interviews with various growers during August 1938 and August 1939, and the writer's experience in the district. ^After the tobacco is cut in August and September It 55 occurs either in the harvesting or stripping season, delivery is usually made upon completion of packing* This enables the buyer to place the tobacco (is^Jhis own warehouse where he can re-sort it, if he so desires, and can direct it through the very important spring sweat which brings about certain chem ical changes and loss of weight* 10$ of the farm—packed weight* This loss averages about The losses in the subsequent sweats are less, bringing the total to about 15^.1 Since 1930 the sale date has often been delayed until long past the usual season; and in some years buyers have not begun active buying until late spring or summer* This has meant that the farmer has had to stand the loss of weight and danger of spoilage in the spring sweat* Some farmers have refused to sell because of the price or have had no offers so that they have had as many as three crops on is hung in well ventilated sheds where it cures by a natural process* After it is cured it is brought to a moist, pliable condition by natural or artificial means. The leaves are re moved from the stalks, rough sorted into three grades (see pp* 2-3), and the wrapper and filler leaves are tied in bun dles or hands of about twenty leaves. These hands are laid in and later pressed in the wooden packing cases* ^Based on the writer1s experience in the Ohio Cigar Leaf Tobacco G-rowers* Marketing Association; and Morrow and Smith, op* cit., p* 24. Tobacco as received from the grower is called ”unworked” or "farmer-packed.” "Handling” includes receiving, grading, sweating, sizing, and packing. "Rehan dling" includes the last three of these. "Sweat” or “sweating" is the process in which the leaf loses moisture, its greenish color, and harsh, raw taste. The "spring sweat" is a natural sweat following the packing process* "Resweating" is the sub sequent artificial sweats induced by special packing and/or the use of heat. In "case-" or "box-sweating" the tobacco is left in cases for the process, while in "bulk-sweating" it is removed and placed in special piles or "bulks." "Tabling" or "fable-sizing!1involves passing the leaves over a table or measuring board to sort them into grades based on length of the leaf* "Hand-sizing" is rough sorting without tabling. 56 hand at once. This has occurred to a serious extent in two periods since 1900, in 1910-1912 and again in 1931-1933.1 Warehouses have existed in nearly every city and village in the district, so that seldom has a farmer had to deliver his crop more than five or six miles. The use of motor trucks has led to a centralization of the warehouses. Payment in cash on delivery day is customary. The tobacco grower* s cash position seldom permits him to delay the sale. This places him in a weak bargaining position which may mean a lower price for his tobacco. In certain respects the Miami Valley grower is better able than producers of other types of tobacco to hold his product. Some tobacco types require an expensive drying process imme diately after harvest or involve considerable cash outlay in production. Consequently the grower has often contracted debts which must be paid as soon as possible.2 No special equipment or expenditures are necessary with the Miami Valley tobacco for the first part of the curing process which occurs after the tobacco has been packed by the farmer. For best results the spring sweat should take place in a dry well ventilated room and under careful obser vation. With some attention from the grower it can be done fairly safely on the farm. The other sweats and sortings through which the leaf must pass before manufacture require •^This condition was important in the formation and operations of the warehouse companies in 1912 and of the Ohio Cigar Leaf Tobacco Growers* Marketing Association in 1931. 2H. B. Rowe, Tobacco Under the A. A. A.. p. 4l. 57 more equipment and skill than farmers are prepared to pro vide . About the only cash production expenditures are for fertilizer and for the wooden cases in which the tobacco is packed» These items usually are not large enough to neces sitate sale immediately upon completion of the stripping and packing* Most contracts for cases provide for payment on delivery of the tobacco* Nevertheless,, the grower is usual ly in need of cash so that immediate sale is not a matter of indifference* Part of the grower* s desire to sell at once is due to his feeling that the prices before and after the spring sweat do not show sufficient difference to compensate for the loss of weight in the sweat. It should be noted that all three grades of tobacco into which the farmer ordinarily sorts his crop are not often sold at the same time. *fhe wrappers and fillers are sold together and follow the process just described* A different group of buyers usually buys up the lowest grade or trash leaves which can be resorted and cleaned so that part of them can be sold to compete with the fillers. These leaves are sold and delivered before the other grades, frequently by the first of December. The buyers of these leaves may be either trash ■^Commercial fertilizer, if used, averages $10-$15 per acre. Cases cost about #2*25 each new, or $1.50 used* This means about $5-$7 per thousand pounds or per acre grown. The tobacco seed is not an important cost item. Most farmers grow their own on five or six stalks, or get it from neigh bors* If it is purchased from a seed company the total cost for five acres Is about $1*50* 58 dealers who operate processing warehouses or independent trash dealers who resell to these dealers# Occasionally dealers in the wrapper and filler grades will handle the trash leaves# In some instances junk dealers have been active buyers of this low grade# Sometimes the trash buyers travel through the country with trucks, buying and collect ing the leaves# This is possible since each grower will have only a few hundred to a thousand pounds. As indicated above, many farmers in recent years have not sold this grade because of the poor price and the realization that it tends to lower the price of the better grades.^ The price paid for the wrappers and fillers may be a straight or one price quotation, or a two price quotation. In the latter the difference between the grades ranges from two to four cents per pound. The straight price has become more usual in recent years although it tends to appear when ever the price reaches a low level# In some instances a contract at a straight price may limit the percentage of fillers to be accepted or may provide that the farmer is to strip the two grades together. Criticisms of Country-Buyer System The tobacco growers have made many criticisms of the country-buyer system of marketing.2 Most of these objections '''See page 27. 2The criticisms given are based on the writer* s experience in the district. 59 have related to the price the farmers have received for their product* The price fluctuations which frequently oc cur during the selling season create a great amount of un certainty as to the best time to sell • As indicated above, the grower feels that when he sells early he loses if the price rises,, and that he does not realize the gain if the price falls **^ He prefers not to hold his crop because he often needs the money; he realizes that the tobacco loses weight as he holds it; and he thinks that frequently as the season advances the buyers "get together" and lower the price* The lack of an organized tobacco market and of an information service on market conditions is a great handi cap* Another criticism has been that the buyers make practically no distinctions in their prices for differences in the quality of the tobacco and the way in which it has been handled. It would appear that there is Justification for this complaint. As a result of the lack of price dis tinctions, improvements in the quality of the tobacco and careful handling have not been encouraged. Growers also claim that favoritism is shown certain growers because of their connections with the buyers* It is doubtful whether many of these claims could be substantiated. Growers feel that there is too great a difference between the prices for the tobacco leaf and for the finished products. A large part of this spread is charged to the See page 54 60 costs for the services of these buyers and to the profits which they make* There is a feeling that these items are unnecessarily large and that they lower the prices the grow ers receive* In the minds of the growers there is a desire to secure for themselves a part of this price spread; and it seems to them that the elimination of the country buyers would be a good way to accomplish this* Finally the growers protest that they are helpless in the determination of the price* As individuals they lack bargaining power in dealing with the buyers* As far as the growers can see, the prices are set for them by the buyers and they must accept these prices or none* Accusations of "monopoly" and "agreements among the buyers" are prevalent. These criticisms of the marketing process have greatly influenced the cooperative movement* Other Marketing Agencies During the earlier history of the district the Cincinnati tobacco auction was a factor in the marketing process* The sale of cigar leaf tobacco on this auction several years before the World War is described In the following statement: An interesting feature of the Cincinnati market is the fact that since some time before the Civil War, when cigar leaf first began to be raised In the Miami Valley and to some extent In other tributary sections, that city has always been the center of a large trade in ci gar leaf in boxes of about 300 pounds net weight each, this tobacco being inspected in the regular way and sold from the sample at auction the same as Burley* Cincin nati is the only regular cigar leaf auction sale and 6l thes^saleq111^ 6? +n the United States. At present lelf from the 5?SP y of odds 811(1 ends or damaged The aafe= °1ffr districts of Ohio and Wisconsin. Kenernliv °f„ se®diesf at the Cincinnati breaks have 8 erally ranged from 5,000 to 10,000 cases annually.1 The part which this market played in the sale of the farmer s crop is largely a matter of conjecture. The amount of Miami Valley tobacco handled on the auction is not recorded. There is no indication of how much consisted of sales made directly by the farmer and how much of resales by buyers and manufacturers. The above statement that most of It was "odds and ends or damaged leaf" would suggest that it was from dealers and manufacturers. A broker experienced in the field has said that at times a farmer or group of farm ers would ship their tobacco to the auction, but that the amount sold from the farmers was very small. his observations most of the offerings According to were made by dealers.2 The reports of sales in cases of tobacco on the auction indicate that the greatest activity was from 1870 to 1890 when an average of approximately 5,300 cases— as distinguished from hogsheads of Burley and other non-cigar types— were sold per year. After 1900 the sale of tobacco in cases appears only intermittently on the records and then only for small quantities.^ 1 E. H. Mathewson, Tobacco Marketing in the U. s .. U. S. Department of Agriculture, Bureau of Plant Industry Bulletin 268, p. 4l (1913)* "Breaks" refers to the method of drawing samples from a case# The wooden box is slipped off the tobacco. The compact block of tobacco is broken at several places and several hands are withdrawn. 2 Personal interview with M. E. Stern, op. cit. ^Data secured from volumes of Annual Report of Cincinnati Chamber of Commerce for years covered. 62 A few attempts to establish local auctions were made but proved unsuccessful . No records of the scale or method of these operations are left* However, the quantity of tobacco so handled is said to have been insignificant.'*' There has never been any trading in cigar leaf tobacco on commodity exchanges. At several times manufacturers attempted to contract with the farmers for the growing of tobacco. Seed was fur* » nished and the farmer was expected to follow the company’s instructions in growing, stripping, and packing the tobacco. Four or five companies made such attempts to provide for at least part of their requirements, but none continued the policy for more than a year at a time although some repeated the attempts at different times. It is doubtful whether more than five percent of a year’s crop was contracted at any one time. The manufacturers declared that the farmers did not take proper care of their crops under this method and that they felt that it forced them to assume too great risks in the event of a poor growing season.2 Changes in Cigar Manufacturers A change in the number and size of cigar manufacturers has been of great importance In the tobacco market. When ^Personal interviews with M. E. Stern, op. oit.» and with Walter Kenrick, Lytle, Ohio, manager of The Lytle Warehouse Company, Aug. 28, 1939. ^Personal interview with M. E. Stern, op. cit. 63 cigars were made largely by hand the factories remained small* In many instances the owner had only one or two helpers. The introduction of machinery changed this by encouraging mass production. The steadily growing production of Glass A cigars Lin contrast to higher priced cigars] coupled with a marked reduction in the number of cigar factories pre sages, we believe, the early disappearance of the small manufacturer and the concentration into a situation analogous to that in the cigarette industry.-^ TABLE 4 CIGAR FACTORIES AND PRODUCTION IN CERTAIN STATES AND THE UNITED STATES IN SELECTED YEARS* Ohio iear F P 1907 1912 1917 1922 1927 1932 1937 1,727 1,523 86 7 832 501 369 222 715 655 720 660 516 352 278 F Pennsylvani a F P 4,498 3,677 2,173 1,746 1,140 824 603 2,147 2,207 2,419 2,176 2,205 1,783 1,930 No. of factories w. Va. F P 116 128 128 152 72 100 73 89 46 79 53 50 32 95 P Indiana United States F P F P 530 574 375 314 203 147 75 78 151 241 216 186 118 103 23,882 20,555 14,576 11,576 7,974 6,109 4,157 8,376 7,099 7,933 7,355 6,519 4,661 5,303 No. of cigars in millions *Data from volumes of annual Report of Commissioner of Internal Revenue for years listed. All figures are not exacts comparable since some do not include small cigars. The accompanying table shows the number of factories and the amount produced for certain states and the United States for selected years since 1907* The states listed are those in which the manufacturers making the greatest use of •^Chas. D. Barney & Co., The Tobacco Industry 1929. p. 3* 64 Miami Valley tobacco are located.1 The trend toward larger factories is evident from an examination of the figures in the table. While production of cigars declined 39$ f rom 1907 to 1937, the number of cigar factories in the United States declined 83$. The decline in the number of factories in Ohio alone was 87$. The trend is shown further by the fact that in 1922 small factories--those making less than 500,000 cigars per year--constituted 89$ of all factories and made 11.19$ of all cigars, while seven large factories, 0.1$ of the total, made 11.75$ of the cigars. By 1930 the small factories were 92$ of the total and produced only 5*22$ of the cigars, whereas 35 large factories, 0.5$ of the total, made 49.8$ of the cigars.2 The reduction in the number of factories has influ enced the tobacco grower's market. He has fewer possible purchasers to compete for his product, and there is greater opportunity for price control on the part of the manufac turers . The decline in the demand for Miami Valley tobacco, the periodic low prices, the maladjustments in production and consumption, and the abuses which the growers feel have 1The majority of the factories which look to this district for raw materials are in southeastern Ohio and in and around Wheeling and Pittsburg. It was impossible to exclude from the Pennsylvania data in Table 4 the factories around Lancaster using principally Pennsylvania tobacco. 2G-age, op. cit., p. 53* 65 existed in the marketing system have all contributed to the movement for the cooperative marketing of the tobacco. As will be shown in later chapters, these factors also have increased the difficulties in operating the associations and have contributed to their failures. CHAPTER III EARLY COOPERATIVE VENTURES The first attempts at cooperative marketing of tobacco in the Miami Valley appear to have been made after 1900. Other districts had "been experimenting with this method of sale for many years* ation was formed in Connecticut* As early as 1862 an associ In 1873, as a result of G-ranger agitation, warehouse companies were organized in Massachusetts and Kentucky, These ventures at first con fined their activities to the building of warehouses in which farmers could store their tobacco until better prices were offered. Later they undertook cooperative pooling, The greater portion of the material for this chap ter was secured in personal interviews during August 1939 with people who had been closely associated with the cooperative ventures or the tobacco industry* These indi viduals are listed in the bibliography. In footnotes credit is given particular persons for any especially significant points contributed on the different ventures. Most of the records of the companies mentioned have been destroyed. By laws and minute books were available for The Farmers Tobacco Co., Farmersville, 0.; The Union City Farmers Tobacco Co., Union City, Ind.; and The Lytle Farmers Tobacco Co., Lytle, 0* Part of the business records were available for The Fanners Tobacco Co., Farmersville, 0.; The Farmers Cooperative Cigar Leaf Tobacco Co., Verona, 0.; The Miami County Leaf Tobacco Co., Covington, 0.; and The Union City Farmers Tobacco Co., Union City, Ind. 66 6? packing and selling of* their* product Similar organizations were the first to be started in the Miami Valley area. only a few members. They were local undertakings with The general plan was to provide— usually by renting a warehouse— a place of storage during low prices or a receiving point to facilitate shipping. At times to bacco was assembled in the houses for inspection by buyers or for auction. Perhaps five or six of these warehouses were operated in the district before 1910. case they lasted only a year or two. In all but one The amount of tobacco handled by them was very small The Lytle Warehouse Co., Lytle, Ohio, incorporated in 1905, was the longest lived of these organizations. It was created because of the need for a temporary storage place before shipment of the tobacco. In making delivery of their crops the tobacco growers in this community had to load their cases directly into freight cars since there was no warehouse in the village of Lytle. Dissatisfied with this inconvenience twenty-five farmers formed the company and built the warehouse. The use of it as a temporary stor age place was open to all at a uniform handling charge of three cents per case. When space was available some growers stored their crops there while they awaited inspection and "Sf. W. Fetrow, Cooperative Marketing of Agricultural Products, Farm Credit Administration, Cooperative Division, Bulletin No. 3» (1936) p. 79. p Personal Interview with 'Walter Kenrick, Lytle, Ohio, Manager of The Lytle Warehouse Co., and of The Lytle Farmers Tobacco Co., August 28, 1939. 68 purchase by buyers. A charge of three cents per case per month was made for storage The undertaking returned a profit to the stockholders in each year. In 1912 a part of the warehouse was rented to The Lytle Farmers Tobacco Co. for use in its marketing activ ities. The motor truck, making possible delivery to more distant points, removed the need for the warehouse. In 1922 it was rented, and then in 1935 sold, to an elevator comp pany • As shown by its operations the company was more near ly a profit seeking venture than a cooperative association. The National Cigar Leaf Growers1 Union The second movement for grower cooperation came out of the troubles around the beginning of the century in the tobacco districts of Kentucky and Tennessee. From 1890 to 1911 there was continuous strife in the Burley and DarkFired tobacco districts of these states• The conflict arose over the system of barn or country buying and the monopoly of the American Tobacco Co. and the ’’Regie"— the foreign government agents buying tobacco for export.-' The American Society of Equity, founded in 1902 with headquarters at Indianapolis, entered the district to encourage the re-establishment of the warehouses as they had ^Tersonal interview with Walter Kenrick, op. cit. 2 Ibid. 30 . b . Jesness, The Cooperative Marketing of Tobacco. Ky. Agricultural Experiment Station Bulletin No. 288, p. 274. 69 existed around I873 . The Society conducted this campaign as part of its national program for the creation of farmers' cooperatives. It had gone into Wisconsin at the same time and helped form twenty warehouse a s s o c i a t i o n s P a r t l y because of this influence The Planters Protective Association and The Burley Tobacco Society were organized in 1904 and 1907 respectively• them. Other small local groups had preceded From 1908 to 1911 bitter warfare was waged to break the hold of the monopoly. The Night Riders, by destroying crops and burning warehouses, made effective the plan of these groups to grow no tobacco in 1908,2 Repercussions of this struggle were felt in the Ohio cigar leaf district* At a meeting of the Ohio Leaf Tobacco Packers* Association--^ dealers1 organ!zation-William S t r o u p , ^ president of the American Cigar Company, a subsidiary of the American Tobacco Company, and speaker of the evening,, touched upon the seriousness of the situation and cautioned the local buyers. A part of the report of this speech follows: He said we must avoid the Burley troubles in Kentucky, in which he had reference to the turmoil and ceaseless strife consequent upon the clashing interests there, We must fight this from the start; we can't afford to mix in It7^ ~ ■^Chastina G-ardner, "Historical Sketches— #7, Tobacco Cooperatives," Agricultural Cooperation, May 4, 1929, p. 198, 2Jesness, op. cit.. pp, 274, 277* ^Later to have an important post in the Miami Valley Tobacco Growers' Cooperative Association, Dayton, 0., 1923-24, 4 Davton Daily News, Feb. 25, 1910, p. 4. Italics are the writer's. 70 Occasion for concern is found in the reports that the American Tobacco Company was trying to defeat the Kentucky growers' association by urging the planting of Burley in the Miami Valley district. Agents of the company were said to have distributed free seed to the growers to induce them to try it.1 Apparently to forestall this and to prevent the undoing of the cooperative work in Kentucky, C. 0. Drayton, president of the American Society of Equity, travelled through the Ohio district making speeches urging the growers to organize and to establish warehouses.^ The interest which he aroused led to the formation of the National Cigar Leaf G-rowers' Union at Dayton, Ohio, on June 1, 1910. 3 it was to be a branch of the American Society of Equity. The plan of organization provided that the members belong to local groups which together made up the Union. Discussion of policies and annual election of directors were to occur at the general meetings held several times a year. IMo action could be taken by the directors without the approval of the local groups. The iniation fee was $2.50 and the annual membership dues $1.00. One-half of this was paid to the American Society of Equity. At one 1Dayton Daily News, March 9, 1910, p. 2. According to M. E. Stern, tobacco broker, Dayton, Ohio, In a personal interview August 25, 1939, the American Tobacco Co. had no success with its plan. Only a few farmers tried even a small patch. At various times individual growers have experimented with Burley and the results have never been encouraging. ^Davton Daily News, March 25, 1910, p. 26. ^Davton Journal. June 2, 1910, p. 7. 71 time the Union claimed 6,000 members in about 25 local groups*1 The aims of the Union as set forth in the Articles of Incorporation were: (1) Its object shall be continual Instruction in its local Unions, to the end that there may be intelligent production and handling of the tobacco crop in such a way as to produce the very best quality possible. (2) The second object of this Union shall be economical intelligent cooperative marketing of the tobacco grown by its members*2 At first the Union devoted itself to educational and Informational work* Headquarters at Dayton served as a clearing house for news among the local groups. Information on crop condition, acreage, buyer activity, prices, and other items of interest to growers was sent in by the mem bers to headquarters and from there was distributed to all local groups. At the frequent meetings of the locals mem bers discussed the problems they faced in raising and market ing tobacco. Farmers* Institutes, which were being started in nearly all townships at that time, aided the movement by spreading word of its activity and by setting an example for work of this nature* In a short time members became convinced that their program was not adequate for dealing with the situation* Demand for the tobacco was poor and prices were low and 1Personal interview with Frank Blackford, Eldorado, Ohio, president of the Union, August 30, 1939* 2From Articles of Incorporation, filed June 18, 1910, with the Secretary of State of Ohio. 72 LO C A TIO N S OF COOPERATIVE WAREHOUSE COMPANIES IN M IA M I VALLEY 1912. . - . J ______ ^ M E R C l r J Augla.** - i . r--1-— ------ LOq a n ,0______ 11--- ^5HEL6Y Umoo . City* , CH^A/| DARKE. R A N D O L P H - • Covdbafcon Qreenvi/la. WAVr^E P ^ | Qfn Verona. «j Preble") j ^ ONT We&t Alex.a,r? •Liw»o.v/; rarmcrsvUi Gratij. I— i JB u t l e r / K E N T U C ~CLnk.tin L>ftie j\w\RR_ Cl i n t q n I declining. 73 From 10.5 cents per pound in 1908 the price had fallen to 7.8 cents in 1911*^ A large portion of the 1909 and 1910 crops was still in the hands of the farmers when the 1911 crop was being harvested. The Union began to sponsor the establishment of warehouses by the local groups as a possible solution. A leader in this program was Frederick Zuckerman who became general manager of the Union and was later to be its sales manager. He had been a small cigar manufacturer in Chicago and then in Dayton. The Union continued its operations until 1913 when, in the general confusion following the Dayton flood, it and its local discussion groups were allowed to die. Before this date dissatisfaction with the sales activity ol Zuckerman and the overshadowing development of the local warehouse companies had greatly weakened the Union. Warehouse Companies At the urgence of the national Cigar Leaf Growers' Union and its general manager Frederick Zuckerman, eleven warehouse companies were formed in 1912 by local groups of tobacco growers. A map of the district showing the locations of the warehouses is presented on the preceding page and a summary of information on these companies is U. S. Department of Agriculture, Yearbook of the Department of Agriculture 1909» p. 515, and Chas. E. Gage, American Tobacco Types. Uses, and Markets, p. 46. 74 qJCBejL O-SJTi pexptreH ON O O O » oooBqoj, s©e©o rH 0 0 U M A 0 0 U \ 0 0 0 OO O C ' l A O O i A O O M ) v O rH H H r| CM CM 1 ir\ rH 1 CM Os O Ov CM CM rH 1 1 t lC\ tc\ OO rH rH rH 1 1 1 rH K\ KN 3T6i ht q*bcI ■*t iAr'p»CNvOK\N\0 0 tio f q.BjocLcooiiX rH I CM I H f-H CM ©JBqs «*©<* ent©A «ib<i if\ CM -©S* O ir\ir\ir\if\ir\Lr\ur\ir\tr\ CM CM CM «VJ CM CM CM CM CM O O O O Q O Bsj©qtn©H •oti p©ATOSsja 9q.Bd xroTq.BZTT®Q-T<i®0 O ^ OOOOOOOOOO O O U N O O O O O O O U N ^ W K N O N O O O C O f l O * « * • * « rH r—j rH rH *—( H I • o (M I N O CM 1 o rH « vO I rH CM 1 H K\ 1 «\ O rH CM 1 1 ntf- rH CM t 1 rH M> O CM 1 CM CM 1 vO r| N I I M3 rH « OO CM I K\ 1 1 1 1 1 lA rl rl 1 I tf\UN I I -sf H ’ tr\vO O O O O O O O O O O Q O O O O O O O O O O O O O O O O * * * * • > « « * * » 0 0 “\ 0 0 0 0 ic\0 vx> s s x Vf\ p © © o © bD a.. uX> © d o u !> © © P d © S< o O © .d P CO t-i P © P t I Vh © XI P P d o • © © >» t> CJ t>» +S O -H P P O 00 rH © O P • Fh © o o o © x> o p P © Fh -rH 4-1 taO d Fh © > © TO P rH © d rH CO a i n© d jRyO ca> * p © g rl H ( D 8 - p > ® H O J l pppnoPdPP C S S i - l O h | 3 H ( 5 -- © Fh © d rH O XI M o o p m i d o d d ©O © © ©© CO © E-t ©o © PH O © § a © d Pi O © t>> © ra © o fa fa O Its successor The Miami Growers Leaf Tobacco Go# received tobacco for three years 0p©q.Bcc©do #sjcx d tfNU\CM'*OC'-U\rHU,\ K \ C M O W Eh p p o © £h © © © P © © O S3 fa m Fh © d rH O .d Jad O o p i° £ © XI P d © P d d © © © © u o © d © b0 d p t> p © o © s P © © © U © © o o © © x> o p u © Vi O © © g 3 rl o © XI u & <VH O u © X O d 75 given in Table 5, page 74, A number of others were planned --for example, at Pleasant Hill and Brookville— but failed to materialize because of lack of financial support by the growers in the local group. Since at that time the laws of Ohio did not provide for the formation of cooperative marketing associations, the companies were organized as corporations for profit. Capi talization of most of them was set at $10,000 of common stock with no provision for preferred stock or bonds. Par value per share was $25 in nine of the companies and $5 and $20 in the other two. The uniform set of by-laws adopted by the companies restricted ownership by one person to twenty shares, members had only one share* stock owned. host Voting was to be by shares of Each stockholder was required to be a member of the National Cigar Leaf G-rowers1 Union. This regulation applied only one year since the Union did not operate after 1913. The by-laws provided that two-thirds of the stock be subscribed and one-half of the subscription paid in before the company started operations* Available evidence would indicate that only two companies--The Warren County Leaf Tobacco Co. and The Miami Farmers Leaf Tobacco Company-observed this requirement. Purpose The uniform statement of purpose set forth in the Articles of incorporation was: 76 Said corporation is formed for the purpose of estab lishing a Tobacco Ware House: for sweating, re-handling and preparing for market all grades of leaf tobacco for the growers and marketing the same; for the purpose of issuing warehouse certificates to the growers for their crops. The growers were seeking to eliminate the dealers and buyers. They hoped thereby to remove the abuses which -they felt they suffered at the hands of these middlemen and to get higher prices for their product by cutting out middle man costs and profits. They believed that direct dealing with the manufacturers would mean more profits for both o parties without any increase in price to the public. Very little indication is found of hopes to monop olize the market or to dictate prices. In organization activity and in operations emphasis was placed on the ware house company as a selling agency and upon the desirability of disposing of each year1s crop as soon as possible--at least in time to make way for the following crop. The hand ling and curing which they undertook were to assist in mak ing direct connection with the manufacturer possible, for the dealers had been doing much of this work for the manu facturers. In a meeting of the national Cigar Leaf Growers' Union in Dayton on Oct. 7 , 1912, officers denied that there ■5 would be any attempt to form a general pool.-' Iprom Articles of Incorporation filed by the com panies with the Secretary of State of Ohio. ^Dayton Daily Hews, Jan. 4, 1912, p. 16• ^I b l d ., Oct. 8, 1912, p. 5* 77 Management Management was one of* the companies* weakest points* In each company the determination of policies and the selec tion of operating officers were vested in a board of direc tors of five to seven members elected annually by the stock holders* Although the directors often made decisions on proposed sales and on the handling of tobacco, most of the policy making and managing was left to the general manager* The general manager of a company was usually one of the stockholders* Uniformly he held also the position of treasurer and often that of secretary. Since his duties required attention only part of the year he continued his farming activities, except in the Greenville company^ in which the manager was a retired farmer. The salaries of these positions in the various companies ranged from $150 to $750 per year. Ordinarily for the position of warehouse manager or packer the directors hired an outsider who was experienced in the work. Sometimes the position was combined with that of general manager, as in the Verona house where the general manager learned the trade from the packer and took over his work when he left* 2 This also was seldom a full year job unless the company rehandled a large quantity of tobacco* Sales were occasionally handled by an agent employed ^-Hereafter the companies will be referred to by their location to avoid confusion from the similarity of their names. ^Personal interview with C. C. Gromwell, Verona, 0*, manager of the Farmers Cooperative Cigar Leaf Tobacco Co., August 29, 1939* 78 by the company although more frequently this work was di rected by the general manager and was done through brokers or dealers• The various warehouses operated almost entirely as independent units despite their common origin. Those in one company had very little information on the operations and in some cases no knowledge of the existence of the others. The Verona and West Alexandria houses, were the only ones which had direct connections. This occurred through the arrang- ment for the West Alexandria company to ship part of its receivings to Verona for storage or for processing in the trash machine • The early tie through the Union and the sales agencies it sponsored was never ver*y strong and was almost entirely destroyed after the collapse of the Union in 1913. In the majority of companies there were no member ship contracts of any type. Those which did exist had no provisions requiring members to deliver their crops to the companies. Growers looked with disfavor on such a- require ment and the companies feared it would be illegal under the terms of the Federal anti-trust laws and Ohio’s Valentine anti-monopoly act. Any cash penalty which they might have set would, they believed, have been uncollectible. In general the companies suffered from poor manage■^Personal interview with C. C. Cromwell, op. cit. C. F. Taeusch, Rural Cooperation and Cooperative Marketing in Ohio. 1913. Ohio Agricultural Experiment Station Circular 141, p. 33. 79 ment and misguided policies. Those placed in the positions of general manager appear to have been sincere , honest, industrious, but without exception they lacked the experience and training needed for the various duties and problems of the office. As several of the managers explained, they knew how to raise tobacco but they did not know the tobacco mar ket beyond the contacts they had had in the sale of their own crops. They had very little idea of how far to process the tobacco to meet the market demand. They had no connec tions with the manufacturers with whom they wanted to deal and proved to be very inept in establishing them.1 Stockholders and managers admit that policies on selling and financing were usually the decisions of the moment. There were very little planning and organising. Accounting and record keeping were done carelessly,,if at all. Exact records of tobacco received and sales made were not kept. The treasurers at times lost distinction between p their personal funds and company funds. In fact in the lawsuit which arose over the Greenville company, the man ager contended that the stockholders knew he had no knowl edge of bookkeeping when they placed him in the position and had done so in order to involve him in difficulties. 3 1Personal interviews with C. C. Cromwell, o p . cit♦; John 0. Marion, Farmersville, 0., manager of The Farmers Tobacco Co., Aug. 21, 1939; and John W. Bartel, Covington, 0., manager of The Miami County Leaf Tobacco Co., Aug. 28, 1939* P Personal interviews with a number of stockholders and managers during August 1939. •^Darke County Farmers Leaf Tobacco Co. vs. John Robeson et al. Case No. 25380, Common Pleas Court of Darke County, Ohio. 80 Warehouses The warehouse of each company was the center of its operations. Three companies— those at Miamisburg, Franklin, and Farmersville— built their own houses; two— those at Verona and Covington--bought houses; and the others rented them. The Lytle Farmers Tobacco Company rented a portion of the house built by the Lytle Warehouse Company, a farmers' group mentioned above.1 The companies which built and bought houses had to raise large sums of money. was secured by borrowing. A good portion of the amount The company at Franklin borrowed $5,000 to help build a $12,000 house— the largest house of all the companies— and the Farmersville company borrowed $2,000 in the construction of its $5,500 house. Those com panies which rented houses had very little investment, for the equipment needed was usually rented with the house. As a consequence these companies sold very few stock subscrip tions and collected even less cash. Handling the Tobacco Although the handling of the tobacco was generally satisfactory, it underwent many changes and showed no saving over the costs of private dealers. When the companies began they accepted only stockholders' crops which were-handled on consignment. Of those which operated more than two years the companies at Union City, Franklin, and Gratis appear 1See page 67. 81 to have heen the only ones which adhered to this policy of requiring stock ownership* The others went through a grad ual process wherehy they lost their cooperative nature and became regular profit companies whose stock was held by small groups of farmers. The first step ordinarily was taken when tobacco of non-stockholders was handled on consignment. Some companies placed higher selling commissions or handling charges on outsiders. Others made a uniform charge to all, expecting that the dividends to the stockholders would more than cover the charges on their tobacco. The companies which continued a number of years— even those requiring stock ownership--began to buy tobacco and to operate as dealers. In the last few years of their existence those at Greenville, Covington, and Miamisburg purchased practically all the tobacco they handled. The Covington company bought some the very first year. The failure of stockholders and others who had sold through the warehouses to place their crops with the com panies year after year encouraged this move. The rise in market price of tobacco from 8 cents per pound in 1912 to 12 cents in 1916 and to 24 cents in 1917 growers to sell to the regular buyers. induced many Stockholders hoped to profit by handling the extra tobacco both through a reduction in the per unit overhead cost and through spec ulation on the rising market. As less and less was received ■^See Figure 10, page 45. 82 on consignment from growers, the companies resorted to buying to secure the volume needed to operate the houses# According to a number of stockholders and managers, the tobacco received on consignment was not pooled# Each crop was handled separately according to the directions of the owner. The charges, based on services rendered, ranged from one or one and one-half cents per pound for receiving and selling to three or four cents per pound for tabling, 1 resweating, and selling. The crops which a company bought were usually mingled and handled as appeared most profitable at the time# At first the companies tended to do a complete handling job, including tabling, on both consigned and purchased tobacco. Later, as they saw that they could not do the handling more cheaply than the private dealers and that ther money was tied up in tobacco which was slow to move, they generally restricted the handling to "sprigging" or removing the short and damaged leaves from the hands of tobacco. The warehouse companies, with one exception, received all three grades of tobacco. The exception was the company at Lytle which handled only the trash leaves. This policy resulted from the fact that the growers of this community had experienced particular difficulty in disposing of this grade. Influenced by Zuckerman of the Union2 they organized a com pany similar to the others and then bought a machine to clean 1Personal interviews with a number of stockholders and managers during August 1939. o See page 73* 83 and stem the "trash.. Two years' crops of trash leaves were processed and a small portion of the first year's leaves sold when the flood of 1913 inundated the warehouse. The stock of about 125,000 pounds was seriously damaged. It took nearly four years to dispose of the musty leaves and to settle up the business. No tobacco was handled in the meantime. The original investment was lost and the growers received less than one cent a pound for their leaves.^ The Verona house was the only other one which tried to use a trash machine. It is claimed that Zuckerman had the machine sent to the company without the permission of the stockholders. They used it one year and then sold it. The hundred cases of trash which had been processed spoiled 2 and were a total loss. Financing For the necessary investment the companies sold stock and borrowed from banks by use of mortgages on the buildings and notes signed by the directors. No attempts were made to use the tobacco in the warehouses as collateral -since ownership of it remained with the individual growers. The majority of the companies made no advances to the growers. When a farmer's crop was sold, the charges were ■^Personal interview with Walter Kenrick, op. cit. ^Personal interview with G. C. Cromwell, op. cit. 84 deducted and he received the balance. At times, if the whole crop were not sold at once, part payments were made. Until 1916 the Verona company required the growers to advance the expense money for the handling of their tobacco# Upon the sale of the crop they received the full price less the selli ng charge .■** The original intention was that the companies would issue receipts (called warehouse certificates in the charters) to the growers for the tobacco received from them. The farmers could use these as collateral for loans from the banks. The banks were not eager to make such loans and charged high rates of interest. As a result there was very little use of the receipts for this purpose# The Troy, Covington, and, after 1916, Verona com panies made some advances upon delivery of the tobacco. To do this the directors borrowed on their personal notes at 6 % from the banks and made the advances at 7% to the growers who desired them. This proved to be satisfactory except in the case of the Troy company. There advances were made up to one-half of the crop value based on the prices set by Zuckerman. His estimates were too high and the price received for the tobacco fell below the amount advanced. An assessment was levied against the growers to meet the loan and operating expenses. "See page 76 above. Members refused to pay the 2Ibia. •^Personal interviews with John V7. Bartel, op. cit., and C. C. Cromwell, op. cit. 85 assessment and the company ceased operations after receiving the first year’s crop. In an arrangement with the stock holders, several directors took over the tobacco on hand as partial compensation for their obligations on the notes. They reorganized as a private company, The Troy Tobacco Com1 pany, in 1914, and have continued operations to date (1940). The problem of advances became unimportant when the companies began to buy tobacco rather than receive it on consignment. Even the stockholders sold their tobacco to the companies and hoped to get additional returns through divi dends. To finance these cash purchases the directors bor rowed from the local banks. Usually a line of credit was established on the basis of the general assets of the com pany and the personal property of the directors. No collat eral was given with the notes, but each note was signed by p all the directors. The lack of funds for working capital and for advances to the growers was a significant factor in causing these companies to change the nature of their opera tions and in leading to their failures. Selling The selling of the tobacco was the companies' major failing. The job was complicated by the control which the individual grower retained over his crop. Before a sale was made the company referred the offer received to the ■^Personal interview with Sajnuel Makepeace, Troy, 0., member of The Farmers Leaf Tobacco Co., Aug. 28, 1939. 2 Personal interviews with John W. Bartel, op. cit., and C. C. Cromwell, op. cit. 86 owner for approval. Sometimes the owner placed prices on his tobacco with instructions to sell at those figures. Owners could sell their tobacco away from the company even after it had been placed in the warehouse and rehandled. In such a case the owner secured the release of his tobacco by paying the accumulated charges. Buyers were said to have taken advantage of this situation to embarrass the companies. They offered growers who had tobacco in the houses more than they did others or the houses. Sometimes they insisted that the company give them the name of the grower before they bought a crop on the contention that they had seen the crops growing and needed to know whether they were getting the ones which they had selected The desirability of disposing of crops as units to effect easy settlements and to avoid an accumulation of the undesirable sizes and grades made it difficult to meet or ders from many manufacturers who wanted only certain sizes and grades--usually the better ones. Growers whose crops were not among the first to sell felt that favoritism was being shown. Few of the companies developed a definite sales policy and sales department or agency. use of a number of channels. Most of them made Primarily reliance was placed on calls at the warehouse by manufacturers and buyers. One 1Personal interviews with a number of stockholders and managers during August 1939* 87 of the duties of the manager or secreatry was to write to all likely buyers Inviting them to call or offering to send samples. The Gratis Township company used this method al most exclusively.*1' Most of the companies had agents selling on commis sion. The Covington company engaged an experienced tobacco buyer, A. B. Hostetter.2 In some cases a stockholder who became convinced that he could sell was ,fplaced on the road." The results in these cases were very poor. Commissions ran as high as Q% of the sales price. All of the companies made some use of the sales organizations provided by the Cigar Leaf Tobacco Growers* Union and its successors. Frederick Zuckerman as leading sponsor of the warehouse companies tried to secure the ex clusive sales agency for their tobacco. Three of the com panies, the Lytle, Troy, and West Alexandria houses, entered such agreements. The results in the Lytle and Troy com panies have already been d e s c r i b e d T h e West Alexandria company managed to break away after the first year and attempted to rebuild its organization. more years* It continued two When the directors saw that support was not forthcoming from the growers, they sold out and dissolved the "^Personal Interview with F. H. Williams, Gratis, Ohio, manager of The Gratis Township Leaf Tobacco Co., Aug. 21, 1939. 2 Later connected with The Ohio Cigar Leaf Tobacco Growers Marketing Association, Greenville, Ohio. ■x ^See pages 82-85* 88 company* The capital stock was paid off in full. 1 Zuckerman acted as commission agent for the other companies along with the other agencies which the companies chose to use. His method of making sales was to secure sam ples from the crops with the companies and then to travel among the manufacturers displaying them. icism was directed at his tactics. Very bitter crit Companies complained that he sold only the choice tobacco out of each crop. They resented his attempted interference in their plans and pol icies as evidenced by his urging the installation of trash machines. The companies felt that the tobacco, especially that of the 1912 crop, which he sold brought a lower price than they would have been able to secure. There were accu sations that "he sold out to his old friends the trust and the manufacturers." Zuckerman continued for a number of years in his attempts to sell for the companies but after 1913 few would even give him samples.2 G-rowers Tobacco Sales Company.— Dissatisfaction with Zuckerman* s policy as sales manager of the Union led to the formation of another sales agency, The G-rowers Tobacco Sales Company of Dayton, incorporated Oct. 24, 1912. The leaders of the company were three tobacco buyers, Philip Spence of Lebanon and Elmer Pierce and Douglass Morris of Dayton. In order to secure connections with the companies, they took in ^Personal interview with John Block, a tobacco buyer of West Alexandria, Ohio, Aug. 21, 1939* 2 Personal interviews with a number of the managers of the companies during August 1939. 89 as co-incorporators four leaders from these organizations. Shares of $10 par from the $10,000 capitalization were sold to stockholders of the warehouse companies# Furthermore, provision was made for each company to appoint a represent ative to the Advisory Board of The G-rowers Tobacco Sales Company# This company was not much more successful than Zuckerman in securing the cooperation of the independent houses. The members had come to suspect that manufacturers and dealers through these agencies were attempting to get control of the companies in order to destroy them. . Members had urged that the headquarters of The G-rowers Tobacco Sales Company be in the Franklin company house. Instead, expensive offices were outfitted In Dayton at the Beckel House hotel. When the flood destroyed the offices and the Union went out of existence, the sales com pany lost the little hold it had gained# It continued as an Independent buyer with some dealings with the warehouse com panies until it dissolved in 1918. Miami Valley Leaf Tobacco G-rowers1 Association.- -In the spring of 1919 The Miami Valley Leaf Tobacco G-rowers' Association was formed to serve as a clearing house for market information and to assist in the selling process.^ Although not connected with the companies, it proposed to serve as a sales agency for them as well as for its own members# lasted less than a year. It W. S. O'Neill, as sales manager, contracted for about 5,000 cases of tobacco from the members. ^H. E. Erdman, Organizations Among Ohio Farmers, Ohio Agricultural Experiment Station Bulletin #342, pp. 126-127* 90 When the price on the market did not rise to the figure in the contracts and financial backing could not foe secured, the contracts were breached and the Association died.1 The retention by the growers of considerable control over their crops, the inexperienced sales management, and the difficulties with the various sales agencies were causes of the unsuccessful selling by the companies. The middlemen were not eliminated to any degree and high prices were not secured for the tobacco. The prices growers received through the com panies were seldom higher, and often lower, than those out siders received. In fact, in view of the losses in several companies, the claim that buyers tended to favor outsiders, and the long wait to receive payments for the crops, the con tention of many that the outsiders received more benefit than the members seems plausible. Claims were made that some of the trouble was caused by buyers and manufacturers boycotting the companies. Some managers reported receiving postcards from manufacturers with whom they had never dealt instructing them to ship no more tobacco because the last received from p them had not been satisfactory. The attempt to dispose of each year's crop by the time the next one was harvested was successful at first in most companies. stock. However, many soon faced an accumulation of At first the average length of time a grower had to ■^Personal interview with M. E. Stern, tobacco broker, Dayton, Ohio, Aug# 25, 1939. p Personal Interviews with C. C. Cromwell, op. cit.; John W. Bartel, op. cit.; and Robert Hindsley, Union City, Ind., the son of James W. Hindsley, secretary-treasurer of The Union City Farmers Tobacco Co., Aug# 23, 1939. 91 wait to receive his money after placing a crop on consign ment with the companies was one year. In a few years this period had been doubled. Success, Failure, and Dissolution Without exception the first year of operation marked the peak of receipts of tobacco. The volume handled by all companies in 1912 was perhaps five million pounds or approx% imately 10^ of the total crop. In addition, part of that received was of previous years* crops which farmers had been holding.1 In the area covered by the companies approxi mately two-thirds of the 1912 crop was sold through the com panies . By the third year the total handled had dropped about fifty per cent. In 1917 and 1918 the companies remaining in operation handled a total volume of about half a million pounds. Even the purchasing of tobacco failed to counter balance the loss of receipts on consignment. The decline In receipts from members was due to a number of factors. First of all, the lack of a binding membership contract caused members to regard their connections with the associations ^1912 was the first year all the associations op erated. Some of them had begun regular receiving with the 1911 crop. Others took In any 1911 tobacco which was still held by the farmers when they began. In some instances 1908 tobacco which had not been sold was brought in. See Table 5, page 74, for estimated receipts in the first year of operation. 92 lightly. The inability of the companies to secure for mem bers higher prices than outsiders received and the long time required to settle for the crops discouraged many growers. The rise in market price in 1913 and especially in 1916 and 1917 led many to sell outside. Stockholders believed that the companies had been responsible for the rise in 1913, but felt that they had served their purpose and so stopped placing tobacco through this channel. Some asserted that this defection was responsible for the price declines In 1914 and 1915.1 The failure of some of the companies and Internal dissension in others caused many stockholders to withdraw. In many cases these stockholders had not paid their stock subscriptions. Some who had paid either disposed of their stock to others or held it without paying further attention to the affairs of the company. Through all this the owner ship and especially the control became centered in a few stockholders who were usually the directors. Stockholders of several of the companies which had purchased tobacco at the lower prices in 1912 to 1915 and held it until 1918 made enormous profits. For example, this was true in the Covington company which sold its stocks p and warehouse at this time. . The Greenville company made approximately $13,000 for Its stockholders up to 1918 but thereafter ran into difficulties in the following period of ^For price trend see Figure 10, page 45. 2 Personal interview with John W. Bartel, op. pit. 93 price declines* The troubles and early dissolution of the companies at Lytle, Troy, and West Alexandria have already been de scribed .2 The Warren County Leaf Tobacco Company at Franklin expanded its activities through an amendment to its charter July 20, 1915* The enlarged purpose was stated as follows: To encourage better and more economical methods of production, to secure better results in grading, pack ing, marketing and advertising our products; to buy and sell supplies in a cooperative way; to rent, buy, build, own, sell and control such buildings and other real estate and personal property as may be needed in the business; to cultivate the cooperative spirit in the community and to do all things necessary and incident to the successful carrying out of the above purpose.-^ The additional activity undertaken under this broad purpose was the handling of feeds which proved to be very profitable. The last tobacco received was the 1918 crop. During the last two years the company turned its tobacco immediately to the American Tobacco Company. Although prompt payment was received by this method, no price advantage was gained so members withdrew. The quantity handled became so small that the company decided to cease operations. The ware house was sold and the stockholders received a liquidating dividend in excess of the par of their stock.^ ^Personal interview with B. G-. Edison, G-reenville, 0., stockholder in The Darke County Farmers Leaf Tobacco Co. Aug. 19, 1939. ^See pages 82-85 and 87-88. 3 From the Articles of Incorporation and amendment filed with the Secretary of State of Ohio. 4 Personal interview with J. N. Robsion, president of the company, Aug. 22, 1939. 94 The Gratis Township Leaf Tobacco Company and the Union City Fanners Tobacco Company received the 1917 crop as their last tobacco. The quantities were small. The Gratis company dissolved without loss of investment although the price members received for their tobacco was below market p r i c e T h e Union City company lost its capital investment p through unwise purchasing of tobacco. Lack of support from growers handicapped the opera tions of the Farmers Tobacco Company at Farmersville. After receiving the 1912 crop and a small amount of the old 1911 crop and of the 1913 crop, it voted to. cease operations. The price realized by the members was slightly below the market level. The company retained its warehouse which it has rented to date (1940) to a tobacco dealer. From the rents it has been able to pay the mortgage created in building the warehouse. The greatest volume of tobacco was handled by the company at Verona. million pounds. Its peak in the first year was nearly a After that it suffered a decline. Because of the high market price for 1917 tobacco it took in none that year. It received approximately 1,000 cases of the 1919 crop, the last one handled. A declining market price and a boycott by the dealers caused dissatisfaction. The ■^Personal interview with F. H. Williams, op. cit. 2 Personal interview with Robert Hindsley, op. cit. ■^Personal interview with John 0. Marion, Farmersville, 0., manager of the company, Aug. 21, 1939. 95 internal difficulties ended in the appointment of a receiver who liquidated the company in about a year.^ The Darke County Farmers Leaf Tobacco Company at Greenville operated the longest of any of the companies. After the first few years most of the tobacco it received was purchased. It attempted to continue operations in the period following the World War but found it difficult be cause of a declining market. the 1925 crop. The last tobacco handled was By this time the company had become a profit venture under the control of six directors. tobacco was disposed of in June, 1928. years of lawsuits. The remaining Then followed four The stockholders sued the directors and John Robeson, director and manager, for $20,363.23 and costs and interest. The charge was improper handling of the affairs of the company. It was claimed that consignments and purchases had been mingled, that crops had been substi tuted and numbers changed in sales without proper record, that shrinkage had been improperly handled, and that funds had been diverted to the manager and directors. Robeson countered with a suit for $4,200 back salary, a denial of the charges, and a plea of ignorance of enough accounting to keep better records. The Special Master Commissioner and the court finally ruled that Robeson was entitled to $1 ,239.86 out of which, as a member of the company, he had to bear a part of the court costs and his own award. The records showed debts of $11,100 after all tobacco had been ^Personal interview with C. C. Cromwell, op. cit. 96 sold*'*' The banks subsequently sued for and collected this amount from the stockholders. Internal troubles caused the dissolution of the Miami Farmers Leaf Tobacco Company of Miamisburg. crop handled was 1915 tobacco. The last Receipts had been about 300,000 pounds per year until the 1915 crop, but the company had not been successful in securing good prices for the mem bers* A group of members wanted to start a cigar factory in connection with the marketing activity* In 1917 this group of ten organized The Miami Growers Leaf Tobacco Company with a $20,000 capitalization and bought out the old company. few men from the Verona company later became stockholders. A p The new company purchased all of its tobacco except that raised by the ten original stockholders. tobacco for three years. It took in The greatest quantity came in the first year, about 400 cases. The failure of the company was due to the purchase of wrappers in 1917 and 1918 for 26^ to 35^ per pound. In the declining market losses were heavy* Although stockholders were able to sell their warehouse sat isfactorily, they suffered in the low price for their own tobacco and in the loss of most of their investment.. The company made no progress with the cigar manufacturing which it had set out to do.-^ ■**Darke County Farmers Leaf Tobacco Co. vs. John Robeson et al*, Case No. 25380, Court of Common Pleas of Darke County, Ohio. 2 Personal interview with Harley Hippie, Miamisburg, 0. manager of the Miami Farmers Leaf Tobacco Co., Aug. 22, 1939. ■5 Personal interview with Walter B. Byers, Miamisburg, 97 The early ventures after 1900, the National Cigar Leaf Growers* Union, and the twelve— including the one reorganized— warehouse companies, with the various sales agencies were created to help the grower secure a better price for his tobacco. This was to be done through cooperative action and direct dealing with the manufacturers. was never attained to any appreciable extent. This goal Although the warehouse companies appear to have started with the support of a widespread interest among the farmers, they soon lost their cooperative nature to become dealer agencies owned by a few growers. Even though they were favored through part of the period by rising prices, they were unable to secure sat isfactory prices for their members' crops. Their failures can be attributed to a combination of circumstances— small amount of tobacco handled, disloyalty of members, inexpert manage ment, poor sales practices, lack of finances, fluctuating prices, and opposition of the buyers and manufacturers. 0., director of The Miami Growers Leaf Tobacco Co., and a stockholder in the Miami Farmers Leaf Tobacco Co., Aug. 22, 1939. CHAPTER IV THE MIAMI VALLEY TOBACCO GROWERS* CO-OPERATIVE ASSOCIATION - FORMATION AND STRUCTURE In a few years following the close of the World War a number of events occurred to revive interest in the co operative marketing of tobacco. From an all-time high of 24 cents per pound in 1917 the average price of Miami Valley tobacco fell to 20 cents in 1919 and then to 11 cents in 1921 .■*■ Consumption of the tobacco, as measured by the dis appearance from the market, also decreased. Although the growers reduced their production, they did not do so rapidly enough to prevent the accumulation of a surplus stock on the o market. The tobacco growers felt the effects of these changes in a decrease in the total crop value from nearly fifteen million dollars in 1917 to approximately three million dol lars in 1921.^ This dollar loss in income was intensified by a change in the purchasing power of the farmer's dollar from an index of 117 in 1917 to 82 in 1924. See Figure 10, p. 45. Data in Appendix A, Table II. 2See Figures 8 and 9, p* 4-2, for comparison of pro duction, consumption, and stocks during the period. ■7 A -'See Figure 11, p. 45. 98 See Appendix A, Table II. 99 The prices for the 1922 crop were slightly higher than those for the 1921 crop, but the buyers were not very active in contracting for the tobacco* In view of the loss in popularity of the cigar*- and the failure of production to contract as rapidly as consumption declined* the prospects were not bright* in this situation the tobacco growers be came concerned about finding some relief from their diffi culties* Stimulus for cooperative action among the farmers was provided in 1919 when the Farmers* Equity-Union of Greenville, Illinois,, the successor to the American Society of Equity, campaigned for members in the district. Many of the fanners joined, and a number of cooperatives were started. Most of these were elevator companies, for example, The Arcanum Equity Exchange Gompany, Arcanum, Ohio, formed in 1920. The success of the early operations of these co operatives encouraged the farmers to think of extending co operative action to the marketing of tobacco.2 In 1921 the Burley Tobacco Growers Cooperative Association of Kentucky was organized. vYhen reports indi cated that it was bringing higher prices and more orderly marketing to that district, the tobacco growers of the Miami Valley became interested in making a similar experiment.^ 1See pages 33-37. 2 Personal interviews with farmers in the district during August 1938 and August 1939. ■^Ohio Farm Bureau Federation News. June 6, 1923, p. i. 100 The unfortunate experience some years earlier with the co operative warehouse companies was discounted on the grounds that they had heen too small, had suffered from poor manage ment, and had not heen properly organ! zed. Further impetus for the movement came from the legis lative consideration and the passage of laws to permit the formation of cooperative marketing associations* Following the federal enactment of the Capper-Volstead Act in 1922, Ohio placed a similar law on its statute hooks in 1923 with the passage of the Famsworth-Greer Cooperative Bill*2 The most important force in the tohacco cooperative movement was the Ohio Farm Bureau Federation which had heen developing rapidly during this period* In the course of its program of expansion, meetings were held in every community in Ohio to urge farmers to become members and to consider what the Federation might do to help solve the agricultural problems* One question frequently placed before the Farm Bureau leaders in these meetings in southwestern Ohio was, "What can we do about tobacco?11• The answer of these leaders was that a tobacco pool should be formed; and the Federation offered its services to help create such an organization.^ ^Personal interview with Walter B* Byers, Miamisburg, Ohio, a director of The Miami Growers Leaf Tobacco Co* and of The Miami Valley Tobacco Growers* Cooperative Association, Aug. 22, 1939. 20hio Farm Bureau Federation News* April 18, 1923, p• 4* 3 Personal interview with Fred L* Shoenberger, Columbus, Ohio, Aug. 14, 1939. During this period Mr. Shoenberger was organization director of the Federation. 101 Another factor responsible for interest in a possible cooperative association was the wide-spread and continual dissatisfaction with the country—buyer system of tobacco mar keting. The growers, whether or not their criticisms were valid, believed that this system meant low prices, uncertainty, and discriminatory treatment in the selling of their crops.1 Organizing; the Association The field men of the Federation sounded out the growers* sentiment and, when it appeared favorable, arranged a meeting of a few leading growers at Dayton, Ohio, January 17, 1923. At that time a temporary organization was effected to plan the association and to prepare the contracts and by laws. Murray D. Lincoln, executive secretary of the Federa tion, and Fred L. Shoenberger, organization director, were in charge of the meeting.2 The temporary organization moved rather slowly in investigating possibilities and in devising plans. At a second meeting of sixty growers held in Dayton, May 18, 1923, the reports of the temporary organization were discussed, and the growers voted to undertake the formation of a co operative association according to the plans submitted. An organizing committee of fifteen^— two at large from the 1See pages 56-57* 2 Ohio Farm Bureau Federation News. Jan. 24, 1923, p. 2. 3 ^The president of this committee was Frank Blackford, Eldorado, Ohio, who had been president of the National Cigar 102 district, three each from Montgomery and Darke counties, two each from Miami and Preble counties, and one each from Warren, Butler,, and Greene counties--was authorized to direct the membership campaign# The association was to be incorporated under Ohio* s new cooperative law and a fixed-term membership contract was to be employed# A close affiliation with the Farm Bureau was to be maintained both during formation and afterward# In fact, the Federation agreed to advance the funds for and to direct the campaign through its organiza tion department.^ The association was to include growers of all three types of cigar leaf in the whole district. As plans for the membership drive developed, the Federation employed a campaign director. He was David Bill, Chillicothe, Ohio, who had been a local organization manager for the Farm Bureau under Shoenberger# Bill was a Burley tobacco grower and had had some experience in tobacco marketing# 4 Active organizing work began late In July 1923# The campaign was conducted through township meetings and personal solicitation of the growers. Eight leaders, Including President Marvin, of the Burley Tobacco Growers Cooperative Leaf Tobacco Growers* Union, 1910-1913• page 71). (See footnote 1, ^Qhlo Farm Bureau Federation News, June 6, 1923, p. l. ’ 2 A contract binding the member to deliver his crops to the Association for a set number of years. 3 Ohio Farm Bureau Federation News. June 6, 1923, p. 1. Ibid.. July 18, 1923, p. 2. 103 Association of Kentucky were brought in to address some of the local gatherings.*^ The local meeting had been used also by other tobacco associations as the chief instrument for interesting growers in the cooperative plan.2 Local growers were employed at $5-#6 per day plus expenses to assist in the meetings and to make personal visits to the farmers to urge them to Join. Later some com plaints were made that the pay of these local workers was too high and that in some instances It amounted to a bribe to win over influential growers who hesitated to j o i n . ^ The county agricultural agents in the district took part in the drive by assisting the local workers in calling on the grow ers. According to reports of the campaign the organizers made serious errors which were to cause difficulty later. There were suggestions of 25 and 30 cents per pound for the tobacco if the growers secured a monopoly of the supply through an association. In support of such statements the successes in the Kentucky, Connecticut, and Wisconsin pools ^Ohio Farm Bureau Federation News. Aug. 1, 1923, p. 2, and Aug. 29, 1923, p. 3. Aaron Sapiro, who had assisted in organizing many cooperatives and who had worked with the Burley association, offered his services to the Federation organizers. When his offer was rejected, he came into the district and made several unsponsored speeches. (Personal interview with Fred L. Shoenberger, op. cit.) 2 J. J. Scanlan and J. M. Tinley, Business Analysis of the Tobacco Growers Cooperative Association, p. 13; G-. 0. Gatlin, Cooperative Marketing of Tobacco in Maryland, p. 3, and Cooperative Marketing of Tobacco in Wisconsin, p. 3. 3 Personal interviews with various growers during August 1938 and August 1939. 104 were cited. Organizers pointed out that a seven cent rise in price, such as the Wisconsin pool was said to have brought about, would mean "an additional $1,300,000 to the Miami Valley f a r m e r s R e p r e s e n t a t i v e of the appeals made to the growers is the following statement from the official Farm Bureau publication during the campaign# Not the slightest objection has been raised by the thinking grower about signing the contract, since he realizes that a real organization is the only means to get what tobacco is worth# When two-thirds of the Miami Valley crop is marketed cooperatively through this association 74$ of the leaf tobacco in the United States will be sold by pools* This means that our growers will control the source of supply for the manufacturers and they will have to come to them and offer what it really is worth. Every grower who hasn* t signed the marketing agree ment yet, should do so. In addition to all the personal advantages it will bring, the grower will keep faith with his neighbors* He can hold up his head and say, *I was one of the original signers and one who helped bring better tobacco marketing conditions to the whole Miami Valley .'2 A vicious attack was launched in the meetings and in personal solicitation against the manufacturers and the deal ers. They were blamed for all the difficulties which the tobacco growers had experienced. The reaction from these accusations came when the dealers and manufacturers attempted to defend themselves and later when they were reluctant to buy tobacco from the Association. ■3 ^Qhio Farm Bureau Federation News. Sept. 29, 1923, p. 4. 2ibia. ^Based on the writer's observations and on personal interviews with Association leaders during August 1938 and August 1939* For ease of statement this organization will be called "the Association" in this chapter and Chapter V. 105 A further error was the excessive pressure placed on the growers to get them to sign the membership contract. If reasoning did not prevail, threats and ridicule were used. Members obtained in this way could hardly be expected to be loyal and enthusiastic. They were not imbued with the cooperative spirit and they did not seem to have a clear understanding either of what they could reasonably expect from cooperative action or what they would have to do to make it successful. It is difficult to assign the blame for these errors. It would appear that Bill as campaign manager was partly at fault. The greater share of the blame seems to rest on the speakers and local workers who, in their zeal to push the organization, laid aside restraint and paid little attention to instructions from headquarters.2 The organizing committee set two-thirds of the tobacco acreage in the Miami Valley In 1923 as the necessary goal before the organization would be completed.^ This pro vision was merely a decision of the committee and was not incorporated in the charter, by-laws, or membership agree ment. Nevertheless, the directors regarded it seriously, and in 1925, when growers began to withdraw, the board passed a motion to the effect that two-thirds of the acreage was not ^Personal interview with R. H. Brundrett, Dayton, 0., secretary-treasurer of the Association, Aug. 24, 1939. 2 Personal interviews with officers of the Association during August 1938 and August 1939. ^Ohio Farm Bureau Federation N e w s , Feb. 21, 1924, p. 28. 106 necessary for the continuation of the Association .1 On October 20, 1923 the organizing committee reported that the necessary acreage quota had been secured. The strongest support for the Association came from the southern part of the district which raised mostly Type 42 tobacco. In the northern section the growers were more reluctant to join, so that by October 1923 less than fifty per cent of the acre age in Darke county had been secured, while the percentage of acreage signed in the other counties ranged from sixtysix to ninety. p The reasons for this reluctance, which became active opposition in 1925 when the Association ran into difficulties, are not clear. Part of it seems to have been due to the fact that the Dutch and Spanish growers, who were mostly in the northern part of the district, had not been affected as adversely by the price decline as had the Seedleaf growers. There are some assertions that the tobacco buyers and manu facturers were more active In fostering opposition to the movement in the northern part of the d i s t r i c t O n e expres sion of this belief was reported as follows: In Darke county particularly was the opposition of tobacco buyers and others of the strongest. Mr. Bill states that one large tobacco company placed $200,000 on deposit in one bank and asked the bank to use its 1Personal interviews with Fred Sheaffer, Germantown, Ohio, director of the Association, and president 1924-1927, Aug. 25, 1938 and Aug. 22, 1939. 20hio Farm Bureau Federation News, Oct. 31, 1923, p. 4, ^Personal Interviews with growers and officers of the Association during August 1938 and August 1939. 107 Influence to prevent the signing of membership contracts on the part of the growers .1 After the quota of two-thirds of the tobacco acreage in 1923 had been reached, the campaign was continued until the Association claimed it had 6,000 members representing seventy-five per cent of the tobacco grown in the Miami Valley. This was achieved after a part of the resistance in Darke county had been overcome.2 Although the total number of members who delivered crops the first year--4,890--was less than the number of members claimed, the total pounds received— nearly 20,000,000--were approximately 16% of the total produced that year.^ The Miami Valley Tobacco Growers 1 Co-operative Association was incorporated August 18, 1923, as soon as it appeared that the membership campaign was likely to succeed. It became a limited liability non-stock association under the provisions of the new cooperative association law of Ohio.^ The incorporators were the fifteen members of the organizing committee, who were listed as the only members of the Associ ation at that date. On September 21, 1923 the same individ uals adopted the by-laws under which the Association was to operate •-* •^Ohio Farm Bureau Federation News, Oct. 31, 1923, p. 4. 2 Miami Valley Tobacco News. March 1924, p. 3. 3 See Appendix A, Table II, for total 1923 production. A See page 100. Ohio Farm Bureau Federation News. June 1924, p. 8. 108 On November 8 , 1923 the Association was declared organized and the membership contracts which had been signed were made effective from that date. The first meeting of the members was held at Dayton, Ohio, December 8 , 1923, at which time the directors were elected. Only five of the members of the organizing committee were placed on the board. The following week on the 14th and 13th the newly elected direc tors met, organized, and selected officers for the Associa tion.^ The Articles of Incorporation, in outlining the pur pose and scope of operations of the Association, provided that The operations and activities of this Association shall be limited to activities arising out of the processing, drying, grading, shipping,, storing, warehous ing, handling, manufacturing and marketing of the tobacco or tobacco products of the Association and of its members and others and the financing of any of the said opera tions .2 In order that the Association might be able properly to conduct these activities, it was empowered to ,fborrow money without limitation as to amount of corporate indebt edness or liability,1’ to own all necessary real and personal property, and to own or guarantee the interest and dividends on the stock and bonds of firms ”engaged in any directly related activity or in the warehousing or handling or mar keting of any of the products handled by the Association.”*-5 ^Ohio Farm Bureau Federation News, June 1924, p. 8 * 2 From the Articles of Incorporation of the Associa tion filed with the Secretary of State of Ohio. Ibid. 109 Dayton, the largest city in the district was selected for headquarters* It was not as near the center of the dis trict as was desired, but it was chosen because many tobacco dealers and manufacturers had offices there and because it was thought to offer superior financial connections*1 The cost of organizing was $11,54-0 .20, approximately $2*54- per member signed at the date of organization.2 This money was advanced by the Ohio Farm Bureau Federation, which was later reimbursed by the Association. Membership Contract and Relations The marketing agreement^ was prepared by the legal department of the Ohio Farm Bureau Federation and was based on the membership contract used by the Burley Tobacco Growers h Cooperative Association. According to this contract the member was required to deliver to the Association all the tobacco grown by or for him or acquired by him during the years 1923 to 1927 inclusive. tracts were excluded. Crops covered by existing con This type of binding, fixed-term con- 1Personal interviews with Fred Sheaffer, op. cit. 2 Figures on the operations of the Association used throughout this study were secured from the reports sent by the Association to the members either as special notices or as the monthly publication of the Association; from the audits by the Ohio Farm Bureau Federation Auditing Service as of October 31, 1924 and February 28, 1925; and from the audits by Wall, Hardman and Lane, Dayton, 0., as of July 31, 1925, October 31, 1925, October 31, 1926, and April 6 , 1927. ■^The Marketing Agreement is given in Appendix B. ^Personal interview with Fred Shoenberger, op. cit. 110 tract was used in practically all of the associations formed in the period after the World War, and was a result of the difficulties which had "been experienced previously with nonbinding agreements.1 Liquidated damages of five cents per pound, averaged for all types and gradesr of tobacco, were to be paid in case of breach of the contract* In addition, the costs of any suit to enforce the contract were to be assessed against the member sued. That the organizers did not intend that the right of withdrawal from the Association be denied entirely is shown by the following section in the by-laws. No member shall be permitted to withdraw from the Association during any period in which he is bound to deliver any products to this Association under a term contract unless consent for such withdrawal shall have been given by the board of directors upon application to it by such member or members desiring to withdraw. How much discretion was permitted the board in pass ing on requests for withdrawal became a point of controversy when many members attempted to withdraw in 1925 The board of directors was given the power to expel any member who ceased to raise tobacco or who refused to deliver his crops or to abide by the rules of the Association. A member who violated the regulations did not cease to be a member until the board by a majority vote passed a resolution 1H. B. Price, "What Future for Tobacco Cooperatives," American Cooperation 1934, p. 262. 2 See Association's By-Laws, Article XIII, Section (d). See pages 156-163. Ill to that effect* In addition to any liquidated damages a fifty dollar penalty could be imposed for violation of the by-laws *■*• Non-transferrable membership certificates were issued to the members* to one vote* In the elections each member was entitled Mail voting was permitted, but the use of proxies was denied* If the board of directors so desired, elections of directors and votes on specific propositions 2 could be conducted entirely by mail. Provisions were included in both the marketing agree ment and the by-laws for the establishment of reserves from the sales of members* tobacco; and no limits were placed on the use or amount of such reserves. In the property acquired by the Association each member was to have an equal share, but the interest of each member in the deductions for reserves was based on the quantity of tobacco delivered.^ A membership fee of five dollars was charged the growers upon joining the Association. Payment of this could be postponed to allow deduction from the returns due the grower on his crop. In addition, an annual charge of ten dollars was to be paid by each grower as dues in the Ohio Farm Bureau Federation. This sum was to be a payment for the services of the Federation to the Association and to the ^See Associations By-Laws, Article XIII, Sections (f) and (o), Appendix B. 2Ibid., Article X I I , Section 5, and Article XIV. ^Ibid., Article XIII, Sections (h) and (m); Associa t i o n s Marketing Agreement, Paragraph 6 , Appendix B. 112 growers generally. Growers who paid dues directly to the Farm Bureau were not subject to this charge This arrange ment was similar to that between the American Society of Equity and the local cooperative warehouse companies in 1912. 2 It was partly the result of the desire of the Federa tion to expand its membership,^ Much criticism was directed at the plan since members contended that the Farm Bureau did not provide service equivalent to the dues, and that the Association should not be used to enlarge the Farm Bureau membership. As a matter of fact, these dues which the Asso ciation collected and paid over to the Federation did not cover all the service charges, for additional amounts were A paid to the Federation. The marketing agreement stated: "the Association agrees to buy and the grower agrees to sell and deliver to the Association all of the tobacco produced by or for him • . 5 ...” In spite of this the Association operated as if title to the tobacco remained with the grower. The board of directors even declared that the agreement was one of agency and therefore the growers retained title and should 1 See Association's By-Laws, Article XIII, Section (1), Appendix B* 2 See page T O . Personal interview with Fred L. Shoenberger, op. cit. 4 On the basis of items reported in the audits of the Association. 5 See Association's Marketing Agreement, Paragraph 2, Appendix B. 113 pay the taxes on the tobacco placed with the Association*^ Maintaining Membership Relations Because of the opposition which was met in forming the Association,, the officers realized that vigorous efforts would have to be made to maintain contacts between the mem bers and the Association* given this job* The field service department was To accomplish the task the officers used principally numerous local meetings such as had been held in the period of organization. These local meetings of members and outsiders served several purposes: to campaign for new members, to explain the Association*s operations, to instruct the growers in tobacco handling, and to combat the opposition and internal dissension which arose as early as 1924.- At some meetings lantern slides were used to illustrate talks on Association activities. In addition to meetings sponsored by the Asso ciation, Farmers- Institutes were used as convenient gather ings at which to campaign for more members. Officers claimed that several hundred members were added by these means during 1924 .3 One of the most important functions of these meet ings was to instruct growers in better methods of stripping ^Ohio Farm Bureau Federation News. May 1925, p. 17 . 2Ibid.. June 1924, p. 8 . 3Ibld., November 1924, p. 20. 114 and packing their crops# The unsatisfactory way in which the members had handled their 1923 crops led to an attempt to improve the handling of the 1924 crop# During December 1924 stripping demonstrations were held in every township in the district# Placards of printed instructions for packing were distributed to the g r o w e r s T h e officers believed that a very decided improvement was noticeable in the condi tion of the 1924 deliveries#^ In June 1924 the board of directors proposed to create in each township a tobacco council, composed of three members from each school district, to serve as a link between the administration and the members# The purpose seems to have been to find some agency to combat the development of opposition and to still the criticism that members had no way of discovering what was happening in the Association#-^ The plan for the council was never carried out, but Tobacco Township Chairmen were appointed by the board to serve a similar purpose# As a part of the membership relations program the Association published a news bulletin, the Miami Valley Tobacco News, which was distributed to all members# Three issues of seven numbers--the second issue combined Nos* 2-6— 1 Ohio Farm Bureau Federation News# Dec# 1924, p# 23* 2 Personal interviews with M. E* Stern, tobacco broker of Dayton, Ohio, and sales manager of The Miami Valley Tobacco G-rowers Cooperative Association 1924-1926, August 25 and August 28, 1939. Ohio Farm Bureau Federation News# June 1924, p. 8# 115 were published from October 1923 to April 1924 as separate bulletins# Beginning in May 1924 the bulletin was a part of the Ohio Farm Bureau Federation News# Most of the items in the bulletins were designed to reassure the members as to the progress being made# Occasionally condensed statements from the audits were included, but in most instances operations were described in very general statements* In spite of these efforts of the Association to explain.its operations, members complained that they were not aware of what the Association was doing. A part of this can be attributed to the lack of definiteness In the state ments of the officers and the relatively few accounting statements of condition and operations issued* Early in 1925 an auditor recommended that a complete monthly report be made to the members through the bulletin,'*' but this was not done# Another part of the difficulty resulted from the fact that the growers were unable to understand the financial statements and could not discover what the reported receipts and expenses meant in terms of their own crops# Some of the blame for the lack of understanding rests on the members because of their poor attendance at the local and annual meetings. Less than 300 of the nearly 5,000 mem bers attended the annual meeting in 1924^ and only one hun dred of the 2,500 “loyal” members were present in November ^Audit by Ohio Farm Bureau Federation Auditing Service as of February 28, 1925# 2 Ohio Farm Bureau Federation News, Nov. 1924, p# 20# 116 1 9 2 5 The local meetings were a bit better attended but even in the primaries the total vote was small.^ This situ ation seems to have resulted from a general lack of enthusi asm for the Association.. In connection with the work of maintaining the membership relations the Association attempted to improve the quality of the tobacco grown in the district. The need for this was emphasized when the Association discovered the lack of standardization of the three types in the 1923 tobacco, rior. some varieties in each type were noticeably supe Therefore, the directors decided to buy seed of the best varieties of each type and to distribute it free of charge to the members.^ For the first year seed was purchased from a seed company in Pennsylvania, but the tobacco did not seem to be suited to the Miami Valley. Later the Association selected growers who had good varieties and hired them to raise seed.^ The dissolution of the Association prevented an adequate test of this plan for improving the Miami Valley types. Approximately $2,50° was spent for the seed given to the ^Ohio Farm Bureau Federation News. Nov. 1924, p. 20* p Personal Interviews with Fred Sheaffer, op. cit. ■3 Ohio Farm Bureau Federation News, Oct. 1924, p. 10, and Nov. 1924, p. 20. 4 Ibid., Feb. 1925, p. 10. Those who raised the seed devoted about one-fourth acre to the purpose. Each was paid about $50. Very little extra expense or labor was involved and the grower could still harvest the leaves from the seed stalks. (Personal interviews with Fred Sheaffer, op. cit.) 117 members. Management Since management is so important in the success of any business, a careful examination must be made of the struc ture and functioning of the management of the Association. The control of the corporate powers and business was vested in a board of directors of fifteen members# were elected by the membership* Thirteen of these To assure representation from all parts of the Valley, each county was made a district and directors were apportioned among the districts on the basis of the tobacco produced# Thus, Darke and Montgomery counties had three directors each, Miami and Preble counties two each, and Warren, Butler, and Greene counties one each. The members in Indiana and in Shelby county, Ohio, were included in the Darke county district# It was required that the directors be tobacco growers, members of the Association, and reside in the district they represented.1 Since the term of office was one year, no continuity in the membership of the board was assured. A complicated procedure for the election of the p directors was devised. Nominations for directors were made by delegates chosen in local meetings. For the 1924 election ^See Association's By-Laws, Article II, Sections 2 and 3, Appendix B. 2 The details for the election procedure were obtained from the Resolutions issued for each election by the board of directors as authorized in the By-Laws, Article II, Section 2, and Article XII, Sections 6-8, Appendix B. 118 mass meetings of the members were held in each township to nominate delegates. Each township was:alloted one delegate for each 250,000 pounds of tobacco grown that year. Any township which raised less than this amount was allowed one delegate with a fractional vote. Twice as many delegates were nominated as were elected at the primaries held later in each township. This method of nominating delegates proved to be too cumbersome. So, for the 1925 election, delegates were nominated and elected by districts.. The nominating committee in each district was composed of the Tobacco Township Chair men. The number of delegates nominated and elected was on the same basis as in the 1923 election. These nominations were made early in October, and the primaries for the election of the delegates were held in the latter part of the month. A few days after their elec tion the delegates met by districts to nominate directors for their districts. Only as many nominations were made as there were directors in the district. These nominations were then presented at the annual meeting of the members held on the first business day In November. No provision was made for nominations from the floor or for the rejection of the nominations by the members. One point of criticism In the revolt among the mem bers in 1925 was this method of election. It was claimed that the procedure made it possible for the old directors and officers to continue in power, and that it was expensive, 119 unwieldy, and annoying to the growers. Court action was brought by the insurgents in 1925 to force a change in the method of election.^ In defense of the system it was said that the local primaries were for the convenience of the members and that the system resulted in the nomination of better qualified persons than would have been the case with nominations in a general meeting.^ Two of the fifteen, directors were selected by the thirteen chosen by the members. These two directors-at- large were to "represent the interests of the general public” and did not need to be tobacco growers or members of the Association. In all respects they were to have full author ity as directors.^ In practice they were chosen from the membership or the officers. Vacancies on the board were filled by the directors; and directors so selected continued in office until the next annual election. The new director who filled a vacancy had to be from the district of the director whose place he took.^ The compensation of the directors was ten dollars per day and necessary expenses in connection with attendance at the monthly and special board meetings.5 Members com plained that there were too many directors and that their ^Ohio Farm Bureau Federation News. Nov. 1925, P* 21. 2 Personal interviews with Fred Sheaffer, op. cit. "3 See Association's By-Laws, Article II, Section 2 (d), Appendix B. ^Ibid.» section 5* ^Ibid *» Section 10. 120 pay was too high. In the change in management in November 1924 the directors voted to reduce their own wages to five dollars per day. Thereafter some vacancies on the board were allowed to remain unfilled for considerable lengths of time The by-laws provided for a president,, two vicepresidents, a secretary, a treasurer, a general manager, and any other administrative officers found necessary by the directors. There was an executive committee composed of seven members of the board and an auditing committee. These officers and committee members were to be selected and their compensation determined by the board.2 The relationships of the officers and departments as developed in operations are shown on the chart on the follow ing page. The president held the position of general manager and was the active directing officer of the Association. The vice-presidencies were in practice merely honorary posi tions, since these officers had no powers delegated to them and no opportunities to serve in the absence of the presi dent. The executive committee had the supervision of sell ing policies as its special problem. Until November 1924 the position of sales manager was held by the general manager. No separate department was created to handle financial ■^Personal interview with D. P. Albright, Hollansburg, Ohio, director of the Association 1925-1927, Aug. 23, 1938. 2 See Association’s By-Laws, Articles V-IX and XV, Appendix B. 121 problems* This work was done by the treasurer and the presi dent with some assistance from the executive committee# The positions of secretary and treasurer were combined, although the by-laws permitted a separation and also provided that a bank might be designated as treasurer#^ ORGANIZATION CHART OF“THE MIAMI VALLEY TOBACCO GROWERS' CO-OPERATIVE ASSOCIATION Members Executive Committee V.-Pres Sales Manager Auditing Committee Board of Directors Field Service Director President and General Manager Assistant Manager Tobacco Township Chairmen Warehousing Handling Secretary Treasurer Miami Warehousing Corporation Auditor Accountant Figure 14 The field service department had charge of campaigns for members and membership information work. In the latter was included the preparation of the Association bulletin. Very soon after the organization of the Association the chief ■^See Association's By-Laws, Article VII, Appendix B. 122 work of the department became the appeasement of dissatisfied members* During the first year the positions of assistant manager and of field service director were combined* The warehousing and the tobacco handling were dele gated to a wholly owned subsidiary, The Miami Warehousing Corporation* The policies and operations of the subsidiary were closely controlled by the president and board of the Association, several of whose directors were also directors in the subsidiary. In selecting the first officers the board followed the recommendation of the Farm Bureau organizers that experi enced men should be chosen and paid good salaries* Lincoln and Shoenberger of the Federation believed that this was necessary since the failure of so many cooperative ventures had been traced to poor management William Stroop, who had been a tobacco dealer in Dayton and also president of the American Cigar Company, a subsidiary of the American Tobacco Company, was made president and general manager at a salary of $25,000. Arthur A. schwagel, an officer in a Dayton bank, became secretary-treasurer with a salary of $8,000. For the head of the field service depart ment and assistant manager, the board selected David Bill, who had directed the membership campaign. His salary was $5 ,000 . Soon after operations began members started to •^Personal interview with Fred Shoenberger, op. clt. Information on changes in personnel and salaries was secured in personal interviews with Fred Sheaffer, op. cit. 123 complain about the size of the salaries and about the pre vious connections of Stroop. When sales did not progress as rapidly as members felt they should, the protest was expressed by a change of several directors in the annual election in November 1924 and by a complete change of officers. Fred Sheaffer, a prominent farmer of Germantown and a member of the board, was made president and general man ager at a salary of $7,000. Beyond his service on the board the first year he had had no experience in the tobacco mar ket, except as a grower. The job of sales manager was sepa rated from the work of the general manager and was given to M. E. Stern, tobacco broker of Dayton, Ohio, at a salary of $15,000. The salary of the secretary-treasurer was reduced to $5,000 and R. H. Brundrett, official of a Dayton bank, was selected for the position. The field service work was cur tailed and placed under the direction of Ray DeWeese, an active Farm Bureau worker in Darke county, with a salary of $2,500. H. H. Darst, a tobacco grower of Miamisburg, Ohio, and a director at large, was made assistant manager at a salary of $2 ,500. The total annual saving in salaries from these changes was $6,000. Less experienced men were placed In the positions of general manager and field service director. the other hand, a more experienced person took charge of sales. The members were partly satisfied by the readjust- On 124 ment, but were somewhat critical of the appointment of Stern as sales manager. Equipment The offices of the Association were located at first in the City National Bank Building in Dayton. These quarters were too small and expensive, and in November 1924 a twostory building at 125 Sunrise Ave., Dayton, was leased for four years with a purchase option. This building housed the offices, the sample storage, and the sample display room.'1’ Since the warehouses were leased with equipment, the Association made only a small capital investment. Approx imately $10,000 was spent on office equipment, $2,500 on warehouse equipment, and $1,000 on improvements on the leased warehouses. When the Association liquidated in 1927, approx imately $1,300 was realized from the fixed assets. In view of the short life of the Association it was fortunate in not having made extensive investments in buildings and equipment. ^Ohio Farm Bureau Federation News. Nov. 1924, p. 23. CHAPTER V THE MIAMI VALLEY TOBACCO GROWERS' CO-OPERATIVE ASSOCIATION - OPERATIONS Although the formation of The Miami Valley Tobacco Growers* Co-operative Association, described in Chapter IV, was begun early in 1923, the organization was not completed until very late in that year. Consequently, the Association started operations with the 1923 crop, when that tobacco was ready for delivery in the first part of 1924. Financing One of the first problems with which the Association had to deal was the vital one of finances for which a fairly satisfactory solution was found. The plan for the Associa tion called for advances to the members upon delivery of the crops. To finance these advances in the first year a bank ing syndicate of 59 banks, most of which were small local institutions, was formed. The City Trust and Savings Bank of Dayton acted as trustee for the syndicate which subscribed a total of one million dollars for loans to the Association. A similar method of borrowing for advance payments ^Ohio Farm Bureau Federation News, May 1924, pp. 1416 and March 27, 1924, p. 2. 125 126 was used during this period by the Burley Tobacco Growers Cooperative Association*^* and by the Connecticut Valley Tobacco Association, the latter of which arranged a subscrip tion of $8,000,000 from forty-seven New England and New York banks *2 To borrow the money the Association used as collat eral the tobacco which the members delivered. Each day every warehouse prepared a list of all deliveries according to the name of the grower, the type and the grade of tobacco. If the Association wished to borrow on the tobacco— and it did on practically all it received— these lists, which served as a type of warehouse receipt, were then sent to the trustee of the syndicate as security for the acceptance drafts used in borrowing* As soon as the money was received on the loans, the Association made an advance payment to the growers of 50^ of the estimated value of the tobacco as established according to type and grade by the Association and by repre sentatives of the syndicate* tion 70^ of this value.^ The banks loaned the Associa The difference of 20^ was used for operating expenses. The attempts to secure financial assistance from the Federal Intermediate Credit Bank, Louisville, Kentucky, were blocked by the difficulty of establishing the necessary bonded storage. The banking syndicate was willing to lend 1Agricultural Cooperation, Dec. 17, 1923, p. 10. 2Ibid., Jan. 2, 1923, p* 10. ■^Ohlo Farm Bureau Federation News. May 1924, p. 14. 127 on the regular storage in the leased warehouses. The following report on the financial arrangement was issued to the members: A representative was sent to the Louisville Inter mediate Credit Bank and secured a promise of all the money needed* The only request was that the Association not fuss around, if it could help It, with anything less than a million dollar loan at a time* The more money they could lend on Association notes secured by bonded warehouse receipts the better pleased they were. But it wasn't necessary to go so far away. Local banks and a Cincinnati bank have agreed to furnish funds for the first payment on the crop.-t A total of $851,850 at 5i% was borrowed on the 1923 crop from the syndicate* In addition to the interest charge there was an $8,000 annual fee to the trustee. The syndi cate arrangement did not prove to be entirely satisfactory. The Association had expected to be able to dispose of the tobacco very soon after delivery by the members* Approxi mately one-fourth of the total, five million pounds selling for about $800,000, was sold almost as soon as it was received. No money had been borrowed on this. As the remainder stayed In storage month after month, the country banks which had joined the syndicate became anxious for the repayment of their loan*2 On September 2, 1924 the Indebtedness to the syndi cate was liquidated by the formation of a new trust agree ment with seven large banks— two in Dayton, three in Columbus, one in Cincinnati, and one in Hamilton— which ^Miami Valley Tobacco News, March 1924, p. 2. 2Ohio Farm Bureau Federation News, Nov. 1924, p. 21. 128 assumed the loans.'*' changed again. In March 1925 the trust agreement was This time five banks— two in Dayton, one in Cleveland, one in Cincinnati, and one in Columbus— composed the syndicate. The Winters National Bank and Trust Company, Dayton, was appointed trustee with an annual fee of $4,000, just half of that charged by the previous trustee.2 Trouble with this financing arrangement arose not only from the inability of the Association to sell the tobacco soon after delivery, but also from the method of using the warehouse receipts— the lists of tobacco in stor age as collateral for the loans. Since many cases of differ ent grades were listed on a single receipt, the withdrawal from storage of a few cases on each receipt when a sale or a transfer among the warehouses was made was very difficult. To overcome this trouble a separate receipt for each case was suggested, but the plan was not tried and the Associa tion continued to use the first method.^ It appears that some difficulty arose also because of the laxness of the storage arrangement. It was stated that at times during the first year cases were removed from storage without the per mission of the syndicate and without the repayment of the amount loaned on them. Such instances were said to have A been few and did not lead to any serious results* To avoid this in the second year the Association placed the custodians -^Ohio Farm Bureau Federation News. Nov. 1924, p. 21. ^Ibid., March 1925, p. 18. ^Ibid., May 1925, p. 21. A Personal interviews with Fred Sheaffer, op. cit. 129 of the storage warehouses under fidelity bonds .-*• The possibility of borrowing at a lower rate of interest from the Federal Intermediate Credit Bank induced the Association to consider bonding several of the ware houses for the second year under the United States Ware house Act of 1916.^ The proposed bonding was never accom plished because of the uncertainty of the future of the Association after members began to demand the right to with draw. The board was authorized by the marketing agreement to create "reserves, funds for credit, and other general commercial purposes.*’^ No limits were imposed on the use or size of these reserves. Prior to the actual distribution of the money to the members, the directors were permitted to use all funds as they saw fit.2*- As a result, the Associa tion made use of reserves and of funds from the 1923 sales to help finance advances on the 1924 crop. A general reserve of 12^% of net sales of the 1923 crop to cover "furniture and fixtures, Warehouse Corporation Stock, members1 overdrafts,, and cash reserves for contingen cies, credit and other general purposes"^ provided approx ^Ohio Farm Bureau Federation News, April 1925, p. 18. 2 Ibid., Oct. 1924, p. 9, and Nov. 1924, p, 23. ^See Association*s Marketing Agreement, Paragraph 6, Appendix B. 4 See Association*s By-Laws, Article XIII, Section (p), Appendix B. 5 From a letter to the members on Aug. 27, 1925, 130 imately $200,000 of working funds in time for the 1924 crop. In addition, over $310,000 from the sales of the 1923 crop were used to make advances to the 1924 growers. As a result, the Association found It necessary to borrow only $240,000 from the syndicate on the 1924 crop. credited with interest at The 1923 crop was on the $310,000 Miami Warehousing Corporation The tasks of providing storage for and of receiving and handling the tobacco were performed by the Association9s subsidiary, The Miami Warehousing Corporation. Since the Association, as a non-stock company, could not easily issue securities or notes to raise the funds necessary for the con templated investment in warehouses, this separate stock cor poration was created for that purpose* An additional advan tage was that if the investment in and the operation of the warehouses should not be successful, the marketing associa tion would not be affected as adversely as it would if it carried on these activities itself. Thus, the failure of the warehouse company would not involve the Association in heavy financial losses nor force the Association to reorganize or to liquidate. This device of a separate corporation was used extensively by other tobacco cooperatives In this period. Examples were The Tobacco Growers Cooperative Association in the Virginia-Carolina district with five subsidiary ware 1 Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct* 31, 1925. 131 house corporations, and the Dark Tobacco Growers Cooperative Association, Hopkinsville, Kentucky, with ten such subsid iaries*1 The Miami Warehousing Corporation was incorporated January 17, 1924, with an authorized capital stock of $100,000 in shares of $10 par* The only stock which was sold was $10,050 which was owned by the Association* On the board of directors of the Warehousing Corporation were several directors of the Association* The chief officers of the Corporation were the president, the secretary-treasurer, and the warehouse custodian. The persons who filled these posi tions did not hold offices in the Association* The warehouse custodian, W* W. Henry, had charge of employing all the per sons needed to staff the warehouses and to handle the tobacco.2 All expenses of the Warehousing Corporation were paid by the Association. Vouchers for the expenses were prepared and presented to the Association which then for warded the money for them to the Warehousing Corporation* In turn this company issued its own checks to its employees and to its creditors for rent of the warehouses and for other items.^ 1Scanlan and Tinley, op. cit.. pp. 21-22; 0. B# Jesness, op. cit., p. 281; Agricultural Cooperation, Sept. 10, 1923, 3, and Oct* 20, 1924, p. 3477 Subsidiaries in several associations are mentioned in these references. p Ohio Farm Bureau Federation News, July 1924, p. 4. •^Personal interviews with Fred Sheaffer, op. cit. 132 It was the Intention of the organizers that the Warehousing Corporation should buy or build the warehouses needed for operations and storage* In view of Its short existence the Association was fortunate in that the corpor ation leased the warehouses with the expectation of purchas ing after the storage needs had been definitely determined. The purchase was deferred also because the officers thought that the corporation would be able to secure the buildings more cheaply after the Association had firmly established itself and had driven out the other dealers who might be in the market for the houses*1 To handle the 1923 crop the Warehousing Corporation leased thirty-nine warehouses scattered over the district* In addition, three houses were rented for several months as receiving points. The locations of these houses are shown on the map on the following page* The great number of houses and the scattered loca tions were due to the insistence of the members in each com munity that a receiving point be established near them. Since the growers were required to stand the costs of deliv ering their crops to the Association, more centralized loca tions of the houses would have placed some members at a disadvantage. Also there was a desire to mollify the ware house owners who saw the Association threatening their investments and who caused considerable opposition to the formation of the Association until some assurance of the 1Mlaml Valley Tobacco N e w s , March 1924, p. 1. 133 _ lO j a y < T |“ M E R C E .R ; tj° ; '» Lr LO Sh QAN elby v«raaiIU Ci'^J Ansor,i<^ R a n d o l p h | Da * - 1 Ch a m C ovl r>q tor? r k e I )M J Al^i PieaSarttr 4Tr© l I CU <~K Mlanch WAYNE MONT e n e D<xyton UN toeir,s IO N CLINTON N u m b e r ,on w a re h o u s e s KEN Temp<jrtxi»y Receivinq f iTcaie P o in t of Mties Fi9.i5. WAREHOUSES OF THE M IAM I V A LLE Y TOBACCO GROWERS' C O -O P E R A TIV E A S S O C IA T IO N FOR TH E 1 9 2 3 CROP 134 renting of their houses was given. Most of the leases were made for a period of a year. Seven were for two years, and two were for five years. In all of the contracts there were a provision for the renewal of the lease and an option for the purchase of the house within a specified time at a fixed price. All hut two of the leases called for a fixed sum rental payable monthly or quarterly, in the two the charge was five and three cents per case per month on the quantity in the h o u s e O n an average, the fixed sum rental amounted to three cents per case per month on the capacity of the house.^ The general distribution of the membership of the Association is shown by the locations of the warehouses. The great number, eight, at G-ermantown was the result of the plan to make that city the storage headquarters and the main receiving point in the southern part of the district— hence the few warehouses in Butler and Warren counties. Tobacco was received and stored, at least temporarily, in all the houses. For rehandling, the tobacco was transferred, if necessary, to one of the sixteen houses in which this work was done. From these houses the warehouse custodian attempted to collect the rehandled tobacco into the G-ermantown houses. The tobacco which was not rehandled was 1Personal interviews with M. E. Stern, op. cit. p Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct. 31» 1925. •^Ohio Farm Bureau Federation News, April 1925, p. 20. 135 sampled and left in the house by which it had been received* The four-hand samples taken from each case of worked and unworked tobacco were sent to the Dayton headquarters for display or to a G-ermantown warehouse for storage.1 This system of receiving, handling, and storing was very expensive. It required a large staff to manage and check the operations of so many houses. Extra costs were created by the transportation of the tobacco among the houses. This shifting likewise complicated the keeping of records of the crops and the using of warehouse receipts for o borrowing. For the second year* s operations the corporation reduced the number of leased warehouses to fifteen— two each in Farmersville, Germantown, Greenville, and Miamisburg, and one each at Brookville, Pitsburg, Troy, Versailles, West Alexandria, West Manchester, and Lytle. Several others were used for a few months In 1925 until all the tobacco stored ■3 in them had been sold.-' The number of locations was reduced from twenty-two to eleven. Most of the discontinued houses were either small or located in outlying parts of the dis trict or in small villages. Reference to these locations on the map on page 133 shows that some concentration had been accomplished, yet the members were well served by convenient ^Ohio Farm Bureau Federation News. Nov. 1924, p. 21. 2Ibid♦, April 1925, p. 21. ■3 ''Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct. 31, 1925. 136 delivery points* The reduction in the number of warehouses was made because of the expected shortage in the 1924 crop and the indications that some members would refuse to deliver this crop* Even so, the reduction was not great enough and a sizeable portion of the leased storage was not u s e d A There is evidence that the warehouse corporation suffered from poor and dishonest management. An audit in October 1925 revealed a $100 shortage in a bank account and unexplained transfers totalling $250 to the seeretarytreasurer. Certificates of deposit were made out improperly. Apparently a very poor check was kept on the leases of the warehouses and the amounts of rent due, for five warehouses were used after the expiration of the leases without the notice required by the contracts, and an overpayment of $1,295 was made on rentals from February 1924 to October 1925. p As soon as the 1924 crop was all sold in August 1926 the Warehousing Corporation was dissolved. The amount which the Association had invested in the stock was returned.-^ Receiving and Handling Through its subsidiary The Miami Warehousing Cor poration, the Association received on consignment from the ~*~0hio Farm Bureau Federation News. Jan. 1926, p. 31. 2 Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct. 31, 1925* 3 Personal interview with R. H. Brundrett, op. cit. 137 growers all three types and all grades of the tobacco except the trash leaves. This grade was excluded because of its extremely low price during the period, the inability of the Association to find a market for it,, and the refusal of the banking syndicate to loan money on it. After some criticisms of this policy from the mem bers, the Association promised to sell the trash leaves for 1 the members as soon as it could find buyers. Rather than handle it. on consignment, the Association in 1925 bought a small quantity--$10,741.56 of the 1923 crop and $5,165.10 of the 1924 crop— at two cents per pound from members who were willing to accept that price. Out of these operations the Association realized a commission of $306.97 to apply on the o costs. The tobacco of the members was pooled, or mingled. Each year’s crop made up a major pool with minor pools according to types and grades for purposes of allocation of expenses and payments to growers. In this respect the Association differed from the cooperative warehouse companies of 1912, which had followed a policy of handling the members’ crops individually. Pooling prevented many of the difficul ties in selling and making settlements which these earlier ^Ohlo Farm Bureau Federation News, Sept. 1924, p. 8. 2Audit( by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct. 31, 1925* ■3 See Association’s Marketing Agreement, Paragraphs 5 and 7, Appendix B. 138 companies had experienced.3" Since the independent dealers had been resweating a large portion of the tobacco for the manufacturers, the Association decided that to replace the dealers it would have to rehandle at least the better grades which it re ceived. On the 1923 crop the Association undertook to do its own rehandling through the Miami Warehousing Corporation. Approximately two-thirds of the receivings were bulk-sweated and either hand- or table-sized. The undertaking was not satisfactory. Costs were higher by 30^-50^ than for the dealers who did the same work. Members and directors claimed that this was due to inexperi enced handling crews and to inefficient management in the Warehousing Corporation. In reply the warehouse custodian said that the extra expense was caused by the poor quality of the tobacco and the careless way in which the members had packed It.^ For the 1924 crop the Association hired the Cullman Brothers, tobacco dealers of Middletown, to rehandle the tobacco at one cent per pound— in comparison with the cost of approximately 1.4 cents per pound on the 1923 crop. About one-third of the 1924 crop was resweated and sized under this arrangement•^ One of the biggest tasks in handling the tobacco was ^See pages 85-86» 2 Ohio Farm Bureau Federation News. Sept.. 1924, p. 8. 3 Personal interviews with Fred Sheaffer, op. cit. 139 the grading. The Association planned to reward the members who raised the better quality tobacco and who were careful in stripping and packing it. In order that this might be accomplished each crop was graded and, in the payments, a difference was made In the price for each grade. Also the amounts of the advances to the growers upon delivery depended on this grading. The Association’s officers believed that if the grading could be done before delivery, confusion at delivery time could be avoided and preparation of the checks for the advances would be expedited. In February 1924 five crews of a total of twentythree men under the supervision of the warehouse custodian began to cover the entire district to grade the tobacco in the members' sheds. Unseasonable weather had postponed the stripping so that many members had not finished packing their crops. The Association established three grades of wrappers, two of fillers, and three of frosted tobacco— about a third of the 1923 crop in the Miami Valley had been damaged by frost. The graders were instructed to follow very carefully the standards established for each of the eight grades in each type.1 This method of grading proved to be one of the major errors of the Association. was not done impartially. It was claimed that the grading The graders employed were, in most instances, growers who lacked the necessary experience. Ohio Farm Bureau Federation News. Jan. 1924, p. 8, and Nov. 1924, Ju 22. 140 At the same time the members were accused of deceiving the graders as to the amounts of fillers and frosted tobacco in their crops— it was not easy to examine the tobacco thor oughly In the sheds— and of finishing the packing of their crops in a very poor manner after the grading had been done.1 One result of this method of grading was the spoil age of a large quantity of the tobacco after delivery to the Association. Only the cases indicated by the graders and those declared by the growers upon delivery to be in need of immediate attention were rehandled at once. The others were stored to be worked according to the schedule of the ware house custodian. When this rehandling began many cases of tobacco were found to have spoiled because they had been placed In storage when in poor condition. When this was discovered a complete regrading was made. A comparison of the first and second gradings revealed a net change of nearly three million pounds, or over 15^ of the total deliveries, to lower grades.2 This error in grading, added to a too optimistic schedule of values on the tobacco, caused an overpayment of nearly $6,000 on the 1923 crop. The advances to many growers were greater than the total value of the crops as later com puted. The Association wrote the members involved explain ing the situation and requesting the return of the over^"Personal interviews with Fred Sheaffer, op. cit. o Audit by Ohio Farm Bureau Federation Auditing Service as of Oct. 31, 1924. 141 payment. Available evidence would indicate that less than §100 was returned.1 The entire affair caused the members to distrust the Association and it added to the opposition move ment which resulted in the collapse of the organization# For the 1924 crop the Association adopted the stand ard grades of tobacco prepared for it by F. B. Wilkinson, marketing specialist of the U. S. Department of Agriculture# The graders were licensed under the rules of the Department of Agriculture.2 As a further measure to prevent the recurrence of the grading difficulty, the Association did the grading after the crops were delivered# As the crops were received at the warehouses, samples were withdrawn in the presence of the growers* These samples were sent to Dayton where one grader examined and graded them all#^ This procedure also was un satisfactory for it required too much work from one man, and it was too difficult to get proper samples from the crops# If a sample large enough to be representative was taken, too much tobacco had to be transported to and handled in the Dayton office. As well as requiring extra time and work at delivery, it also meant that checks for advances to the growers could not be prepared very soon after delivery# 4 1Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct# 31, 1925. o Ohio Farm Bureau Federation News. Sept# 1924, p# 9# ^Ibid., March 1925, P* 18* 4 Personal interviews with Fred Sheaffer, op. cit# 142 Although only a few adjustments in the gradings of the 1924 crop had to be made when the tobacco was rehandled, an overpayment on advances to the growers occurred again. The total of under §4,000, though less than the amount the previous year, was larger in proportion to the size of the deliveries, which were about one-fourth of the 1923 crop. No attempt was made to collect the overpayment since it became evident that the Association was soon to cease opera tions and that there would be an excess from accumulated reserves*1" to cover this amount. In their eagerness to keep the members of the Association delivering their crops the directors had set too high values on the tobacco, even with only a 50% advance, so that a rather general overpayment resulted. In one respect the directors were not to blame, for prices, which had been high when the schedule was set, fell to extremely low levels by the time the tobacco was sold.2 Of the 1923 crop the Association received 19,769,764 pounds. This represented approximately 16% of the total pro duction in the Miami Valley.^ As shown in Figure 16, page 146, the largest part of the deliveries was Type 42 tobacco. This quantity of Seedleaf represented a larger percentage of the total Seedleaf grown In the Valley than the deliveries of Types 44 and 43 did of their total productions. Perhaps one "^See page 129. p Personal interviews with M. E. Stern, op. cit. Estimated total production 25,900,000 pounds. Appendix A, Table II. 143 reason for this was the lower price which was being offered on the market for Type 42.1 The receipts of the 1924 crop, Figure 17, page 147, fell to 5,233,379 pounds# While some of this decrease can be attributed to the change in total production from 25*9 to 25*2 million pounds from 1923 to 1924,2 most of it was due to the members* refusal to deliver their crops# Type 42 again dominated the deliveries mainly because membership op position was less in the southern section where it was grown# The error of using too many warehouses, the mistakes in grading, the overpayments, and the mismanagement of the warehouses and of tobacco handling were important factors in the membership discontent and the failure of the Association. Sales The Association proved to be as inept in selling as it had in handling the tobacco. Summaries of the sales, expenses and payments to the growers are presented in Figures 16 and 17, pages 146 and 147* At the outset note must be taken of the low average price which the Association secured for the tobacco even after part of it had been rehandled. The net sales prices of approximately 10 and 8 cents per pound on the 1923 and 1924 crops respectively were well below the average valuations of about 14 cents per pound set for pur poses of borrowing and making advances. The disparity was greater than these figures indicate for the 14 cent figure was ^See page 106. 2See Appendix A, Table II. 144 intended to be the net available to growers after expenses had been paid# It would appear that a number of factors contributed to this low selling price. First of all, the Association had to sell its tobacco on a declining market# The price decline which had begun about 1920 continued until 1926#1 Although the Association was able to dispose of each year's crop within eighteen months after receiving it, this time was sufficient to cause some loss# A second factor was the opposition of the manufac turers# The Association had earned this difficulty through the attacks which had been made on the dealers and manufac turers in the period of organization.2 Consumption of Miami Valley tobacco had been decreasing since 1918 and a large stock of the leaf was on hand,^ so that the manufac turers were not forced to buy from the Association to fill their needs# The threats of price dictation by the farmer©^ had not gone unnoticed# The manufacturers were not inclined to give in easily in the struggle which seemed to be devel5 oping# A third reason for the low selling price is found In the salespolicies and organization* agerand sales manager until November 1924, did an aggressive sales program# 1 Stroop,general man notpursue His experience had been gained See Appendix A, Table II # 2 See page 104. 3 4 See Appendix A, Table II# See page 103# 5 Personal interviews with M. E. Stern, op# cit# 145 as a buyer and a packer# He and the board of directors appeared to be content to let the manufacturers seek out the Association*^ This policy was similar to that which the o cooperative warehouse companies of 1912 had followed* The officers seemed to believe that the Association was in a position to force the manufacturers to come to them and to pay the prices asked* Periodically the general manager and the board published the list of prices at which they were willing to sell the different grades of tobacco* The belief was expressed that there was little need for worry about sales since as the tobacco aged in storage its value was i n c r e a s i n g . ^ such an attitude did not take into account the general decline in the market* From March to November 1924 approximately 30% of the 1923 crop was sold* Members were complaining about what they felt to be the slowness in disposing of their crops and in making final settlement* In comparison with the experi ence of the cooperative warehouse companies of 1912^ and of marketing cooperatives in other districts^ sales do not seem to have been especially slow* It seems likely that a large part of the impatience of the growers arose from the trou bles in grading and from the overpayments. ■^Personal interviews with M* E. Stern, op. cit. ^See page 86. Ohio Farm Bureau Federation News* Sept. 1924, pp. 8 and 10, and Dec. 1924, p. 22. 4 See pages 90-91* 5 „ H. B* Price, "What Future for Tobacco Cooperatives," American Cooperation 1934, p* 264* 146 MIAMI VALLEY TOBACCO GROWERS' CO-OPERATIVE ASSOCIATION SUMMARY OF 1923 CROP * Pounds Type Type Type Received 44 43 42 3,061,514 lbs. 6,709,787 lbs. 9.998,465 lbs. 19.769.764 lbs. * per lb. Net Sales Expenses Applied Cases Administrative Field Service Carrying Charges Selling Freight Out Handling Costs Storage Total $148,556.12 100,518.20 16,260.16 66,217 *19 25,029.96 23,621.41 174,264.28 32.220.88 % 25.4 17.2 2.7 11.3 4.2 4.1 29.6 5.5 100.0 Available for Distribution to Members Payments to Members In Cash Deductions forMembership Fees Farm Bureau Dues 10.26 ... 586.688.20 .75 .51 .08 .34 .13 .12 .88 .16 2.97 ,441,991.20 $1,216,773.16 23,125.00 40.780.00 Balance Retained by Association Balance Retained asLiquidated Damages Other Reserves $2,028,679.40 $6l,564.89 99.748.15 1.280.678.16 6.48 161.313.04 .81 $161.515.04 *For sources of data see footnote 2, p. 109. Figure 16 147 MIAMI VALLEY TOBACCO GROWERS' CO-OPERATIVE ASSOCIATION SUMMARY OF 1924 CROP* Pounds Type Type Type Received 44 43 42 602,828 lbs. 1,574,202 lbs. 5.056,549 lbs. 5.235.579 lbs. per lb. Net Sales Expenses Applied Cases Admini strative Field Service Carrying Charges Selling Freight Out Handling Costs Storage Miscellaneous 8.12 248.831.95 .65 1.45 .09 .41 .36 .14 1.28 .31 ♦ 06 T7T5 13.6 #33,711.95 75,472.96 4,566.30 21,440.29 19,134.61 7,618.59 67,054.95 16,628.05 3,204.23 30.2 2.0 8.6 7.7 3.1 26.9 6.6 1.3 100.0 Available for Distribution to Members Payments to Members In Cash Deductions forMembership Fees Farm Bureau Dues #425,244.95 #176,413.02 #275,804.17 814.50 , 20 320.00 296,938.67 5,67 Overpayment to Members #120,525.65 2.30 Overpayment Supplied by** Liquidated Damages #61,564.89 Other Reserves on 1923 Crop 99.748.15 Total #161,313*04 Less, Expenses and Loss In Liquidation 40.787.59 #120,525.65 *For sources of data see footnote 2, p. 109. Figure 17 148 When the management was changed in November 1924, an experienced tobacco broker, M. E. Stern of Dayton, Ohio, was hired as sales manager# In three months he had disposed of the remainder of the 1923 crop# He continued in the posi tion of sales manager until the Association was dissolved# Although Stern was able to dispose of the tobacco rapidly, he did not secure very high prices for it# Some members accused him of making sales without regard for price and some Insisted that he took advantage of his position to ruin the Association.1 Such accusations cannot be verified# Stern explained the situation by reference to the declining market price, the opposition of the manufacturers, and the control which the directors exercised over his actions# All sales contracts had to be approved by the board of directors, or the executive committee. The directors were inclined to reject all contracts In which the price did not meet the schedule which they had established. In one instance 5*000 cases of a certain grade of the 1924 crop were contracted for at 10 cents per pound, but the board rejected the con tract. Six months later it accepted 7 cents per pound for the same lot.2 Expenses An examination of the expenses applied to the 1923 Personal interviews with members of the Association during August 1938 and August 1939. 2 Personal interviews with M. E. Stern, op. cit. 149 and 1924 crops, given in Figures 16 and 17 on pages 146 and 147, reveales that cases, administrative expense, carrying charges, and handling costs made up the greater part of total costs* Because of differences in the accounting methods used in the two years an exact comparison of the expenses on the two crops is impossible, but certain changes and relationships can be noted* The expense per pound of 1924 tobacco, $.0475, was much greater than that, $.0297, on the 1923 tobacco mainly because many of the expenses remained relatively unchanged while the quantity of tobacco to which the expenses were applied decreased over 70%* This was particularly true of many items included in administrative expense, selling expense, and handling costs* In the case of storage costs the excess storage which was leased for the 1924 crop1 caused the rise in the charge per pound of tobacco for this item • Administrative expense, which included the salaries of directors, officers, and office employees, showed a small saving on account of the reduction of salaries at the end of the first year^ but had to bear the extra legal expense resulting from the lawsuits with dissatisfied members* The largest item in selling expense was the sales manager’s salary, which was a fixed charge* In the handling costs were included all expenses of receiving, grading, and rehandling the tobacco* 2 ^See pages 135-136 Although See page 123 150 the Association made a saving on the sweating and sizing operations in the second year,1 sufficient fixed charges were involved in the handling costs to cause an increase in the cost per pound of tobacco handled. Cases was the only expense item which showed a de crease in cost per pound.^ The Association achieved this by inducing the case makers to agree upon a price schedule slightly below past prices-^ and by furnishing the members with used cases accumulated from the 1923 crop or purchased from the tobacco manufacturers.^ The curtailment of field service activity and the reduction of the trustee's annual fee kept the field service expense and the carrying charges, which included insurance and interest, to levels consistent with the volume of tobacco received in the second year. This examination of expenses has shown that the Association was not able to keep its costs down, at least-as indicated by the experience with handling costs— not low enough to compare favorably with those of the private dealers. Returns to G-rowers Because of these difficulties with selling and with expenses, the prices which members realized from the crops ■^See page 138. o A case cost occurs because the buyer or association pays the grower for the cases as a separate item, but receives no separate payment for them from the manufacturers. ^Ohlo Farm Bureau Federation News, Sept. 1924, p. 9. 4 5 Ibid., March 1923, p. 18. See pages 123 and 128. 151 placed with the Association were very low* The average of $ *0648 per pound on the 1923 crop did not compare favorably with the price of 13 cents per pound for good tobacco on the market.'*' However, it would seem that when the frosted tobaeco was included the average market price was nearer 10 cents per pound.2 Even so, this difference meant a loss of nearly $700,000 to the members. In addition this return included dues to the Association and to the Farm Bureau totaling $63,905, much of which would not have been paid by the members otherwise. The price realized by the growers would have been $.0081 per pound higher if the Association had not retained $161,313*04 of the receipts from the sales of the 1923 crop as reserves for liquidated damages and for general purposes. Of this total, $61,564.89 was assessed as liquidated damages on those who refused to deliver their 1924 crops. Since few members had as much as the liquidated damages— five cents per pound on the 1924 crop-— -due them on the 1923 crop after the advance payment, the Association merely claimed whatever balances were left and made no attempt to equalize the amount among the growers or to collect the remainder due. In addition to this money withheld from the growers, the Association collected in cash from the members $206.47 for their failure to deliver 1923 crops and $379.30 on 1924 crops. On the other hand, allowance must be made for the ***See Appendix A, Table II. ^Personal Interviews with M. E. Stern, op. cit. 152 overpayment of $5,908.49 on the 1923 crop. As a result of these overpayments and assessed damages, some members received far more than they deserved while others, especially dissenting members with good crops, suffered large losses. The average return of $.0567 per pound to the grow ers on the 1924 crop was even lower than that on the 1923 one. It is reported that the market price for the equiva lent type and quality was about $.085 per pound.1 Again the difference was not to the credit of the Association. The results appear even worse when the $21,134.50 deducted for dues is excluded and the $120,525*65 gained from the 1923 crop is taken into consideration. This amount for feited by the 1923 crop as general reserves and liquidated damages meant an additional $.023 per pound on the 1924 crop. Of the total of $141,313*04 which the 1923 crop lost as reserves, $40,787*39 was used to cover the losses and expenses of liquidation from July 1926 to April 1927* The figures given for payments to the growers on each crop are not quite exact. In the last two distribu tions, totaling $32,656.82, payments were made to the remain ing members on the basis of both their 1923 and 1924 crops. Since the 1923 accounts were closed, the entire amount was shown as a distribution to the 1924 growers.2 No attempt was made to receive the 1925 crop on 1Personal interviews with M. E. Stern, op. cit., and with Fred Sheaffer, op. cit. 2Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of April 6, 1927. 153 consignment from the growers* Since the organization was still in existence to close out the affairs of the previous crops, an arrangement was made in 1926 with Cullman Brothers, Middletown, Ohio, to contract about 2,000 cases of tobacco from the members. The price to the growers was 12 cents per pound and compared favorably with the market price. These operations involved neither commission nor expense to the Association.^ Accounting Methods The accounting methods of the Association were far from satisfactory. An examination revealed that in the advances on the 1923 and 1924 crops errors were made in cal culating payments and in writing checks. In some instances duplicate checks were Issued and no corrections made.2 There was some Indication that each type of tobacco of the 1923 crop did not receive proper credit for sales. Some of the suggestions made in February 1925 by an auditor indicate specific weaknesses in the accounting meth ods of the Association: 1. Rent Ledger. That a rent ledger be kept by the warehouse company In which an account is kept with each house used. Notation should be made of the contract number and terms. The house should be charged with the 1 Personal interviews with Fred Sheaffer, op. cit. 2 Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct. 31, 1925. ^Personal interviews with Fred Sheaffer, op. cit. and with R. H. Brundrett, op. cit. 154 rent accrued and credited with payments* 2. Stock Control* That the stock ledger "be kept up daily, including a record of all transfers, workings, and shipments, and a grand summary of all houses* 3* Insurance. insurance values. That more attention he given to 4. Voucher Index. That a card index he kept by payee of all vouchers (except to growers) showing the number and amount. 5« Duties of Employees. That the duties and responsibilities of each position be more definitely defined. This applies particularly to the warehouse departments and the warehouse custodians. 9. Sales Contracts and Rejections. That a record be kept of all sales contracts showing deliveries and undelivered portions. That rejected cases be indicated in some manner either on receiving the memorandum or by building a separate stock ledger. 12. That the auditor furnish the officers each month with a report showing receivings, sales, workings, costs and costs per case or pound together with the ordinary financial report.1 Following the change of officers in November 1924, efforts were made to correct the errors which had been committed and to establish and place into effect sounder procedures.2 One of the problems which continued to trouble the Association was that of cost distribution. The two factors complicating the task were the handling of three types of tobacco and the holding of two years1 crops at the same time. In the latter case the Association had to decide ^Audit by Ohio Farm Bureau Federation Auditing Service as of Feb. 28, 1925, p* 8* p Ohio Farm Bureau Federation News, March 1925, P* 18. 155 In what ratio the old and new crops were to he charged with the current overhead expenses* The task of distributing the expenses over several types of tobacco had proved to be difficult also for the Tobacco Growers Cooperative Associa tion in the Virginia-Carolina district and the Dark Tobacco Growers Cooperative Association in Kentucky and Tennessee*1 The chief objection of members of the Miami Valley association to the cost distribution was that no allowance was made for the difference In the length of time required to dispose of the different types* Since Type 44 was sold first, growers of that type felt that they had borne too large a portion of the costs* Expenses were not allocated until all the tobacco of the crop year had been sold* two-fold division of the expenses was made* A Expenses for storage, handling, warehouse administration, and selling were divided among the three types on the basis of total pounds of each received* Other expenses, such as those for general administration, insurance, and interest were divided p on the basis of total sales value of each type* No advan tage would seem to have been gained by this division, but it would appear that some allowance should have been made for the length of time the different types were held* ^Price, op* cit*, p* 262* 2 Audit by Wall, Hardman, and Lane, Dayton, Ohio, as of Oct* 31* 1926* 156 Dissension and Dissolution Dissatisfaction among the members arose very soon after the Association was in operation. The errors in grad ing and payment^* were perhaps the first matters to arouse the distruct of the members# Other factors contributing to the development of dissension were the feeling that the Association was not making sales rapidly enough, the objec tions to the large salaries paid the officers, the reports of tobacco spoiled in storage, and the suggestions that the advance payments might be the only returns to the members on the 1923 crop.2 This rather general dissatisfaction found expression in a change of the management in November, 1924. At the annual meeting of members six new directors were placed on the board# Immediately thereafter all the officers of the Association were changed# The opposition was dispelled for a short time by this move, but within a few months it arose again# Early in 1925 the agitation among the members led to the formation of a Growers’ Committee# E. P. Landis, a member of the Association and president of a business men’s group in Brookville, Ohio, was a leader of this committee. At Landis' urgence the village council and the business men of Brookville had sponsored local meetings to aid in the 1See pages 139-140. 2Ohio Farm Bureau Federation News. July, 1924, p. 4, August, 1924, pT 87 and September, 1924, p# 8# 157 formation of the Association* When the members who had joined on this account became dissatisfied, they came to Landis and the other members of these groups and asked them what they now proposed to do* After an investigation Landis became convinced that a drastic change in the Association was needed, and with eight other growers from different parts of the district he set up the informal Growers1 Committee to see what could be done.1 In February 1925 the committee appealed to the directors for a complete explanation of operations and for the consideration of a plan to allow dissatisfied members to withdraw* When these appeals were denied, the committee sought legal advice and aid*- Six law firms were interested p in the case of the dissenting members. In fact, these attorneys assumed the direction of the entire opposition program which followed. The arrangement was that the law yers were to finance the campaign to obtain the release of the dissatisfied members and, in return, were to be paid $10 by each member whose release was secured*^ The first step in the campaign was an attack on the legality of the membership contract coupled with a petition to the board requesting a change in the by-laws to permit ^■Personal interview with E. P* Landis, Brookville, Ohio, Aug* 30, 1939* 2The six firms were; P. A. Saylor, Eaton; Manix, Crawford & Billingsley, Greenville; JohnV. Dye, Piqua; Alva B* Campbell, Troy; Harry G. King, Troy; and Burkhart, Heald & Pickrel, Dayton. 3 Personal interview with E. P. Landis, op* cit. 153 members to withdraw* To test the legality of the contract a number of suits were Instituted against the Association in the names of the dissenting members on the grounds that the contract violated Ohio’s anti-monopoly law and that the cooperative association law of 1923 was unconstitutional because it created a favored class of the farmers*^ This attack on the legality of the contract was made even though the attorneys realized that it had little chance to succeed* A similar suit involving the almost identical membership contract of the Burley Tobacco Growers Cooperative Association was being tried in the courts of Ohio at that time* When, in September 1925, the circuit court at Georgetown, Ohio, sustained the decisions of the lower courts in upholding the legality of the Burley con tract and the constitutionality of the cooperative associa tion law,^ these suits against the Association were with drawn*^ The petitions to the board in which members requested permission to withdraw and asked for a change in the by-laws 1 ' ' Personal interview with T* A. Billingsley, Greenville, Ohio, one of the attorneys for the opponents, Aug* 31, 1938* 2 Ibid* ^Case of Burley Tobacco Growers Cooperative Association vs* List. Ohio Farm Bureau Federation News* May 1924, p. 4, and Nov* 1925, p. 20; Agricultural Cooperation, Sept* 8, 1924, p. 302. The decision was later upheld by the Supreme Court of Ohio* (Agricultural Cooperation, April 26, 1926, pp. 189-190.) 4 Personal interview with T. A. Billingsley, op* cit* 159 to simplify such action were based on Article XIII, Section (d), and Article XIX of the by-laws. The first of these provisions gave the board of directors authority to allow withdrawals upon proper application. The second provided that These by-laws may be altered or amended at any annual meeting of the members, called for that purpose by the directors, by a vote representing a majority of the votes cast* The written assent of a majority of the members shall be effectual to repeal or amend any by laws or to adopt additional by-laws without any meeting*1 It was the latter part of this article which the opposition planned to use* Under the date of March 5, 1925 the Growers' Committee sent a letter to all members explain ing what it proposed to do and enclosed a form on which the members might indicate approval, of the plan and might resign from the Association. Since the response to the letter was very poor, the lawyers and the committee held meetings dur ing March, April, and May of 1925 in every community, just as had been done when the Association was formed. Special petitions for an amendment to the by-laws to allow members to withdraw were circulated at these meetings* Supporters of the Association attended the meetings and fist fights occurred frequently* Both sides made use of newspaper stories and placards to win the support of the members* p In the meantime, in May 1925, the Association decided to enforce the contract and brought suit against 1See Appendix B for the By-Laws. 2Personal interview with T. A. Billingsley, op* cit* 160 seven members who had sold their tobacco outside the Associ ation* With one exception all these members resided in Darke and Miami counties where the opposition was strongest*1 The attorneys had induced these members to sell as an invita tion to the Association to sue to provide a test case* Many of the members who had not wanted to deliver to the Associa tion had held their crops in their sheds awaiting the out come of the conflict. Soon after the suits were filed most of these members sold to the regular buyers*^ On June 1, 1925 the Growers’ Committee and its attorneys announced that the petition for modification of the by-laws had been signed by 51^ of the members* This petition was presented to the board of directors at the regular monthly meeting in June 1925* Dissension appeared among the members of the board and, when a majority refused to recognize the petition, three members resigned and were immediately replaced by supporters of the Association*^ The refusal of the board was based on its contention that the binding clause was in the marketing agreement and not in the by-laws, and, therefore, a change in the by-laws could not make it possible for a member to withdraw* Although the by-laws did not stipulate the term of years for which members agreed to deliver their crops, they made the marketing agreement a part of the by-laws and required the 10hlo Farm Bureau Federation News, May 1925, p. 21* 2 3 Personal interview with T. A. Billingsley, op* cit* Ohio Farm Bureau Federation News, June 1925, p* 7* 161 members to market their tobacco win accordance with the provisions of the standard marketing agreement” .1 Further more, the board claimed that since all contracts were as one contract for the purpose of binding the members to the ii 2 same extent", to release any grower would cancel all con tracts.-^ Following this refusal the attorneys filed a peti tion on June 20, 1925 in the Common Pleas Court of Montgomery county for the appointment of a receiver for the Association. It was brought in the name of four members, one of whom had been on the board until he had resigned earlier In the month* In the petition the officers were accused of abusing their powers and offices, dissipating the funds of the Association, and conducting its affairs con trary to the wishes of the members.2* Without explanation this suit was withdrawn in August and a similar suit filed in the Common Pleas Court of Darke county.5 The next move of the opposition, while these suits were awaiting hearing, was to prepare a slate of its own nominations for directors to be voted on at the annual meet ing, November 2, 1925* The complete process of nominating •^See Association’s By-Laws, Article XIII, Sections (b ), (c ), and (q ), Appendix B . 2 See Association's Marketing Agreement, Paragraph 21, Appendix B* *5 Ohio Farm Bureau Federation News, June 1925, p* 7* A Ibid., July 1925, p* 6. ^Ibid.. Aug. 1925, p* 11* 162 and electing delegates, who in turn nominated directors, was followed in separate primaries and meetings hy the supporting and the dissenting members of the Association# Thus, two tickets for the annual election were being pre pared, each claiming to be the true one# At the same time the opposition sought an injunction in the Montgomery county courts to halt the primary being conducted by the board, to require recognition of the peti tion for amendment of the by-laws, and to permit nomination of the directors from the floor. Judge R. C# Patterson of the Common Pleas Court ordered a count of the names on the petition before making a ruling #2 At this point the board of directors and the attor neys for the Growers* Committee met together in Dayton on August 25 and 26, 1925. The directors agreed to allow all members represented by the lawyers to withdraw, and, in return, withdrawing members were to renounce all equities which they might have in the Association# The lawsuits instituted by the Association and by the members were to be withdrawn# The form of the release for the members was as follows: For and in consideration of a general release of all claims by ____________ _ a former member of the Associa tion The Miami Valley Tobacco Growers Co-operative Association hereby releases the said _ _ _ _ _ _ _ _ from any and all claims accrued and to accrue with respect to the said _________ *s former membership in said Association and former cmd present and future property ^See pages 117-118 for the election procedure. 20hio Farm Bureau Federation News, July 1925, p# 6. 163 rights in said Association.1 A total of 2,560 members was allowed to withdraw in this manner* An additional 300 were ejected without further penalty for non-delivery of the 1924 crop. A few who with drew later rejoined when they learned that substantial checks for the final payment on the 1923 crop awaited them if they supported the Association.2 A total of 2,485 mem bers was reported to have remained in the Association.^ A major point of controversy over the dissolution was the part that tobacco dealers and manufacturers had in sponsoring and financing the opposition campaign. Reports were that local buyers, dealers, and agents of dealers and manufacturers attended the opposition meetings and visited the growers to induce them to sign the petition for revision 4 of the by-laws* One of the attorneys for the opposition declared that none of these buyers was paid by the lawyers to help in the campaign. He explained that one of the local buyers who had been very active in the opposition presented From the form given the members. It is interesting to note that under the date of Aug. 25, 1925 a form letter was sent by the Association to all dissenting members warn ing them that unless they delivered their 1924 crops the Association would be forced to institute suits and that the checks for the final payment on the 1923 crop were being withheld as liquidated damages. These letters arrived the same day as did the notices from the attorneys that a settle ment permitting withdrawal had been made. 20hio Farm Bureau Federation News, Nov. 1925, p. 21. ^Ibid., Jan. 1926, p. 31* ^Personal interviews with members of the Association during August 1938 and August 1939 * 164 a bill to the lawyers for $1,500 for his work* The lawyers had assumed that he, like the other buyers, dealers and agents, was either standing his own expenses or being paid by some one else* When the lawyers refused to pay the bill, this local buyer sued to collect* Settlement was made out of court for $ 1 0 0 Available evidence would indicate that the tobacco buyers and manufacturers had an important part in fomenting dissension among the members and in supporting the faction which sought to destroy the Association* The plea of the officers and loyal members of the Association during the campaign was that the Association be given a longer time in which to prove its worth* Errors in operations and mangement were admitted and claims were made that from these mistakes valuable experience had been gained which was helping the officers place the Association on a p sounder basis* It would seem that improvements had been made and that in a following year much more satisfactory results could have been expected* In the midst of the struggle the attorneys for the Association recommended that the officers place the Asso ciation in the hands of a receiver* Aaron Sapiro, noted cooperative lawyer, returned^ to the district and advised the officers to resist this move, for it might be possible ^Personal Interview* p Personal interviews with officers and members during August 1938 and August 1939• ■x See footnote 1, page 103* 165 to revive the Association after the trouble was over, and if liquidation "became necessary it could be done by the officers without the extra costs of receivership* This advice was followed and proved to be of real value* Sapiro was retained to assist in closing the affairs of the Association*1 In the annual meeting on November 2, 1925 the slate of nominations for directors sponsored by the board was elected since the opposition had already withdrawn from the Association* The old officers were retained by the board* The big problem faced was whether the Association should continue to function. A statement of the situation and a ballot on this question were mailed to all remaining members, but the response was too small to furnish an idea of membership opinion. p The president then directed a letter to the members in which he outlined the mistakes which had been made and the steps taken to remedy them. He explained that the direc tors felt that 15,000 cases of tobacco would have to be assured the Association to enable it to continue on an effi cient basis. made.^ He requested a reply so that plans might be When the response again was poor, the directors held meetings in the various communities to discuss the matter with the members* They found that the members were not enthusiastic, and so voted to make no attempt to receive the 1 2 Personal Interviews with Fred Sheaffer, op. cit. Ohio Farm Bureau Federation News* Jan. 1926, p. 51„ 5Ibid. 166 1925 crop. A small quantity was contracted from the members for a dealer in Middletown.^ Efforts were then made to sell the remainder of the 1924 crop— approximately two-thirds of the deliveries were still on hand on January 1, 1926— and to liquidate the Association. Sales were completed by August 1926 and final disbursements prepared. A skeleton organization was main tained until April 1927 in the hope that interest in cooper ative marketing might be revived and receiving might be resumed with the 1926 crop. In spite of the decline in the average market price from 13 cents per pound in 1924 to 11.4 o cents per pound in 1925 and 8.5 cents in 1926, the farmers showed no desire for another attempt. The remaining assets were sold, a final distribution made, and the Association was dissolved.^ Certain attitudes of the officers appear to have contributed to the dissatisfaction which led to the dissolu tion. Members complained that they were not made welcome at the offices and that many of the officers assumed a patron izing air toward them and did not seem to be really inter ested in the tobacco growers* welfare or in the success of the Association.^ In any event, the management does not seem to have had close contact with the members, even though 1 See page 153- 2 See Appendix A, Table II. ^Personal Interviews with Fred Sheaffer, op. cit. ^Personal interviews with members of the Association during August 1938 and August 1939. extensive membership relations work was done. Part of the lack of contact can be attributed to the size of the organi zation and to the somewhat inaccessible location of the offices in a large city, Dayton. The change in management in 1924 improved the situation to a certain extent, but it seems to have come too late to overcome the discontent which had grown up. When the officers sought to prevent members from withdrawing and to retain control of the Association through manipulation of the election procedure, the members were fully convinced that the management was not working for their Interests. It is likely that to have allowed members to withdraw from the Association would have destroyed It, but the opposition of the officers to such a plan was not able to save the Association. The undertaking had been an ambitious one. Over seventy-five percent of the 1923 crop in the Miami Valley had been controlled by the Association. It had arisen from the depression in the tobacco market and the general interest in cooperative action during that period. Its dissolution must be attributed to a number of factors: errors in the organization campaign; the poor quality of the 1923 and 1924 crops; a decreasing demand for the product and a declining market price; opposition of buyers, dealers and manufacturers and, most important of all, poor management in membership relations, in selling, and in the handling of tobacco. Growers did not appear to understand cooperative principles and what they might expect from cooperative action. In gen 168 eral they were never enthusiastic in their support of the Association. CHAPTER VI OHIO CIGAR LEAF TOBACCO GROWERS * MARKETING ASSOCIATION - FORMATION AND STRUCTURE In view of the unsatisfactory record of the Miami Valley Tobacco Growers* Co-operative Association in 19231927# considered in the two preceding chapters, it is sur prising that another association was started only a few years later* There were several factors which led to the formation of the new association. First of all, the growers continued to he interested in finding some means of escaping the evils which they believed to exist in the country-buyer system of marketing. They felt that if they could present a united front to the dealers and manufacturers they could get what they regarded as fairer treatment and fairer prices. Secondly, low and declining prices for cigar leaf tobacco were forcing down the growers’ incomes. The growers Most of the information in Chapters VI and VII was obtained during the writer* s association, from 1933 to the present (1940), with the directors, officers, and members of the Ohio Cigar Leaf Tobacco Growers* Marketing Association. The individual furnishing the most information was Jesse T. Landis, a leader in the selling plan in 1928-1930 and secretary-treasurer of the Association since 1931* During 1933-1935 the writer was accountant for the Association and since that time he has maintained the connection through work on the Association’s financial reports. The figures on operations are from the Association’s records and reports, many of which were prepared by the writer. 169 170 of Type 44 tobacco, the production of which after the World war had centered in the northern part of the district in Darke and Miami counties, were most concerned in the situa tion in 1927 and 1928 and became the leaders in the agitation for another cooperative. For several years preceding 1927, Type 44 had brought a price above that of the other types. This had led to a great expansion in its production. Since demand did not increase to the same extent, the resulting oversupply depressed its price below that of the Seedleaf and Spanish and kept the Dutch from rising in price as did the other types of the 1927 crop.^ In 1928, in the search for a way to improve their condition, a group of about ten Dutch growers in Miami county decided to join forces and to contract with a single dealer or manufacturer to take all their crops. A. B. Hostetter, an independent tobacco buyer who had been sales agent for the Miami County Leaf Tobacco Company,2 and Jesse T. Landis, a local grower, were leaders of the movement. For the 1928 crop a contract was made with the Pappenheimer and Newberg Tobacco Company of Cincinnati, Ohio. This dealer agreed to take at 16 cents per pound all the Dutch tobacco that this group of growers would contract* The group thus became a local buyer interested not only in disposing of the tobacco of its members but also in contract ing the crops of as many other Dutch growers as possible. ^For the general price movements see Figure 10, p. 45. 2 See page 87• 171 Contracts were offered to all Dutch growers in the northern part of the district at 15 cents per pound. This allowed one cent per pound for the costs of securing the con tracts and of managing the plan. Hostetter was manager. He employed the members of the original group to do the contract ing and he assumed the risk of securing enough from the one cent per pound allowance to cover these costs. It appears that the compensation was so arranged that members of the group would share in any profits. The contracting was done early in the stripping season and as speedily as possible to avoid competition from the other buyers. Approximately 60$— amounting to about 1,400,000 pounds— of the 1928 Dutch tobacco in the northern part of the district was contracted under this plan. The group had no formal organization and no invest ment beyond the time and money spent in securing the con tracts. It had no receiving, storing, or handling facilities. Delivery of the crops was made directly to the freight cars which took the tobacco to Cincinnati or to the manufacturers to whom it had been resold. The arrangement was successful for the 1928 crop. The growers who had contracted with the group received as much as, and in some instances several cents more than, those on the outside. It had been profitable also for the original group of growers and the manager who had sponsored the plan. Because of its success the plan was continued for the 1929 crop. The price was the same. A few more growers con- 172 tracted their crops with the group. After these contracts had been signed, other buyers bought a few of the remaining crops at 16 cents per pound. The leaders of the contracting group claimed that this was done to destroy their selling arrangement. In any event, when the group tried to continue the plan for the 1930 crop it could secure contracts on only about one thousand cases, or approximately one-fourth of the previous year*s volume. The Pappenhelmer and Newberg Tobacco Company was not interested in this amount because it would not give the company substantial control of the Dutch leaf market. Furthermore, the business depression and the decline in tobacco prices made the company unwilling to continue the arrangement except at a lower price. Formation of the Association The leaders and those who had signed the contracts for the sale of their tobacco through the group then began to consider forming a cooperative marketing association to solve their problem. A few additional Dutch growers from other parts of the district were Interested in the project through Hostetter*s efforts. Also, encouragement for the venture was provided by the activities of the Federal Farm Board, created by the Agricultural Marketing Act of 1929. Late in 1930 a group of about fifteen, of whom only a few 1See Figure 10, p. 45. 173 had been in the Miami Valley pool, began working on plans for the organization of an association• By 1930 the growers of Types 42 and 43 tobacco also were facing a serious market situation* An excess stock of all three types of tobacco had been built up*^ From a 1928 peak of 17 *5 cents per pound as an average for all three types, the price of Miami Valley tobacco had fallen to 13*8 cents in 1929. 2 The prospect for the 1930 crop was a price of about 10 cents. However, in the preliminary considerations the plan for the Association included only the Dutch growers. were several reasons for this. There First, the previous Dutch contracting group furnished a nucleus around which the organ ization could be built. Second, in contrast to the growers of Spanish and Seedleaf, the Dutch growers were relatively few in number and localized in the northern part of the dis trict. Therefore it appeared that it would be easier to organize this group and to secure effective control of the supply of this type of tobacco. The desire to gain this con trol in the hope of being able to influence, if not dictate, prices was one of the strongest motives in the organization movement. Third, the difficulty of the Miami Valley associa tion in handling all three types^ was an additional factor in favor of starting with one type. The organizers hoped to build up an association of the Dutch growers and, after it 1 See Figures 8 and 9, p. 42. ^See pages 154-155* 2 See Figure 10, p. 45* 174 was well established and had proved its worth, to expand it to include the growers of other types* The sponsoring group appealed to the Agricultural Extension Service of the College of Agriculture of Ohio State University and to the Federal Farm Board for assist ance- L* G-. Foster, Associate Professor of Rural Economics at Ohio State University,1 William Collins, head of the Tobacco Section of the Cooperative Division of the Federal 2 Farm Board, and Charles Rogan, associated with Collins on the Federal Farm Board, came into the territory- Studies were made of the situation faced by the growers of the dis trict and recommendations and suggestions were offered. These outside representatives also assisted in the formation of the association by making speeches to groups of growers and by helping to draw up the marketing contract and organ ization plans* The interest of the Federal Farm Board was of great Importance to the sponsoring group for the organ izers expected to look to the Board for financial aid for the operations of the association. The first formal organization meeting was held at Greenville, Ohio, January 21, 1931* Growers of Type 44 tobacco in the northern part of the district were the only 1Later Vice-President and Secretary of the Louisville Bank for Cooperatives— which after 1935 assisted in financing the Association— and since 1938 President of the Columbia Bank for Cooperatives. 2 Afterwards in the Cooperative Division of the Farm Credit Administration and from 1937 until his death on December 25, 1939, Chief of the Tobacco Section of the Agri cultural Adjustment Administration, Department of Agriculture. 175 ones who were invited* At this meeting an organization committee of nine, all local residents and tobacco growers, was created*1 This committee held a number of meetings in rapid succession to discuss the plans for the proposed association and to devise methods for interesting the growers* The pro posal to include only Type 44 growers was abandoned in favor of an attempt to interest growers of all three types in the whole district* This was done when it became evident that the restricted plan would not provide a sufficient volume of tobacco to permit successful operation. A further consider ation was the fear that any success which the association might have in helping the Dutch growers would cause other growers to begin raising Dutch, thereby nullifying any bene fits and perhaps reproducing the difficulties of 1927 and 1928.2 The membership campaign was conducted through a series of open meetings held in community centers in the district* The representatives of the Federal Farm Board and of Ohio State University were the principal speakers at these meetings. It is significant to note that although the organization committee had decided to include the growers of 1See Associations Organization Agreement, Paragraph 2, Appendix C. D. P. Albright, who had been a director of the Miami Valley Tobacco Growers* Co-operative Association in 1925-1927, was chairman of the committee and Jesse T. Landis, who had been a leader of the contracting group of 1928-1930, (see page 170), was secretary. 2Se® 169-170. 176 all three types of tobacco throughout the whole district, these meetings, with but two exceptions, were held in Darke and Miami counties in the northern part of the district. One reason for this is said to have been the desire to disassociate this organization entirely from the previous association which had centered in the southern part of the district with headquarters at Dayton in Montgomery county. A more important reason seems to have been that a greater portion of the growers in the southern section had been members of the 1923-1927 pool and were not receptive to the idea of another attempt. Some of the growers of Types 42 and 43 suspected that the association was being formed primarily for the benefit of the Dutch growers. In contrast to the arrangement in the Miami Valley Tobacco Growers' Co-operative Association,1 no requirement was set as to the number of growers or the amount of tobacco which had to be contracted before the association would start. It was left to the organization committee to decide when sufficient tobacco was pledged to justify the under taking. The committee was expected to reach and announce its decision on this point by November 1, 1931* The member ship contracts were to become effective from the date of this announcement* However, if the announcement was not made by March 1, 1931, the 1930 crop was not to be included in the agreement.2 1See page 105. 2See Association's Organization Agreement, Paragraph 8, Appendix C. 177 The membership campaign did not receive an enthusi astic response. By March 1931 less than one hundred growers had signed contracts. The reports of the representatives of Ohio State University and the Federal Farm Board were not encouraging. They suggested that the field was not ready and that the farmers were not sufficiently interested to justify proceeding with the organization. The poor response of the growers can be attributed to several factors. It appears that the method of conducting the membership drive was not one of these factors, for the campaign is said to have been thoroughly organized and well handled.1 It relied primarily on the open meetings in the various communities. This had been a standard Instrument in the organization of other tobacco marketing cooperatives.2 During the campaign there was some condemnation of the buyers and dealers, but it did not assume the proportions which it had in the formation of the previous association.^ Although several organizers tried to tempt the growers with promises of war-time prices, it appears that attempts were made to avoid extravagant statements concerning benefits. that this restraint hampered the campaign. It may be Perhaps the greatest impediment was the growers' clear recollection of the failure of the Miami Valley Tobacco Growers' Co-operative Association. 1Personal letter from William Collins, representative of the Federal Farm Board in the campaign, June 29, 1939. 2See page 103. ^See page 104. 178 The Federal Farm Board indicated that it believed that a large number of growers should be signed before the venture started, and that it would not be willing to provide financial support unless contracts covering at least 5,000,000 pounds a year were secured.1 At that time, February 1931, less than one—tenth of that amount was assured by the con tracts signed. After this rebuff the organization committee turned to the Federal Intermediate Credit Bank, Louisville, Kentucky, as a possible source of financial aid. When that bank indi cated a willingness to provide assistance if "certain condi tions" would be met, the committee decided to go ahead with o the formation of the association. The decision to launch the undertaking was reached at a meeting at Greenville, Ohio, February 28, 1931. The following resolution was adopted: WHEREAS the organization committee of the Ohio Cigar Leaf Tobacco Growers’ Marketing Association and other persons Interested in the organization of such an Asso ciation have made a determined effort to secure a large and adequate number of members to form a pool and handle the 1930 crop of tobacco; and WHEREAS the members of this committee feel that if the organization is not formed in time to handle the 1930 crop that it will be impossible to interest the growers in marketing the 1931 crop and thereafter through a co operative marketing association and that the idea and plan of cooperative marketing of the tobacco crop in western Ohio will suffer irreparable damage; and WHEREAS a representative number of growers have signed the organization and marketing agreement although 1Association1s Minute Book, p. 29. 2Ibid., p. 26. 179 not as many as the organization committee had hoped would do so; and WHEREAS the organization committee has consulted representatives of the Federal Farm Board; and WHEREAS said representatives have not been interested in organizing or financing a small co-operative marketing association organized for cooperatively marketing the 1930 crop of tobacco; and WHEREAS it appears likely that Federal Farm Aid and cooperation may be secured through the Federal Inter mediate Credit Bank of Louisville, Kentucky; now Be it resolved by the organization committee of the Ohio Cigar Leaf Tobacco Growers 1 Marketing Association, Section I That a sufficient number of producers of tobacco have signed the marketing contract to justify the organ ization of such a cooperative marketing association. Section II That such Association be formed forthwith by the signing of the requisite number of signers of the Articles of Incorporation to be filed with the Secretary of the State of Ohio. Section III That the chairman of this committee be and he is hereby authorized and ordered to publish notice of the formation of this cooperative marketing association by publishing notices to that effect in one or more daily newspapers circulating through the tobacco growing coun ties of western Ohio. The Articles of Incorporation were filed with the Secretary of State of Ohio on March 6 , 1931* The Associa tion2 was organized as a non-profit association without cap ital stock under the cooperative association law of 1923. On March 14, 1931 the organization meeting of all contract Association* s Minute Book, pp. 28-29. 2In this chapter and the following one this organi zation will be designated as "the Association** to simplify the statement. Other cooperative organizations will be referred to by descriptive oh exact titles. 180 signers was held at Pleasant Hill, Ohio. The secretary reported that ninety-four growers had signed the contracts and that seventy-two of them were present.'*' Twenty more growers signed contracts at the conclusion of the meeting.2 The Articles of Incorporation were read and the By-Laws presented by the committee were adopted. A board of direc tors was elected. The total expense of organization was $1,519.74. Most of this was for mileage and expenses of the organiza tion committee and its agents. Committee members received no remuneration for their time. The Federal Farm Board and Ohio State University paid the expenses of their representa tives. The places for organization meetings had usually been secured free of charge. Since the organization had no funds, payment of the expenses was deferred until financing could be arranged.^ The $2 membership fee charged the grower when he joined and good for the ten year term of the contract made only a small contribution toward defraying the costs, especially since payment of this fee was postponed in most instances until the Association made settlement with the A grower for his tobacco. This total cost of organization was not large, but in terms of contracts signed, $13.33 per contract on the day Association* s Minute Book, p. 32. 2Ibld., p. 52. Abld., p. 63 . In the previous association the Ohio Farm Bureau Federation advanced the funds for organization expenses (see page 102). ^See Association's By-Laws, Article X, Appendic C. 181 of organization, it appears exorbitant# It meant a heavy item of overhead for the quantity of tobacco received the first year.'*' A comparison with organization costs of several other tobacco associations is revealing. The Tobacco Growers Cooperative Association in the Virglnia-Carolina district was condemned for wastefulness with a total organization expense of $231,963*81, but this represented a cost of approximately $2.50 per contract.2 The Dark Tobacco Growers Cooperative Association at Hopkinsville, Kentucky, secured 55,000 mem bers at a cost of $42,000, or $.76 per member.3 The cost per contract in the Miami Valley Tobacco Growers* Cooperative Association had been $2.34.^ Thus, the Ohio Cigar Leaf Tobacco Growers' Marketing Association began under serious handicaps, for it had no financial resources or aid and could reasonably expect only about 400,000 pounds of the 1930 tobacco from the few mem bers it had secured. In spite of their interest in a monop oly of the tobacco supply, the organizers were not especially perturbed by the small membership, for they were not desirous of securing a great portion of the growers in the Valley at first* They believed that one of the serious errors of the previous association had been the attempt to start on a grand A h e total organization expense was charged against the first year's crop. 2Scanlan and Tinley, op. cit.» p. 79. Agricultural Cooperation, Sept. 10, 1923, p. 3« 4 See page 109 * 182 scale* It was their Idea that it was better to start small, to build soundly, and then to expand to a dominating position in the market* As already noted, this was one reason for the original plan to limit the membership to Dutch growers*^At the same time the organizers realized that a very small quantity of tobacco would not permit efficient operation, and they hoped to secure additional members who would deliver their 1930 crops* While the plan to start on a moderate scale and then to expand appears to be a sound one, the Asso ciation has never experienced a great growth and so has never realized the ambition to dominate the market, for in no year since operations began has it received as much as 6% p of the tobacco produced that year in the Miami Valley. The reasons for the failure of the Association to grow to an important size will be considered in sections of this and the following chapters* It is significant to note that the support for the Association at the time of formation came almost entirely from Type 44 growers and from those who had not been members of the previous association* This has been true to a great extent of the membership in succeeding years as the Associa tion has continued its operations* Membership Contract and Relations The organization and marketing agreements were 1See page 173 2See page 236* 183 drafted by William Collins of the Federal Farm Board Since the membership contract is important in membership relations, and, hence, has a bearing on the success of an association, it is desirable to consider the provisions of the contract, to see how these provisions have been applied, and to note the results* In the contract, which has remained in use since the Association began operations, membership is open to all tobacco growers* This includes the landlords of farms on which tobacco is raised, provided that they receive all or part of their rentals in tobacco#^ Both landlord and tenant are not required to belong, and in many instances only one of them has delivered his share of the crop to the Associa tion* This appears to have worked satisfactorily both for the growers and the Association* The organizers realized that the terms of the con tract could have considerable influence on membership loyalty and that a proper formulation of these terms was not easy* They wished to assure the Association of a constant quantity of tobacco in successive years by binding the members to deliver their crops for a term of years, but they wished 1These agreements are given in Appendix C* In their preparation use was made of features in the agreements of the Miami Valley Tobacco Growers' Co-operative Association, the Burley Tobacco Growers Cooperative Association, and the South Carolina Tobacco Growers Marketing Association* The last of these was formed in 1930 with the assistance of the Federal Farm Board* P See Association's By-Laws, Article X, Section (b), Appendix C* 184 also to avoid the objections to a contract which could not be terminated* The difficulties of the previous association with a binding, fixed-term contract**- were a warning that such a contract would not make certain a loyal membership* As a compromise, the marketing agreement binds the members to deliver their crops to the Association ’’during a period of ten years from the date of this agreement," but makes provision for cancellation of the contract by either party during the period* The party desiring to be released Is to serve notice in writing on the other party during the month of November* Cancellation of the contract becomes effective on December first of that year* When a member withdraws he is to be readmitted to membership only after one year and upon a majority vote of the board of directors*2 Several purposes are served by these provisions* Therather long period of ten years is to indicate the perma- nance planned for the Association and to reduce the expense and trouble of securing signatures to the contracts at fre quent intervals* The stipulation that the contract Is to run from the date it is signed is Intended to prevent all ^See pages 157-182. Since about 1930 the tobacco associations have appeared to favor the abandonment of the binding contract. For example, in recent years the associa tions in the dark tobacco district of Kentucky-Tennessee and the pool in northern Wisconsin have used optional delivery contracts. In the former of these the growers may offer their crops at auction and if they do not get the price they want, the tobacco may then be pooled through the associa tions. (Fetrow, W. W., Cooperative Marketing of Agricultural Products, pp. 85-86; Collins and Bakken, op. cit*7 PP* 8-9). p See Association's Marketing Agreement, Paragraphs 1 and 2, Appendix C. 185 contracts from having a common date of expiration which would necessitate a drive to renew them all at once* With new members being added all the time, less publicity and effort is involved In re-signing the agreements which expire each year* In addition, there is no certain date at which the Association will pass out of existence If all new oontracts are not secured.A A simpler plan would have been to have made the contract self-renewing from year to year with out a fixed duration period* December first is set as the date of withdrawal because it is before the usual selling and delivery season* This makes it possible for the Association to plan for the quantity of tobacco it can expect to receive. It also pre vents the members from waiting until the buyers' prices are known before deciding whether to deliver to the Association or to sell outside. Liquidated damages for the breach of the contract are five cents per pound, as they were in the Miami Valley o Tobacco Growers' Co-operative Association contract. They are to be computed on the total pounds of tobacco which the grower refuses to deliver to the Association under the terms of the agreement ■^The difficulties of a complete re-signing were seen in the failure of the Burley Tobacco Growers Cooperative Association to secure the required percentage of renewed contracts in 1927* (Agricultural Cooperation, Nov. 26, 1927, p. 466.) p See page 110• ^See Association's Marketing Agreement, Paragraph 13, Appendix C. 186 The effectiveness of the provisions for the with drawal of members and for liquidated damages has not been tested, for they have not been enforced* Of the many mem bers who have stopped delivering their tobacco to the Asso ciation after a few crops, the files indicate that not more than fifty gave notice of their intentions* Most of these were in the second year when the secretary tried to require observance of the regulations* No attempt has been made to collect liquidated damages from those who have failed to deliver without officially withdrawing* In many instances members have not delivered their crops each year but have brought their tobacco to the Asso ciation only when it has appeared profitable to do so. No penalty has been assessed against those who have done this. At first the officers expressed the opinion that perhaps the function of the Association was to serve the growers during periods of low prices, and that members should sell outside when the price was high. This idea was rejected as time reveaXed the effects of the resulting fluctuations in the volume of deliveries on the overhead expenses per pound of tobacco and on the problem of maintaining a stable organi zation. Since 1938 the officers have especially emphasized the fact that they expect the members to deliver all crops to the Association. Although no action has been taken against those who sell some crops outside, suggestions have been made that the Association favor the loyal members in matters of advances and purchases of trash leaves. 187 The by-laws give the board of directors the power to expel members who cease to raise tobacco or who refuse to deliver their crops or to abide by the Association's regula tions* In cases of expulsion a member is to be paid "the equitably appraised cash value of his interest in the prop erty of the Association*"^ These property rights are to be in proportion to the tobacco delivered to the Association by o the various members* The only time the directors have made use of this power of expulsion was in 1937 during the dissen sion among the board members when it was feared that the dis loyal members might influence the annual e l e c t i o n . ^ no pay ment for property rights was made to the expelled members* In any case the amounts due would have been small. In establishing the legal relationship of the Asso ciation to the grower and the tobacco, the marketing agree ment makes the transfer of the tobacco from the members to the Association a purchase-and-sale transaction* In fact, it goes so far as to say that "this agreement is intended by the parties to pass an absolute title to the Association to each of the crops covered hereby .......... However,the Association in Its operations has insisted that the title remains with the grower* It has refused to pay taxes on the ■^See Association's By-Laws, Article XI, Appendix G* 2Ibid*, Article XIII. ■^See page 205* ^See Association's Marketing Agreement, Paragraph 1, Appendix C. 188 tobacco In its warehouses on the grounds that it does not own the tobacco, and that it is the duty of each member to report for taxation in his own county the tobacco he has with the Association. This had been the position taken by the previous association with a similar purchase-and-sale membership contract.1 Under the terms of the marketing o agreement the Association has borrowed on and insured the tobacco in its possession without question as to the owner ship of the tobacco. The Association has denied members the right either to remove the tobacco or to sell it to some other person or firm after it has been placed with the Association. This has been based, not on the ownership of the tobacco, but on the agency agreement that the Association is to handle and sell the tobacco and on the claim that to permit such with drawal would contradict the permission to pool the tobacco by types and grades. 3 Increasing the Membership An immediate concern of the Association after it had organized was to secure additional members, for the offi cers realized the importance of increasing the volume of tobacco the Association would receive. A number of methods 1See page 112. o See Association’s Marketing Agreement, Paragraph 6, Appendix C • ^Ibid., Paragraph 4. 189 of soliciting membership have been employed. During the first year, 1931, the general manager was expected to con duct the membership campaign and to bear its costs out of his commission. A large membership was to his advantage, for he was paid on the basis of the total pounds received by the Association.-^ From the number of crops received the first year, it appears that he added fifty or sixty growers to the membership. When the management was changed in January 1932,2 a new plan for securing members was adopted. Agents were appointed by the board of directors to conduct a membership drive. These agents were the members of the board, the ware house manager, the secretary-treasurer, and Irvin Richter, a member. Compensation was to be one-fourth cent per pound on the first crop delivered by the new members*^ Because of trouble which developed between Richter and the board, the plan was modified in April 1932 by the creation of a field committee consisting of the directors and the employees of the Association. Compensation was limited to expenses 4 incurred in the work. This action of the board really brought an end to the campaign, for the committee never func tioned. Most of its members continued to urge growers to Join, but no special effort was devoted to this work. Richter was paid $471.83 for his services in securing new members. 1 Until 1938 no other agent or member of the See page 199. 2 See page 201. ^Association’s Minute Book, p. 85* ^Ibid., p. 92. 190 field committee was paid for his work. In 1938# when dissen sion was embroiling the directors, Richard McG-uire, who had been warehouse manager for the Association since January 1932, brought suit for $1,219.98 plus interest from January 1, 1933 as payment for his services in the membership cam paign. The case was settled for $250 and costs. The only other attempt to employ agents to secure new members was made in September 1933 when Wm. B. Wilson, a retired farmer of Brookville, Ohio, was named representa tive for this purpose. He was to receive a dollar for each contract he turned in to the office. According to the records he was able to secure three new members. Thus, the Association has not been aggressive in seeking new members. It has depended upon its old members to spread reports of its activities and to induce other growers to join. Most of the new members have come to the Association in this manner. The cost of a membership cam paign and the unwillingness of officers and members to solicit growers for membership without pay for their services have deterred the Association from a vigorous drive. Another factor has been the fear on the part of the officers that such a campaign would arouse the opposition of the dealers and of those manufacturers who buy part of their tobacco from the growers. However, it appears that one reason for the Association remaining small has been the lack of effort to secure members, and that if it desires to reach a greater size it will have to resort to publicity and active campaign- 191 lng among the growers. The desirability of such action was suggested to the Association by H. M. Bain, Principal Agricultural Economist of the Farm Credit Administration when, in the summer and fall of 1939, he visited the Association several times to discuss the possibilities of enlarging the membership. He indicated that the federal government would provide funds for an educational campaign in the district. To date (May 1940) no definite steps in this direction have been taken. The active membership of the Association has varied from about 50 to 500. The changes are shown in the deliv eries of tobacco to the Association, considered below.^ The provision in the membership contract making it possible for members to withdraw, and the policy of the board of directors in not requiring observance of the contract, even when the few withdrawal regulations have not been followed, have been important causes of the fluctuations in the membership. Approximately 1,000 different growers have been members since 1931, while not more than thirty have been members continu ously since 1931* Maintaining Membership Relations The Association has made no great effort to maintain contact with the members. It has not even Issued the member- ship certificates required by the by-laws, p since the direc- 1See page 236. 2See Association's By-Laws, Article XI, Appendix C. 192 tors have felt that they have not been necessary* It has never had a field service or membership relations department and has not attempted to keep the members informed of its activities* In most respects it appears that the least possible information has been disseminated* No bulletins or statements of operations have ever been published and given to the members* As an example of the practice of keeping information from the members, an investment by the directors in 1934 of $2,500 in a chemical plant^- has never been report ed to the membership* The annual meetings and such special meetings as have been called have been the only occasions when reports have been given generally to the members* A part of these reports has consisted of sections— usually the balance sheet and the inventory schedule— of the accountant* s or auditor's annual report. given in totals. Sales and expenses, when reported, have been Other sections of the financial reports, such as the summaries of operations of the different pools by crop year and type of tobacco, have usually been omitted. The secretary-treasurer and directors, often in response to questions, have made general comments on the sales activities and the hopes for the future. The average attendance— about one-third of the active membership— at the annual and special meetings has been satisfactory, but the amount of information imparted has not enlightened the members on the detailed operations of the 1See page 255* 193 Association* At a special meeting in 1933 the members voted to have quarterly rather than annual meetings,^* but the plan was not put into effect. The annual reports of the accountant or auditor have been placed on file in the office for the inspection of the members, but no member has availed himself of the privilege. In addition no use has been made of the provision in the by laws that a member or his duly authorized representative may examine the books of the Association and such papers as may be placed on file by vote of the Board of Directors.”2 The members have learned very little of the sales prices and the expenses of the Association* In making final settlement on a type pool the Association has merely indi cated to each member the number of payments and the total that It has paid on his crop* No summaries of deliveries, sales, and expenditures of type pools, nor any analysis of sales or costs have been given to the members. In spite of this practice members have made little complaint of a lack of information and have never revolted, as did the members of the Miami Valley Tobacco Growers* Co-operative Association, which did extensive membership relations work.^ Several factors appear to have been respon sible for the satisfactory management-membership relations notwithstanding the few efforts made to maintain such Association* s Minute Book, p. 128. 2 See Association's By-Laws, Article VIII, Appendix C. A e e pages 113-117, 156-163# 194 relations First, the members have been made welcome at the offices, which have been in small towns where they have been readily accessible to the growers* In this connection the Association has made its only attempt, beyond the membership meetings, to maintain contacts with its members* The offi cers have urged members to call at the office and warehouse to see the tobacco being rehandled and to learn what the Association is doing* A majority of the members have taken advantage of the Invitation and have called a number of times during each year* On these occasions, however, very little specific Information has been furnished, but the mem bers appear to have been satisfied with the general state ments made* Second, the membership has been small and most of the officers have been farmers with a very real concern in the welfare of the tobacco growers. This has resulted In a close acquaintance between the officers and the members on the basis of a common interest and a common viewpoint. The members' feeling of being close to the Association, or at least to its officers, may have made up for the lack of facts on Its operations. The members have seemed confident that they would receive fair treatment from the Association, although It might not secure high prices for their tobacco. Third, the ease of withdrawing from the Association 1To contrast this situation with that in the pre vious Association see pages 166-167 * 195 has made a revolt unnecessary* When members have become dissatisfied because of the slowness of the Association in making sales or payments, or because of poor returns on their crops, they merely have not delivered the succeeding crops* Individual members have done much complaining, especially in the period 1933-1957, about needing the money from the crops placed with the Association, but no organized opposition has ever appeared. No member has ever brought legal action against the Association. Several in 1935-1937 asked for the right to remove their crops or to sell them out of the Association warehouse. When the requests were denied, no further action was taken. Management An examination of the management of the Association may well begin with the board of directors of seven elected members and one public director. The elected members, who must belong to the Association, serve terms of three years with the terms so arranged that not more than three of them expire in any year.1 This provides a desirable continuity in the membership of the board. Nominations for the positions on the board are pre pared by a nominating committee of the board and are also made from the floor at the annual meeting. According to the by-laws, the nominations of the board are to be reported to ^See Association's By-Laws, Article II, Section 1, Appendix C. 196 the members in the notice of the annual meeting mailed ten days before the meeting,1 but this has never been done* At the election at the annual meeting in February each member has one vote# Vote by mail was permitted by the by-laws, but was denied by an amendment adopted at the annual meeting in February 1934.^ Vacancies on the board are filled by the other directors, and such new directors serve until the next annual meeting.^ Directors have always been elected at large although provision is made that they may be chosen "from districts or classes of growers11 as established "equitably” by the board.^ However, the officers and directors have been successful In their endeavor to see that all sections of the district and the growers of all three types of tobacco are represented on the board# Since 1933 the Association has operated with only six elected directors# When a vacancy occurred because of the death of a director, the position was not filled. Other vacancies, which have arisen from resignations have not been filled until the following annual meeting. This policy has been in the interest of economy. The directors have maintained a close contact with 1See Association's By-Laws, Article IX, Sections 3 and 6, Appendix C . 2Xbid., and Association's Minute Book, p# 134. 5See Association's By-Laws, Article II, Section 5, Appendix C . ^Ibid., Section 3- 197 and control over the affairs of the Association, especially in the matters of insurance, finances, and sales* They seem to have been consciencious in their duties and deeply Inter ested in the success of the Association# Three of the present (May 1940) directors have been on the board since organization in 1931# The public director was to be appointed by the Director of Agricultural Extension Service of Ohio State University with the approval of the board of the Association?* Despite requests from the Association no public director has ever been appointed. Officers of the Association declare that the director's compensation of $3 per day, plus an allowance for actual expenses and a car expense of five cents per mile while travelling on Association business,2 is not sufficiently attractive to those who might be appointed. According to the by-laws the directors are to place the immediate operation of the Association In the hands of a "President, Vice-President, Secretary and Treasurer to gether with any other administrative officers that the Board of Directors may see fit in its discretion to provide for by resolution#” The personnel, tenure, and salaries for these positions are determined by the board.^ The organization structure soon after the Association ^See Association's By-Laws, Article II, Section 4, Appendix C • 2Ibid#, Article III# ^ibid#, Article VI# began operations is shown in the accompanying chart* In contrast to the arrangement in the Miami Valley Tobacco Growers* Co-operative Association^ the president of the ORGANIZATION CHART OF OHIO CIGAR LEAF TOBACCO GROWERS’ MARKETING ASSOCIATION IN 1931 Members Board of Directors President and Chairman of the Board Vice-President General Manager SecretaryTreasurer Finance Accountant Warehouse Manager Sales Membership Campaign Handlers, Packers Figure 18 Association has not been the active directing officer, but merely the head of the board of directors* D* P. Albright, who had been president of the organization committee, held this position from the time of organization in 1931 until 1939* The vice-president has no duties beyond advising with the president and serving in his absence. ^"See page 120* 199 For the first year the board created the position of general manager and gave it to A« B. Hostetter, an independ ent buyer and a leader in the formation of the Association* Hostetter had charge of all activities in handling the tobacco, including the selling of it, had control of the accounting records, and was to conduct the membership cam paign* He hired all office, field and warehouse workers* The remuneration for the position was a commission of one cent per pound on all tobacco received by the Association, and from this commission he paid the accountant, the field men, and the warehouse manager* The board hoped by this plan to place an effective check on overhead costs* It appears that the plan was partly successful*^ Jesse T* secretary of the Landis, a local tobacco grower who had been organization committee, was placedin the position of secretary-treasurer. During the first year his duties consisted of serving as secretary to the board, of approving all bills and signing the checks, and of arranging, with the assistance of the board, for the financing of the Association. This organization structure remained in effect from March 1931 to January 1932, when the board forced Hostetter to resign as general manager* for this action.2 Several reasons were advanced The board felt that one factor in their ^-See page 246. 2These reasons are from statements of the officers during the writer* s association with them from 1933 to date (1940). 200 inability to secure financial aid from the Federal Inter mediate Credit Bank1 was the manager’s former activity as a tobacco buyer# It seems unlikely that there was any validity in this belief. A second objection to Hostetter arose over sales of the tobacco. The board became impatient when all the 1930 tobacco was not sold within six months after it was received. Landis visited several manufacturers and disposed of a large quantity at good prices. This led to accusations that Hostetter was not handling sales properly. On one large sale which Hostetter made, the manufacturer gave him a check for $1,000 as a brokerage fee. Hostetter claimed that he had not known about the fee when the contract was made, and he turned the check over to the Association. Instead of expressing gratitude, the board suspected that there might have been other checks which were not turned over to it. The final event leading to the dismissal of Hostetter was the discovery that the accountant and the warehouse man ager had changed the numbers on certain cases of tobacco and that several of the cases Involved were missing. It appears that Hostetter was a victem of circumstances and was not guilty of wrong doing. He received $5*297*50 from the Asso ciation as his commission for the year’s operations and out of this paid the salaries of the warehouse manager and of the accountant and the expenses of the membership solicitors. In the reorganization of the management after See page 211• 201 Hostetter1s dismissal, the hoard abolished the position of general manager and transferred most of the duties of this position to the secretary-treasurer who became the active ORGANIZATION CHART OF OHIO CIGAR LEAF TOBACCO GROWERS* MARKETING ASSOCIATION AFTER 1931 Members Board of Directors President and Chairman of the Board Vice-President SecretaryTreasurer Warehouse Manager Handlers Packers General Supervision Finance Sales Accountant Figure 19 head of all operations# The secretary-treasurer was employed on a salary basis at #130 per month# The warehouse manager and the accountant were employed by and made responsible to the board as well as to the secretary-treasurer# The sala ries of these positions were set at #25 and #17*50 per week respectively # The revised organization structure which has been in use since January 1932 is shown in Figure 19# As noted in 202 the diagram the secretary-treasurer has complete charge of activities from general supervision to finance and sales# The work of campaigning for new members was given temporar ily to a group of agents on a commission--later an expense— basis, and was soon discontinued Since August 1937, because of the sale at that date of all accumulated holdings and because of reduced receipts of tobacco in the following years, the secretary-treasurer and the warehouse manager have been on part time employment. The accounting has been done only occasionally# The salary of the secretary-treasurer in this period has been #50 per month plus a travelling allowance of five cents per mile. An Increase in the Association^ activities in 1939-1940 would indicate that a full time staff may be needed again. The organization plan has never received careful study# No analysis has been made of the functions involved in a proper operation of the Association. The practice has been to hire the fewest possible persons to carry on a min imum of activities. To be sure, the volume of tobacco han dled has never justified an elaborate organization# Only in such a small company is it feasible for an officer to under take all the duties, including routine work, which have rested on the secretary-treasurer of the Association since January 1932. In practice the sales duties have received very little attention, not so much because the secretarytreasurer has lacked time for the work but because he has 1See page 189. 203 "been at a loss for a method of doing the work. The arrange ment of having the warehouse manger and accountant respon sible to both the board and the secretary-treasurer has worked satisfactorily except in 1935-1937 when several direc tors opposed the actions of the secretary-treasurer .**■ In the matters of personnel and salaries the Associ ation has gone almost to the other extreme from the Miami Valley Tobacco Growers’ Co-operative Association. The sal aries of $1,300 for the warehouse manager and $1,560 for the secretary-treasurer in the Ohio Cigar Leaf Tobacco Growers' Marketing Association are in sharp contrast to the salaries of $5,000 and $25,000— or even, as after the first year, $2,500 and $7,000— for positions of corresponding importance in the 1923-1927 association.2 Except for the first year of operation, when Hostetter was manager, the Association has been under the direction of persons who have been tobacco growers but who have been relatively inexperienced in tobacco marketing. This has been true of both directors and operating officers. The ten years of experience in the Association do not appear 1 ■5 See page 204* 2 See pages 122-123. The secretary-treasurer had secured some experience and contacts through the contracting group in 1928-1930 (see page 170). The vice-president (president since 1939) had been manager of the Miami County Leaf Tobacco Co. of 1912, and the director who was president in 1931-1939 had been a director in the Miami Valley Tobacco Growers' Co-operative Association in 1925-1927* One of the more recent directors had been manager of the Farmers Cooperative Cigar Leaf Tobacco Co* of 1912. The experience secured in this manner had been limited and has not proved to be of much assistance In the management of the Association. 204 to have provided them with the knowledge, skill and contacts necessary for most efficient management* The warehouse man agers since 1932 have been exceptions, for they have been well qualified for their work by experience in grading, rehandling, and repacking tobacco. The policy on personnel and salaries has been in part a reaction from the growers' unfavorable reception of the policy of the earlier association. The organizers believed that the Association had a better chance to succeed if it was operated "by the farmers for the farmers.” Hon esty, sincerity, and a close relationship with the farm and the growers were held to outweigh experience. During most of the period the low salaries have been necessary as a matter of economy. How this policy has influenced opera tions, especially sales, will be discussed in the following chapter. Discord among the directors and operating officers disturbed the Association's operations from 1935 to 1937* The disagreement was over the sales policy of the secretarytreasurer. In 1935, when the Federal Intermediate Credit Bank became insistent that the large stock of tobacco on hand be sold,1 several members of the board, including the president, were convinced that a more vigorous selling pro gram was necessary, and that the secretary-treasurer had been obstructing rather than pushing sales. The first open controversy came over a different 1See page 218* 205 Issue, the matter of selecting a company with which to place the insurance carried by the Association. From this point on the dissension became increasingly bitter. The secretary- treasurer won three directors to his side so that the board was evenly divided. The warehouse manager and theaccount ant were aligned against the secretary-treasurer. In 1937, when a huge stock had accumulated and sales were slow, the president, with the approval of all the other directors, sold the entire stock of tobacco on hand.1 This did not put an end to the trouble, for the secretary-treasurer insisted that he could have sold the tobacco, if given time, at much better prices. He accused the president of receiving a private fee for the sale. Both sides appealed to the members for support, but the members were not greatly alarmed about the matter. Although the returns on their crops were rather small, they were relieved to have the tobacco sold Each side became and settlement made. afraid that the other would attempt to gain control of the board at the annual election in 1938 by appealing to the members who were no longer delivering tobacco to the Association. Therefore, a motion was passed at the regular board meeting in January 1933 striking from the membership rolls all those who had not delivered their 1937 crops. This left only 67 members eligible to attend 1See page 233. It is interesting to note that in 1932 Landis had secured direction of the Association by selling some tobacco over the head of Hostetter, who was then general manager. (See page 200). 206 the annual meeting in February. Neither side gained in the election since the directors whose terms expired were re elected. In February 1939 the president and another dis senting director resigned. Since that date harmony has pre vailed on the board with the secretary-treasurer dominant in policy making. Although the directors have been Interested and active in the operations of the Association, the secretarytreasurer has guided the Association's activities and has kept it alive. Equipment The headquarters of the Association were established at Greenville, Ohio. This was in the center of the northern part of the district where nearly all the members at that time lived. The Association secured adequate facilities by renting a two-story brick building which had been used for a number of years as a tobacco warehouse. This provided stor age space for approximately 20,000 cases and rooms for re sweating and rehandling the tobacco. attached to the warehouse. An office building was The rent was five cents per case per month on the tobacco in storage plus an annual charge of $200 for the use of the office building, of all the necessary tools and equipment, and of the rehandling room in the base ment. The minimum monthly rental for tobacco storage was $100. In 1933 a section of the warehouse was licensed and bonded under the United States Warehouse Act of 1916. This 207 made it possible for the Association to borrow easily and at low rates of interest by using warehouse receipts on tobacco in bonded storage.1 After the Association expanded in 1932-1933 and its members were located in all parts of the district, the mem bers in the southern section began to agitate for a second warehouse located farther south. They felt that they were at a disadvantage with the members in the northern section because of the distance they had to deliver their crops. During 1934 and 1935 the officers investigated possible locations at Brookville, Germantown, and Miamisburg. The problem of added cost to the Association and the uncertainty of the future prevented any action. It seems likely that the use of a warehouse in this section would have brought some new members to the Association, but it is not certain that it would have been worth the cost. At various times the officers and members discussed purchasing the Greenville warehouse and office building. The marketing agreement provided that the Association might acquire the necessary plant and facilities either directly or through subsidiary corporations. To secure the necessary funds, sums could be deducted from the sales of members' crops and certificates issued to the members for these deductions representing their equities in the assets purchased. 2 1See page 213# 2See Association’s Marketing Agreement, Paragraph 9, Appendix C . 208 Although the Association was offered the building at what the officers felt was a low price of $18,000, it was not in a position to borrow the money or to deduct enough from the amounts due the members to raise this sum. On May 6, 1937, the directors voted to sell stock of $10 per share to the members for this purpose.1 No definite plans were developed and the project died with this action by the board. In December 1937, after the whole stock of tobacco had been sold, p the Association vacated the Greenville ware house and moved Its headquarters to Brookville, Ohio. The volume of tobacco it seemed likely to receive on the 1937 crop made the minimum rental of $100 in the Greenville house too high. At Brookville the Association rented a small frame tobacco warehouse with a capacity of approximately 2,500 cases. Office rooms were located in the warehouse. In 1938 a bonded storage section was constructed in part of the building. Rental was set at a flat fee of $40 per month. In construction and facilities, except shipping, the Brookville house is inferior to the Greenville warehouse. Since the Brookville warehouse had very little equipment, the Associa tion had to make an investment of $500 in fixed assets. On the other hand, Brookville offers the advantages of a more central location for the present membership and of a commu nity seemingly more friendly to the idea of cooperative action. i Association's Minute Book, p. 180. 2 See page 233* 209 This warehouse was adequate for the operations of the 1937 and 1938 crops, but in March 1940, with some of the old crops still on hand and increased deliveries of the 1939 crop, the storage and working space was found to be too small. Another Brookville warehouse with a capacity of about 900 cases was rented and immediately bonded. The use of two warehouses has already (May 1940) proved to be inconvenient and expensive. A third warehouse will soon be needed unless deliveries of future crops decline or the accumulated stock is sold. Because of the fluctuations in the volume of tobacco handled from year to year, the Association would seem to have been fortunate in having no great fixed investment. Rented facilities have been adequate, and it seems very likely that they have been cheaper in operation than owned facilities would have been. CHAPTER VII OHIO CIGAR LEAF TOBACCO GROWERS' MARKETING ASSOCIATION - OPERATIONS The Ohio Cigar Leaf Tobacco Growers' Marketing Association, the formation of which was described in the preceding chapter, began operations in April 1931 with approximately one hundred members. In spite of the small quantity of tobacco which the Association could expect to receive from these few growers, the members determined to make this attempt to Improve the marketing of their product. The work of organizing the Association had been completed in less than four months, but the late start of the movement delayed the receiving of the 1930 crop past the usual season in January and February. Financing The problem of securing funds to process the tobacco and to make advances to the members before sales are made has been one of the most serious faced by the Association. As previously noted1 the possibility of securing assistance from either the Federal Farm Board or the Federal Intermediate “^See pages 174 and 178. 210 211 Credit Bank was an important factor in the decision to start the Association. The hope of securing loans from a government agency was not fulfilled until March 1933* After failing to secure this aid in 1931, the directors agreed to release from the marketing agreement delivery of the 1930 crop by any member who requested it.'*’ Very few members sought release. Part of the loyalty was due to a strong belief in the organiza tion, and part to the low prices in the market. From April 1931 to March 1933 many different plans for securing funds were tried. Aid was sought from "a New York firm through Dayton banks.”2 When the banks in the district could not be interested in forming a syndicate sim ilar to the one used by the Miami Valley Tobacco Growers1 Co-operative Association,^a plan to form a separate finance company to borrow from local banks and government agencies was proposed, and then discarded. Unavailing approaches were made to the Reconstruction Finance Corporation and the Regional Agricultural Credit Corporation. Discussions were continued throughout the period with the Federal Intermediate Credit Bank at Louisville. At one time the Association was ready to borrow from the Continental Credit Corporation and the Lawrence Warehouse Company of Winchester and Indianapolis, 4 Indiana, but decided against the plan when it appeared to ^Association's Minute Book, p. 56. 2 4 Ibid., p. 55. "5 See page 125. John W. Moore, Indianapolis, Ind., president of 212 be too expensive and to give too much control over the Asso ciation to those furnishing the funds* In the meantime, aid was secured from local banks* In May 1931 the Second National Bank, Greenville, Ohio, loaned the Association $10,000 at 1% interest on a note endorsed by the directors and the secretary-treasurer and secured by 1,233 cases of tobacco* The Association was able to repay this loan In five months from the proceeds of sev eral large sales. During the first years the officers used all the money from sales to repay loans and to make payments to mem bers, thus leaving no working funds In the Association. result was almost continuous financial stringency. The This became especially serious whenever loans could not be secured, as happened in August 1931 when the banks refused to loan on the unworked tobacco^ on hand. In this crisis the owner of the warehouse advanced during September-November 1931 approx imately $1,000 for wages in addition to $300 of deferred rent to enable the Association to finish handling the 1930 tobacco. The same sequence of sales and payments was repeated in December 1931, and the cycle was completed when the Asso ciation had no funds with which to work the 1931 tobacco these companies, figured in the news in 1938 in a suit charg ing the defrauding of a number of banks of $1,200,000 through the improper use of warehouse receipts. (New York Times, Dec. 29, 1938, p. 3.) For explanation of term see footnote 1, p. 55* 213 when it was received early in 1932. A total of $17,000 was borrowed from local banks with the tobacco as security, but this amount was not sufficient to finance the handling of the large volume of 1931 tobacco. Few sales were made in 1932, so scarcely any funds were obtained from this source. This time the employees of the Association made it possible to continue operations by agreeing to work and to wait for their pay until a loan could be secured. The ware house owner agreed to the postponement of rent payments on the same basis. These agreements were made in view of the fact that plans were moving forward to create a federally bonded storage which would enable the Association to use warehouse receipts for loans from the Federal Intermediate Credit Bank. On March 16, 1933, a loan of $40,900 at 3% interest was obtained from the Federal Intermediate Credit Bank. By this date the accrued expenses amounted to $2,139*70 for storage, $1,477.25 for salaries, and $4,546.50 for wages. From the loan, these obligations and the debt of $17,000 to the local banks were paid. The $40,900 loan from the Federal Intermediate Credit Bank was repaid in June 1933, six months before it was due, from the proceeds of sales in that month. In their eagerness to establish a good reputation with the Bank, the officers repaid the entire loan, although only approximately onehalf of the tobacco used as security for the loan had been sold. When the other half remained unsold and working capi 214 tal ran low in 1934, the Association found that the Bank would not loan a second time on these uncancelled warehouse receipts on the 1931 crop. As a consequence it was forced to borrow $12,000 at 6% on these receipts from a local bank. At this time the officers began to realize their mistake in using all the proceeds from sales, as soon as those sales were made, for payments to the members. They saw that they could not depend on quick or steady sales to fur nish the necessary working capital. Therefore, they began to retain a considerable portion of the funds from sales for this purpose. This has meant that one year’s crop has tended to finance the handling of the following one. No adjustment for interest has ever been made among the crops. It is not clear whether the officers erred by re paying all loans possible as soon as funds were provided by sales. For example, if they had repaid only half of the loan at the Federal Intermediate Credit Bank, they might have been in an even worse position in 1934. Very likely they could not have resisted the pressure from the members to use the funds for payments on the crops; in which case there would have been no tobacco available as collateral for a new loan when funds were needed, for it would have been pledged on existing loans. If they had kept the funds for use in operations the interest cost would have been large and the Federal Intermediate Credit Bank might have refused to wait so long for repayment and probably would have refused to make loans on the succeeding year crops. 215 With the creation of the honded storage and the establishment of connections at the Federal Intermediate Credit Bank, the Association entered a period of easier and cheaper financing# 195^ crops. It borrowed from the Bank on the 1931- The borrowing plan required the Association to make an application for a loan on each year crop. In this application, usually prepared in November or December pre ceding the receiving season, the Association set forth the total sum that it might desire to borrow on that year crop. It also presented to the Bank a schedule of estimated values of the wrappers--loans were not make on fillers or warehouse -i leaves-1-— by types and grades based on the method of packing. p This schedule of market values was subject to revision by the Bank, usually in consultation with the officers of the Association. The Bank loaned up to 60% of the schedule of values. The total amount available for loans on a year crop Warehouse leaves consist of the better quality filler leaves and of the short or slightly damaged wrapper leaves thrown out in the rehandling process. 2These farmer-packed, these extremes the amount and grades of wrappers range from unworked, or to tabled, bulk-sweated wrappers. Between there are several classifications based on method of rehandling and resweating. The word ''grade” is used in three different connec tions by the Association. There are the three major grades-wrappers, fillers, and trash and warehouse leaves. The sub divisions made of the wrappers are also called grades, and the Association has one set of grades for grading the growers' crops and one set, as indicated above, for the repacked wrap pers. Thus, grade A of wrappers may mean either the best grade of farmer-packed wrappers or tabled, bulk-sweated wrap pers. (Terms on handling are explained in footnote 1, p. 55.) 216 was set at $100,000 on the 1931-1933 crops and at $75,000 on the 1934 crop. These amounts were, in most instances, over twice as large as the sums "borrowed by the Association on any year crop, but they were kept as these levels because a larger sum might be needed in some year if deliveries should increase. Ordinarily the Association borrowed on the tobacco as soon as it had been rehandled and placed in bonded storage. The tobacco was rehandled in lots of sufficient size to serve as collateral for notes of $2,000 to $4,000. The notes were made out for a period of nine months, with provision for an extension for a like period of time upon application by the Association and approval by the Bank. The interest rate was 3% in 1933 and 2.% after January 1934. These loans from the Federal Intermediate Credit Bank provided funds to finance the rehandling of the tobacco and to make some small payments to the growers before the sale of the tobacco, but they did not enable the Association to make advance payments upon the delivery of the crops. The payments to the growers from these loans were distributed on the bases of the comparative lengths of time the different year crops had been in the warehouse and of the equity of each type pool as shown by the balance between its sales and applied expenses. For the greater part of the payments on their crops the growers had to wait until the tobacco was sold. The Association realized that its inability to make payments at the time of delivery kept many growers from becoming members, and it tried to compensate for this by 217 making it possible for the members to borrow on the crops placed in the warehouse# Twenty-eight banks in the district agreed to loan to the members individually on the receiving records issued at the time of delivery# These receiving records listed the total amount of the member1s crop by grades. On the back of the record was a form for the assign ment of the grower's Interest in the crop. The Association worked with the banks in establishing fair values on the tobacco to serve as a basis for the loans. the interest rate on such loans was 7^# In most instances Whenever a bank made a loan on a receiving record, it forwarded the record to the Association which then made payments on that crop directly to the bank until notice was received that the loan had been repaid. Many members secured loans by this method, but it was not entirely satisfactory. Members complained that the interest rate was too high, and the banks complained that the loans ran too long if they waited for them to be repaid by payments on the crops. In 1935 the Association became interested in secur ing from the Louisville Bank for Cooperatives loans which would make possible advance payments at the time of delivery. Until this time the Bank for Cooperatives had been willing to loan to the Association only at a higher rate of interest than was charged by the Federal Intermediate Credit Bank. An additional reason for desiring to change banks was the hope that the Louisville Bank for Cooperatives would have a more liberal policy on the renewal of loans. When 218 sales were slow in 1933-1935, the Association was forced to ask for the renewal of practically every note as it came due. several were renewed twice. Although ted the renewal of the loan plan permit the notes upon theapplication of the Association, the Federal Intermediate Credit Bank became dis turbed as the debt mounted. Loans were made on the new crops, while the loans on the old crops continued largely unpaid. By the latter part of 1935 the total debt to the Federal Intermediate Credit Bank on the 1932, 1933, and 1934crops exceeded $50,000. In addition the Association owed $12,000 to the Second National Bank, G-reenville, Ohio, on a note secured by warehouse receipts on the 1931 crop. In 1934 the Federal Intermediate Credit Bank began to press the Association to sell the tobacco in order to repay the loans. As time went on it became more insistent and suggested that it might refuse to renew the notes inthe future. On December 9, 1935 the Association transferred all its borrowing to the Louisville Bank for Cooperatives. A total loan of $70,353*53 was secured on all outstanding ware house receipts on the 1931-1934 crops. The Indebtedness to the Federal Intermediate Credit Bank and the Second National Bank of Greenville was paid. At the same time arrangements were made to borrow from the Bank for Cooperatives on the 1935 crop, which would be received in January and February of the coming year. The plan for borrowing from the Bank for Cooperatives, 219 still in use, has been similar to that with the Federal Intermediate Credit Bank. An annual application is prepared covering a year crop of tobacco. A schedule of values on the different types and grades of tobacco is established each year by the Bank and the Association. In contrast to the arrangement with the Federal Intermediate Credit Bank,'*' these values are set at the amount to be loaned per pound. Under the new plan two types of loans are made: commodity loans and loans for working funds. The former are based on the security of warehouse receipts on tobacco in bonded storage. The latter are made on the general assets and credit of the Association. The Association has borrowed from the Bank for Cooperatives on the 1935 and following crops, with the excep tion of the 1937 crop. The discord among the directors2 and the lack of bonded storage at that time in the Brookville warehouse caused the Bank to refuse to loan on the 1937 tobacco. For the 1935 and 1936 crops the total funds avail able for each crop were $100,000 on the commodity loan and $10,000 on the working fund loan. Because of the reduction in the amount of tobacco received by the Association, the loan limits on the 1938 and 1939 crops were reduced to $25,000 and $3,000 on the commodity and working fund loans respectively. The total amounts of the working fund loans have been used, but, until the 1939 crop, the limits of the 1 See page 215. 2See pages 204-206. 220 commodity loans were well above the Association's require ments . If the volume of tobacco delivered to the Associa tion continues to rise as it did on the 1939 crop, higher loan limits will be needed in succeeding years. The Interest rate charged by the Bank for Coopera tives was 2% until March 1, 1939, when it was lowered to li%* The maturity of the notes has varied in the different years. On the 1936 crop the notes were made out for a period of nine months. year. On the 1938 crop the time was extended to one The arrangement on the 1939 crop loans has been that all notes will be due on January 1, 1941, which means that the notes will have a life of eight to eleven months. This plan may work a hardship on the Association because of the task of preparing for a common maturity date of the total year crop borrowings. The Bank has been willing to renew, whenever necessary, the notes as they have come due, but the debt has not accumulated as it did on the loans from the Federal Intermediate Credit Bank, so that no test has been made of the limits to which the Bank for Cooperatives is willing to extend credit to the Association. With the loans from the Bank for Cooperatives the Association has been able to make advances to the members on their crops at the time of delivery or shortly thereafter. These advances have been made on the wrapper grades only. The advances on the three grades of wrappers established by the Association were 5, 4, and 3 cents per pound on the 1935-1936 crops and 6 , 5, and 4 cents on the 1937-1939 crops. 221 The officers have attempted to make the advance payments approximately one-half of the market value. The Association rehandles the tobacco before placing it in bonded storage. The rehandling costs are financed with the working fund loans. It requires approximately two weeks from the delivery date to rehandle the tobacco, place it in storage, and prepare the warehouse receipts. Many members wait for their advance payments until their crops are worked and the l.oan secured. For members who do not wish to wait, the Association has followed the policy of making small preliminary advances from the working fund loans. The Association has continued to secure small loans of $500 to $4,000 from local banks to tide over the periods while it is waiting for loans to be completed with the Bank for Cooperatives. These loans are made on notes without collateral but are endorsed by the directors and the secretary-treasurer. Another means of financing which has been of increas ing importance has been the Reserve for Working Funds created by a 2% reserve on all sales and from profits from special operations .1 The marketing agreement empowered the Associa tion to deduct from the sales of the members' tobacco reserve funds for credits and other commercial purposes, said funds not to exceed two per cent of the gross resale price. Such reserve funds may be used by the Associa tion, in its conclusive discretion, for any proper pur pose. Upon dissolution of the Association, or earlier, ■^See pages 252 -2 5 3 . as determined "by the Board of Directors, a portion or all of such funds or the unexpended portion thereof shall he distributed to the members in accordance with their con tribution thereto. Such funds shall be subject to any liabilities of the Association. At the annual, meeting on February 6 , 1934, the mem bers approved the suggestion of the board of directors that such a 2% reserve be created and that it be deducted from the sales of all type pools on which final settlement had not been made. 2 Since the payments on the 1931 type pools had not been completed, the action retroactively affected the sales of all tobacco after the 1930 crop. On March 26, 1940, the Reserve for Working Funds was $5,980.53. This total included the profits, on special oper ations,^ but from it had been deducted $2,500 for an invest4 ment made by the directors in a chemical plant, and $2,357*42 for operating expenses during 1936-1937.^ The ad vances to the growers on the 1937 crop, when the Association received no aid from the Bank for Cooperatives, were made from funds retained in the Association by this reserve. The Association’s early difficulties in securing adequate funds for operation, and its inability to make advance payments to the members hampered its growth. The ease, since 1933, and especially since 1935, with which it has been able to obtain loans at low rates of interest from A e e Association’s Marketing Agreement, Paragraph 5, Appendix C. -7 Association’s Minute Book, p. 137. ^See page 255. See page 252. 5See page 246* 223 the Federal Intermediate Credit Bank and the Louisville Bank for Cooperatives has probably been the chief factor which has made it possible for the Association to continue opera tions as long as it has; but these loans have not enabled the Association to grow to an important size. The factors which have hindered the Association will be considered in following sections of this chapter. Handling the Tobacco Following a policy similar to that of the Miami Valley Tobacco Growers' Co-operative Association,^ the Ohio Cigar Leaf Tobacco Growers' Marketing Association has received on consignment from the members only the wrapper and filler grades of the three types of tobacco. Because of the small volume of tobacco handled each year— 139,169 to 1,931,220 pounds2— the problem of receiving, grading and rehandling has been easy compared with that faced by the Miami Valley Tobacco Growers’ Co-operative Associa-2) tion. Until the 1939 crop the Ohio Cigar Leaf Tobacco Growers 1 Marketing Association was able to store and handle all its tobacco in one warehouse. For the 1939 crop two warehouses have been necessary, but both have been in the same village. The location of the office either adjacent to or in the warehouse has greatly facilitated supervision of operations and reduced expenses of management.^ 1See pages 135-139. ^See pages 138-140. 2See page 236* 4 See pages 206-209. 224 The grading of the crops has been done by a feder ally licensed grader at the time the tobacco is worked. The Association has established three grades of wrappers, one of fillers and one of warehouse leaves,'*' in grading the mem bers 1 crops. The last two grades are usually combined for purposes of expense application and settlement to the grow ers . The U. S. Department of Agriculture, through the bonded-warehouse inspectors, has urged the Association to adopt the grading system standardized by the government tobacco experts. The Association has refused on the grounds that the suggested grading system is too complicated, that it would be too costly to pack the tobacco in these grades, that it would require special training of the warehouse workers doing sorting and sizing, and that it would not be as intelligible to the members as the present system. No difficulties, such as those experienced by the Miami Valley p Tobacco Growers' Co-operative Association, have ever arisen because of the method of grading, and very few objections have been raised by the members, except the expected objec tion that the grades should have been higher. In all except the first year, the Association has pooled or mingled the members' tobacco, as provided for In the marketing agreement.^ 1 3 On the 1930 crop each member's See footnote 1, p. 215* 2 See pages 139-140. See Association's Marketing Agreement, Paragraph 4, Appendix C . 225 tobacco was worked and repacked separately* However, the crops were not sold separately, and settlements to the mem bers were made by grades in the type pools rather than by crops. Nothing seems to have been gained, and the expense of handling was increased. In handling the tobacco, pools are created for each type in each crop year. Accounts of sales and expenses are kept on the basis of these pools, and each pool is settled separately. The amount of rehandling done on each crop has varied during the history of the Association. the fillers are sold as received. Ordinarily In several years some of the better fillers have been made into warehouse leaves.^ The officers believe that they have been able to get better prices for the fillers by doing this. Of the 1931 crop the Association tabled and bulksweated most of the wrappers. 2 When this complete process resulted in costs which appeared to be higher than those of private dealers for similar work^ and the Association saw its funds tied up in tobacco which was slow to move, the amount of rehandling on the following crops was reduced. On these crops the wrappers have been hand-sized and some times bulk-sweated, though more frequently box-sweated. Since the 1936 crop a part of the wrappers has not been sweated, 1See footnote 1, p. 215. 2 3 The special terms are explained in footnote 1, p. 5 5 . See page 249# 226 other than in the natural sweat after repacking. For many of the customers of the Association, the hand-sizing and box- or bulk-sweating is necessary since they do not have facilities for these operations. The rehandling work of the Association is complicated by the fact that the manufacturers differ on the amount and kind of processing which they want done on the tobacco before they buy it. This change made by the Association in its rehandling practices: over the years was characteristic also of the oper ations of the cooperative warehouse companies1 and, to a certain extent, of the Miami Valley Tobacco Growers' Cop operative Association. In general the handling operations, which have been directed by competent warehouse managers,-^ have been well done. This is true In spite of the fact that, mainly because of the small volume of tobacco handled, the handling costs do not seem, to have shown a saving over those of the private 4 dealers. Sales Selling has been a weak point in the Association* s operations. An examination of its policies and practices in making sales reveals several causes of its shortcomings. In the first place, the selling function has not been given the 1See page 82. 2See page 138. ^See page 204. ^See page 249. 227 attention and the position in operations which it seems to deserve* This is shown by three facts: no separate sales department has been established and no regular sales manager has been employed; for the most part, those who have had charge of sales have not been experienced in the work; and a definite, aggressive sales program has not been developed. As noted earlier,1 the sales during the first year were handled by the general manager, Hostetter, and after the reorganization in 1932 by the secretary-treasurer, Landis. In both instances selling was only a part of the men's activities. Although Hostetter had thirty years' experi ence as an independent buyer, a dealer's agent, and the agent for the Miami County Leaf Tobacco Company, p he does not appear to have known how to handle the selling for the Association. The short time--less than a year— during which he held the position may not have afforded opportunity for him to show what he could do. Landis' selling experience had been limited to his activities in the selling group of 1928-1930,^ and to a few sales for the Association. The directors, who, through the setting of prices, have taken an active part in the selling, have also had little experience.^ The placing of operations in the hands of farmers, who have been inexperienced in tobacco marketing, has been a part of the management policy of the Association.^ The results in the sales operations, as shown in the following pages, have -1 See pages 199, 202. ^See footnote 3, P* 203. p See page 87- ^See page 170. ^See pages 203-204. 228 not been satisfactory. The failure to develop a definite, aggressive sales program can be attributed, in part at least, to the inexpe rience of the persons in charge of sales. The Association appears to have made haphazard experiments with a number of methods without developing any one, and has not been aggres sive in those which it has used. The chief method has been to wait for the dealers, brokers, and manufacturers to come to the Association to buy. This also characterized the selling of the earlier cooperative ventures.1 To supplement this "waiting" policy the secretarytreasurer has at times addressed personal letters to dealers and manufacturers offering lots of tobacco in which they might be interested. poor. Results from these efforts have been A third sales method has been the trips made by the secretary-treasurer once or twice each year through Ohio, western West Virginia, western Pennsylvania, and, sometimes, eastern Indiana to call on the manufacturers. The Associa tion’s records show that frequently the sales made have not equalled the expenses of the trip, but that the sales which have come from contacts made on these trips have been a bit more gratifying. The Association tried another method in 1933 when a special sales agent without any tobacco selling experience was placed on the road. He was a member of the board of directors and was employed at ,1$3 per day and not in excess 1See pages 8 6 , 145. 229 of $3 per day travelling expenses"1 to call on the manufac turers* Two weeks 1 activity resulted in sales totaling $120 before the director-salesman gave up the Job* Various brokers have sold tobacco for the Associa tion, but the iniative has usually come from the brokers rather than from the Association* The only broker who has maintained a continuous relationship by carrying samples of the Association's tobacco all the time has been J* Levin of Cleveland, Ohio* He specializes in selling to small stogie manufacturers and has brought a fairly large volume of busi ness to the Association. In its selling efforts the Association has vacil lated between appealing to the large and to the small manu facturers. Hostetter followed a policy of selling in large lots as much as possible. In 1932, when sales were slow, Landis decided to seek a market among the small manufactur ers. The periodic trips among them were part of this plan. Landis believed that the Association might win these manu facturers with appeals of lower prices through direct dealing with the producers, and with offers of superior accomodations on credit and timing of shipments. At one time the officers hoped that these connections might provide an outlet for the total supply of the Association's tobacco. Approximately forty small manufacturers, most of them located in Wheeling, West Virginia, Pittsburg, Pennsylvania, and small towns in southeastern Ohio, were added to the 1 Association's Minute Book, p. 114. 230 customer list between 1932 and 1935* Several have become valuable customers, but most of them have bought only a few cases. In general, selling to the small manufacturers has not been successful. Their demand has not been great enough to take all the Association'stobacco* Most of them have insisted on the better grades since they have no use for the short sizes and lower grades. This has left the Association with a poor grading, which has been difficult to sell to the large manufacturers on whom the Association has had to depend in order to have an outlet for its total supply. Other problems which have arisen in selling to the small manufacturers have been losses on bad debts and a high pro portion of sales returns. Since 1936 the Association has again sought to dis pose of its tobacco primarily to the large manufacturers* Orders have been taken from the small manufacturers for one or two cases, but no great effort has been made to expand this business. A second failing, in addition to a lack of attention to the selling function, in the Association's sales opera tions has been certain practices which have antagonized the dealers, brokers, and manufacturers. The officers have fre quently accused these individuals of unfair treatment of the growers and of the Association. have not gone unnoticed. Naturally these accusations Several Important brokers and dealers in the trade have been alienated by the officers' attempts to induce manufacturers who have bought tobacco 231 from the Association through these agencies to deal directly in future purchases. A third error in sales operations has been the pric ing practices, one of which has been to raise the quoted prices whenever a customer begins to show interest in a lot of tobacco but does not buy at once. lost by such actions. Many sales have been A second and more harmful practice has been the attempts at price setting. The directors and the secretary-treasurer have set prices, which they have regarded as fair, on the various types and grades of tobacco, and then have held it in the hope of getting these prices. This prac tice, in which the officers have persisted, has not been founded on a careful study of the market, and the Associa tion has seldom received the prices set. Several ideas, beyond the ordinary desire to secure the highest possible prices, appear to have Induced the officers to make these attempts. First, they have felt that the tobacco grower has a right to expect prices which will cover the cost of pro duction. Their insistence on certain prices for the tobacco has often been backed by the statement, "The farmers cannot afford to raise it for less." Second, they have believed that sooner or later the manufacturers would be forced to buy the Association’s tobacco at its prices to fill their needs. This belief certainly has not taken into account the small part the Association has had in the district,1 and has not been justified by the Association's experience. 1See Table 6 , p. 236. 232 A third idea which has induced the officers to attempt price setting has been an overemphasis on the fact that tobacco tends to increase in value as it ages. The officers have assumed that this rise in value would cover any costs involved in holding the tobacco, and that their prices should rise automatically to keep pace with the ris ing value. Occasionally the secretary-treasurer has written letters to prospective customers saying that on a certain date— usually January first of the following year~-all prices would advance one cent per pound to allow for the increased value from aging. has not Needless to say, the Association been in a position to get the higher price. As a result of its lack of attention to the selling function and as a result of its pricing practices, the Asso ciation has usually been a tobacco "holding company" rather than a selling agency .1 The accumulation of tobacco in storage has assumed serious proportions on three occasions. The first of these was in the early part of 1933 after very few sales had been made in 1932. Two big sales relieved the situation. The worst condition culminated in the spring of 1937. Large portions of the 1931, 1933, 1934, and 1935 crops, as well as the 1936 crop, were on hand. The total approximated 1This failing has been rather common in tobacco cooperatives. For examples in the Burley and the Wisconsin district pools see: Verna Elsinger, "The Burley Tobacco G-rowers Experiment," American Cooperation 1928. Vol. II, p. 539; and E. Ela, "Operating a Tobacco Cooperative Under the New Deal," American Cooperation 1934, pp. 245-247. 233 35^ of all deliveries of these crops and was 90% of the deliveries on the 1933-1936 crops. The 1932 crop had been of very poor quality and had been disposed of at low prices during 1935-1936. As this stock accumulated after 1933 the Federal Intermediate Credit Bank began to urge the Association to make sales .1 Several members of the board became concerned and insisted that the secretary-treasurer dispose of the tobacco even at very low prices if necessary. When the secretary-treasurer demurred, saying that if the Association would just "sit tight" it would get its prices, the president of the board decided to try to sell the tobacco. A contract, signed by all of the directors, disposed of the entire stock of tobacco--approximately 1 ,100,000 pounds— »at 12J cents per pound, a low but acceptable price. The only tobacco left in the Association warehouse was 33 cases of warehouse leaves which had been previously contracted to a manufacturer. The third peak in the accumulation of tobacco in storage was reached in the fall of 1939. Because the deliv eries of the 1937 and 1938 crops had been small, the situa tion was not very serious and the danger was removed by several large sales. The Association roust expect to carry a stock of some size if it desires to deal with the manufacturers, many of whom are not interested in buying tobacco until it has aged a year or two. How large a stock the Association should be 1See page 218. 234 prepared to carry is very hard to determine, but it is clear that the carrying of the stock creates the problem of secur ing funds to finance the costs involved and to make payments to members before the sales are made* The results of the Association’s sales operations are shown in the average sales prices, Table 7, page 242, secured for the tobacco* That these prices for the tobacco, much of which has been rehandled, have not been very high is shown by a comparison with the average market prices for unworked tobacco on the farm, Table 7* As explained later, these prices, in general, have not been high enough to give the members returns on their crops above the market prices.^* Even so, the Ohio Cigar Leaf Tobacco Growers 1 Marketing Association has been more successful than the Miami Valley Tobacco Growers’ Co-operative Association2 in securing sat isfactory prices on sales. Causes beyond the control of the Ohio Cigar Leaf Tobacco Growers’ Marketing Association have been responsible for part of its difficulty in making sales at good prices. These causes have been the decrease in the consumption of Miami Valley tobacco and the decline in the market price of tobacco, especially during the period 1931-1933. ■5 It would seem that such conditions would have made it difficult even for skilled salesmen to have made a good record for the Association. 1 However, since selling is its primary function, See page 244. ■5 See Appendix A, Table II . p See page 143. 235 the Association will need to find ways of doing a better selling job before it can hope to serve effectively the tobacco growers, and to develop to a size which will make it Important in the tobacco market. Receipts of Tobacco The Association has experienced a wide fluctuation in the amount of tobacco received from year to year. Table 6, on the following page, shows the number of crops and the total pounds of tobacco on each year crop delivered to the Association by members since operations began. The fluctuations revealed by this table can be attributed to four factors: the ease with which a member has been able to withdraw from the Association, the fluctua tions in the production of tobacco in the Miami Valley, the changes in the condition of the tobacco market, and the returns which the Association has been able to make to its members. As noted earlier,'*' the withdrawal of members from the Association is made possible by a provision in the marketing agreement and by the policy of the directors of not penaliz ing those who fail to deliver without formally withdrawing. This has meant that the Association has received large quan tities some years and small amounts others, for the members have tended to deliver their crops only when they have See pages 184-186. 236 thought it would be profitable to do so. However, it is likely that the Association, after a few years' operations, would have met a fate similar to that of the Miami Valley TABLE 6 TOBACCO OF THE 1930-1939 CROPS RECEIVED BY THE OHIO CIGAR LEAF TOBACCO GROWERS' MARKETING ASSOCIATION0Year Crop No. of * Crops Pounds of Tobacco 1930 1931 1932 1933 1934 1935 1936 1937 3-938, 1939a 140 647,130 1,931,220 1,125,875 421,404 212,994 736,646 215,633 139,169 297,386 524,515 380 330 172 74 209 86 47 126 194 % Total Prod *0 2*0 5.7 4*7 3.3 1.3 4*2 1.6 .9 2*4 3.1 ^ o r sources of data see footnote 1 , p. 169. Number of units of deliveries* Tobacco delivered by one grower or by a landlord and his tenant counts as one crop* cThe percentage which the tobacco received by the Association constitutes of the total production in the Miami Valley* ^Includes deliveries to May 1, 1940. An additional 50,000 pounds may be delivered in the course of time* V Tobacco Growers* Co-operative Association,^ if it had at tempted to force the members to deliver all their crops. A substantial part of the variations over the years in the total pounds of tobacco received by the Association ■^See pages 156 -1 6 6 * 237 can be accounted for by the changes in the amounts of tobacco produced in the Miami Valley. For example, while the volume of tobacco delivered to the Association decreased 78% from the 1931 to the 1933 crop, in the same period the quantity of tobacco grown was reduced 62%. As can be seen from Table 6 , page 236, the pounds of tobacco received have varied much more than the number of crops, for with one-half as many crops of the 1939 as of the 1931 tobacco the Association received only about one-fourth as much tobacco. However, as is indicated by the figures in Table 6 showing the relation of the Association's receipts of tobacco to total production in the Miami Valley over the years, the Association has not had a constant position in the market. Also, its role has been only a minor one. The condition of the tobacco market, as to both the price and the buyers’ activity, is reflected in the amounts of tobacco received by the Association. Low market prices for the 1931-1933 crops brought the Association fairly large quantities. A rise in price for the 1934 crop and a subse quent fall in price for the 1935 crop were accompanied by reverse movements in the receivings of the Association. At times the amounts the growers have delivered to the Association have been Influenced by the activity of the buyers in purchasing the tobacco and by a change in the mar ket price during the season. marketing of the 1939 crop. These forces operated in the Early in January 1940 the buy ers were offering 12 cents per pound. After a week of 238 intensive buying the price fell to about 8 cents per pound, and the buyers were not eager to make purchases even at that figure* The growers reacted by delivering their crops to the Association, as is shown by the increase in the amount of 1939 tobacco received. For many growers the Association has served as a last resort# When they have been unable to sell their crops to the buyers they have brought them to the Association. In periods of extremely low prices the same thing has occurred. The attitude of many growers is revealed in the frequent comment to the officers: "I don’t seem able to get anything for it, so I'd rather 'give' it to you fellows than to the buyers Further illustration of the factors influencing the quantity of tobacco received is provided by an analysis by types of the deliveries to the Association, Figure 20, page 239. The growers’ changes from raising one type to raising another, and the market demand for the different types over the years are revealed in the tobacco received by the Asso ciation# As an example of the latter, one factor in the proportionately small deliveries of Type 43 of the 1937 crop was the good market price on the farm for that type. The large quantity of 1931 Type 44 tobacco received was the result of the fact that the Association was started in that crop year by the Type 44 growers .1 1 See page 182. 239 I 6s. 900 BOO 70 0 TOO ftOO 500 400 500 too 100 >930 Flo.20. ■991 <932. 1933 1934 R EC EIV IN G BY TYPES FO R BY O HIO C IG A R LEAF TOBACCO 1937 1936 935 <996 *939 O C R O P YEA R S 1930-1939 GROWERS MARKETINq ASSOC. Months 2H IS 90 30 40 Z2ZE SAX V I *933 VT7 W UAXI 1937 1936 Poym ent 1 VJLA 44 4 3 44 ■ I LAi 23 yxaaaaA/^ Pirst Second T h ird Fourth Fined Settletnoni *939 v 'V JV JO t A- 94 OO ( ,0.^1. T IM E REQ UIRED FOR PAYMENTS AND FINAL S E T T L E M E N T ON 1930-39 CROPS BY OHIO CIGAR LEAF TOBACCO GROWERS MARKETING A550C (to M a y Ij 1940) Returns to Growers A significant factor in the quantity of tobacco received by the Association has been the returns it has made to the growers. The time required to make settlement on the type pools, as well as the size of the returns, has been important. As shown in Figure 21, page 239, there has been a great variation among the pools and the crop years in the total time required for settlement, in the number of sepa rate payments made, and in the timing of these payments* The policy of making advance payments on delivery began with the 1935 crop and brought an increase in the total received on that crop, Figure 20. The extremely long time required to make final settlements on the 1931-1933 crops caused a reduction in the deliveries of the 1933 and following crops. The noticeable shortening in the time required to settle the type pools from the 1931 to the 1936 crops came about in the "clean-up” sale in 19371 when the remaining tobacco of all these crop years was sold and final settlements on all type pools involved were made at practi cally the same time. Without doubt the fact that the Type 42 pools were the first to be settled on the 1937 and 1938 crops was responsible for the great increase, shown in Fig ure 20, in the Type 42 deliveries of the 1939 crop. The disproportionate— in relation to its percentage in total production— quantity of Type 44 tobacco received in 1See page 233* 241 most crop years, particularly 1934-, 1936, 1937 and 1938, as shown in Figure 20, has been the consequence of two factors. Ordinarily the Association has required a shorter time to settle the pools of this type, Figure 21, and has been able to return somewhat better prices to the Type 44 growers, Table 7, page 242. The operations of the type pools on which final settlements have been made (to May 1, 1940), are summarized in Table 7, page 242. From the figures presented there, the size of the returns which the Association has made to the growers on the type pools in each year crop can be compared with the average market prices for the tobacco on the farms. In making these comparisons certain factors must be taken into consideration. First, market prices by types are not available, and, since the prices of the three types vary in relation to each other in succeeding years, no direct com parison of the market price in one year with the return by the Association on each type in that year is possible. Also, because the Association has not received the three types in the same proportions in which they have made up total produc tion, the average return on a crop year in the Association is not on the same basis as the average market price. In addition, it must be remembered that the average market prices are estimates. Second, the quality of the tobacco on the market com pared with that of the tobacco received by the Association must be kept in mind. One aspect of this is shown in Table 7 242 TABLE 7 SUMMARY OF OPERATIONS OF OHIO CIGAR LEAF TOBACCO GROWERS’ MARKETING ASSOCIATION OF TYPE POOLS ON WHICH FINAL SETTLEMENTS HAVE BEEN MADEa Tobacco Received Year 1930 1931 1932 1933 1934 1935 1936 Type 44 43 42 44 43 42 44 43 42 44 43 42 44 43 42 44 43 , 42 44 43 42 Total Pounds 536,667 14,978 95.489 547,135 290,369 836,014 804.837 1,931,220 f° 87 81 85 m 69 13 19 15 14 Av. Sales Price per Ih. Av. Cost per3b. & 8.85 2.03 11.88 11.90 9.37 7.98 8.07 42 So 31 34 58 40 437.694 1,125,875 63 77 72 73 37 23 28 27 75,571 169,409 176,424 421,404 77 78 74 76 68,911 67,971 80 76 76,112 82 212,994 79 21 65,327 345,547 325.772 73^45 77 73 74 74 23 27 26 26 8.54 8.70 78,930 51,187 8.5,516 215,633 74 41 26 12.22 8.05 68 6^ 59 32 36 12.61 149,369 538,812 66 23 7.01 7.61 6.96 5.90 5-83 6.01 9.48 22 8.20 26 24 9.09 8.79 20 10.30 24 18 9.69 11.22 10.43 11.11 8.38 2.01 2.01 2.02 2.62 2.94 2.15 2.56 2.05 2.52 2.34 2.39 2.93 3.78 3*64 3.57 Av. Return Mkt. to G-rower Pr. per lb. perlbr 6.82 9.87 9.89 7.35 5.36 5.13 4.86 5.05 * 10.1 5.5 4.91 3.38 3.49 3.62 4.0 6.55 4.42 5.45 5.22 6.0 1.53 3.80 3.70 3.03 8.77 5.89 7.40' 8.6 1.68 9.43 6.73 6.85 7.03 7.2 1.65 1.69 1.67 7.52 11.43 11.39 .79 1.55 1.96 1.43 10.65 9.96 9.5 6.50 1937 42 48,893 72 28 11.19 2.61 8.58 8.8 1938 42 35,723 65 35 10.28 1.92 8.36 8.8 aFor sources of data see footnote 1, 169. Wrapper grade. cFillers and warehouse leaves. “For tobacco on farm. See Appendix A, Table II. 243 in the percentages of wrappers and of fillers and leaves in each type pool* Since the latter sell for approximately one-half the price of wrappers, the proportion of these grades in a type pool influences the sale price and hence the return to the grower* Although a definite comparison of the general quality of the tobacco received by the Associa tion with that of the entire year crop cannot be made, it appears that the Association's tobacco has been somewhat below average quality. This is in accord with the idea that much of the tobacco received by the Association is delivered by growers who have difficulty in disposing of their crops, often because of their poor quality, to the buyers .1 Although the buyers are not inclined to make much allowance in price for differences in quality, they are not anxious to buy the poorer crops, and are more likely to penalize very poor crops than to allow a premium for very good ones. The officers of the Association tend to agree that the quality of tobacco they have received has been slightly below aver age . Third, allowance must also be made for the fact that non-members have received the market price in cash at deliv ery time, while the members have had to wait from three months to five years to secure their complete returns. A comparison of the market prices and the returns to the members, as given in Table 7, would indicate that the Association has not been able to obtain for its members 1See page 2 38 . 244 prices higher than, or as high as, those secured by growers outside the Association* In view of the factors just con sidered, it is impossible to say just how great the differ ences have been, although they do appear to have been to the disadvantage of the members. With the exception of the 1930 crop they do not seem to have been large. In that year the low average return shown by the Association was caused by the great quantity of low-priced Type 44 tobacco which it handled. On the 1936 crop the Association showed a return above the average market price. At least, the Ohio Cigar Leaf Tobacco G-rowers1 Marketing Association has been able to make better returns to its members than the Miami Valley Tobacco Growers’ Co-operative Association.1 The Ohio Cigar Leaf Tobacco Growers 1 Marketing Asso ciation’s records reveal that one group of growers has gained by placing its tobacco with the Association. growers have been those with very good crops. These Such crops rarely receive a price advantage in the market, while the Association makes its settlements on the basis of the crop grading in order to reward the growers of good quality tobacco. For example, a grower with a good 1935 Type 42 crop--15^ fillers and leaves, 80^ A wrappers and 5% B wrap pers— received an average return of 8.1 cents per pound, which was well above the market price of 7.2 cents. A num ber of growers have been able to secure this advantage con sistently, but they have been too few to raise the average ^See pages 150-152. 245 quality of the total deliveries* The Association has re ceived the extremes of the very good and the poor crops. The effect which the Association has had on the mar ket price is largely a matter of conjecture. Officers and members claim that it has meant higher prices for all growers. It appears that in some parts of the district, where the Association has been strongest, it has brought higher prices in some years* In view of the small quantity of tobacco handled by the Association, it seems doubtful whether it could have had a very great effect. Expenses The returns to the growers have been determined not only by the prices which the Association has received on its sales1 but also by the expenses of handling the tobacco. The Association^ biggest problem in expenses has been that of trying to keep costs comparable with the varying volume of tobacco, especially when that volume has decreased. In Table 7, page 242, are given the average costs applied per pound on the type pools of the different year crops. The high expenses on the 1933 and 1934 crops are the results both of the long periods these crops were held and of large overheads applied to small volumes of tobacco. Only the great volume of tobacco of the 1931 crop prevented a very high expense on that crop because of the length, of 1See page 234. 246 time that it was in storage* The low charges against the 1935 and 1936 crops were due both to the short time they were held and to the fact that approximately $2,400 of the overhead expenses incurred in the years 1936-1937 was closed against the Reserve for Working Funds- This was done pri marily to make possible good returns on these crops# An analysis of the expenses is presented in Table 8 on the following page. The classes of expenses given are based on those used by the Association. Since the chief items which would ordinarily be listed as selling expenses-brokerage and sales salary— are charged to the sales and administrative expense accounts respectively, there is no separate class of selling expenses. The figures for the 1930 crop are not directly com parable with those for following years. This is true because of the arrangement on that crop under which the general man ager received a commission on the volume of tobacco handled and from that commission paid the salaries of the accountant and the warehouse manager and the costs of the membership campaign.1 The salary of the warehouse manager and the expense of soliciting new members were included in adminis trative expense on the 1930 crop, while on the following crop years they have been classified as labor and miscella neous expense respectively. It appears that the expense arrangement on the 1930 crop was largely responsible for the reasonably low operating cost per pound of tobacco. 1See page 199. 247 TABLE 8 ANALYSIS OF EXPENSES OF OHIO CIGAR LEAF TOBACCO GROWERS' MARKETING ASSOCIATION ON TYPE POOLS ON WHICH FINAL SETTLEMENTS HAVE BEEN MADE (To May 1, 1940)* Year 1930 1931 1932 1933 1934 1935 Type Total Cost 44 43 42 2.03 44 43 42 2.62 44 43 42 2.05 2.01 2.01 Ware Labor Cases Stor age house .75 .70 .70 Admin Fin Misistra an cl. cial tive in c<3nts p€sr pourid - - .12 .12 .20 .72 — .21 .72 .12 .13 .21 .12 .72 — .13 .16 .22 1.09 .91 .89 .53 .70 .40 .23 .36 .27 .14 .17 .10 .14 .34 .40 .40 .35 .38 .44 .08 2.34 .74 .97 .71 .31 .39 .40 44 43 42 2.93 3.78 3.64 .85 .69 .56 .61 .61 •61 .29 .44 .43 .21 .36 .36 •65 1.14 1.14 44 43 42 1.53 3.80 .76 1.34 1.39 .24 .24 .24- .16 .38 .37 .08 .41 .38 .18 .90 .42 .41 .36 .31 .31 .32 .16 .21 .15 .17 .19 .18 44 43 42 2.94 2.15 2.52 2.70 1.68 1.65 1.69 .11 .12 .12 .13 .13 .25 .32 .19 .22 .26 .16 .18 .06 .20 .20 .07 .07 .21 .11 .18 .36 .36 .18 .07 .36 .34 .04 .17 .17 .16 .02 .02 .21 .40 .39 .43 .20 .20 .20 .11 .03 .10 , .22 .12 .29 .19 .38 .58 •06 .11 .15 .04 .07 .81 .18 .17 .03 .02 44 43 42 .79 1.55 1.96 .50 .55 193T 42 2.61 .49 .26 .31 .35 .82 .23 .15 1938 42 1.92 .68 .16 .19 .20 .48 .14 .07 1936 #For sources of the data see footnote 1, p. 169. 248 The officers have been fairly successful in avoid ing fixed charges. This has been true especially since the 1936 crop when administrative salaries were reduced to very low levels .1 However, the effects of a smaller quantity of tobacco in raising the costs applied per pound can be seen in the administrative and warehouse expenses and also in labor costs, as shown in Table 8 , page 247* The financial expenses— insurance and interest— and storage charges reflect chiefly the length of time the tobacco has been in storage. The labor costs have varied with the amount of rehandling done on the type pools and also with the amount handled, since it has generally proved to be cheaper to handle a large quantity. The cases expense shows some Interesting fluctua tions. On the 1930 crop the growers received no payment for their cases, so the return they received per pound was really lower than the figure given in Table 7, page 242. Much of Types 44 and 42 of the 1931 crop and a large part of all types of the 1932 crop were sold in bales, so that the cases cost on these type pools was relatively low. With the 1934 crop the Association began to deal in new and used cases2 and was able to make substantial savings, as shown by the cases costs on succeeding crops. The expenses of the Ohio Cigar Leaf Tobacco G-rowers* Marketing Association compare favorably with those of the Miami Valley Tobacco Growers* Co-operative Association,^ 1 O See page 202. "7L See page 252. •'See pages 148-150. 249 even though the latter handled much greater quantities of tobacco in the two years of its operations. The former has avoided a great increase in expenses per pound of tobacco as the volume has decreased. Although expenses have been fairly well controlled in the Ohio Cigar Leaf Tobacco Growers1 Mar keting Association, they do not appear to have been below the costs of private dealers,'*' for the returns to the mem bers have not, in general, been higher than the market prices on the farm. Of course the returns have been influ enced also by the prices which the Association has secured on its sales. 2 The small volume of tobacco handled and the long time it has been held in storage have been most impor tant in preventing the Association from making a better expense record. Accounting Methods Since the 1930 crop the Association has had no seri ous difficulty with its accounting. An overpayment, such as Unfortunately it seems impossible to get cost fig ures from the private dealers to compare with those of the associations. A rough estimate— used by the associations— of dealers1 costs is the difference between the price paid for the tobacco in the country and the price the manufactur ers pay the dealers and associations for the rehandled tobacco. The associations feel that this is a fairly relia ble measure since they regard the dealers as very influen tial in setting both of these prices. The associations judge their own efficiency in rehandling by comparing their costs with this difference. This reasoning was the basis of the estimates which members and officers of the associations gave the writer in interviews in August 1938 and August 1939 on the question of the efficiency of their operations. 2See page 234. 250 those which occurred twice to a grave extent in the Miami Valley Tobacco Growers' Co-operative Association,^ was made on the 1930 crop. The total was approximately $375 and arose from the efforts of an incompetent accountant to dis tribute funds in the final settlement on that crop. The amount was finally charged against the membership dues account• The most serious accounting problem has been that of cost allocation by crop years and types. Labor, cases, and storage costs have been treated as direct items and have presented very little difficulty. The overhead items of administrative, financial, warehouse and miscellaneous costs have caused the trouble. In making this distribution the officers seem to have reached a more satisfactory solution than did the Miami Valley Tobacco Growers’ Co-operative Association. p Allowance has been made for the grade of the tobacco by charging wrappers twice as heavily as fillers and leaves. The length of time the tobacco has remained in stor age has been taken into consideration. To do this the offi cers have made the older crops on hand bear a lower propor tion of the current overhead by placing them in the ratio of 1, 2, 4, 8, etc. per pound from the oldest to the most recent crop year. In general this arrangement can be justi fied by the less attention required by the crops which are worked and in storage. It is also a convenient method of saving any old crops which are slow to sell from an extremely ■**See pages 140-142. 2 See page 155. 251 heavy burden of overhead costs* Although this plan of overhead allocation has proved generally satisfactory, it has not faced fairly the problem of the type pools which are disposed of in less than a year’s time, as was the 1936 Type 44 pool.^ The type pool is charged with overhead only while it is on hand, so that whenever it is sold before the end of its first storage year the other type pools of the year crop are forced to stand nearly all the overhead of that year. If all type pools of a year were sold before the end of their first year in the warehouse, a very distinct problem would be raised. It would seem that a type pool, although disposed of very early, should bear a portion of the entire overhead for its first storage year. Following the readjustment in 1937, 2 the accounting work has been greatly handicapped by the fact that an account ant has not been employed regularly and the work has been done only sporadically--sometimes once every six months* This has complicated cost distribution and final settlement on the type pools. Since 1933 no independent audits have been made of the Association’s books* The Federal Intermediate Credit Bank and the Bank for Cooperatives have been satisfied to accept the statements prepared by the accountants. There have never been any suggestions of misuse of funds or impro per accounting— other than the overpayment on the 1930 crop— 1See Figure 21, p* 239* 2See page 202. 252 and no complaints have been made by the members about the accounting. Special Activities Certain activities which the Association has under taken in connection with its regular functions of handling and selling tobacco deserve mention. One of the most impor tant of these, from the point of view of the saving and profit it has meant, has been the operations in tobacco cases. Since the 1934 crop the Association has bought lum ber and made cases, on each of which it has been able to save approximately 25 cents— about 10% of the total cost. In addition, the Association has bought used cases from sev eral manufacturers. It has furnished these cases to the members to use in delivering their crops and has sold them to outsiders. This has meant not only a lower case cost charged against the tobacco, as indicated earlier,1 but also a profit of over $2,200 which has been transferred to the Reserve for Working Funds. Since 1934 the Association has bought some tobacco for resale. This has been done for several reasons. Some exceptionally good crops have been purchased to improve the grading of the tobacco of the members. Some have been bought to fill the needs of regular customers of the Association or as a speculation. The most important operations have been 1See page 248. 253 in trash leaves, which the Association has never handled on consignment. Of the 1938 crop it bought 37,000 pounds and of the 1939 crop approximately 100,000 pounds. The price paid was three cents per pound, which was well above the price in the preceding years. The officers have sought both to make a profit on this tobacco and to advertise the Asso ciation among the growers. The hope has been that those who sell this low grade to the Association may be induced to deliver the better grades on consignment. It appears that this plan has been partly successful. On total operations in this purchased tobacco from August 1934 up to, but not including, the 1939 trash leaves, the Association realized a profit of $590, which was added to the Reserve for Working Funds. This profit was about 6% on the Investment. At various times the Association has been inter ested in sponsoring or operating a cigar factory. Discus sions have been held with manufacturers, but no definite steps have ever been taken. To help several customers and to encourage the sale of its tobacco the Association has taken cigars in payment of part of the sales accounts* These cigars have been placed in stores throughout the dis trict. The secretary-treasurer has sponsored the plan and assumed the risks. It has not been of significance except as it has enabled the Association to collect several rela tively small accounts. A more important movement toward cigar making came 254 in 1933 when the Association decided to become a quasimanufacturer to prepare short-filler scrap for cigars. The plan was to buy a scrap or shredding machine, but as an experiment the Association hired a manufacturer to shred about thirty cases. The results were so unsatisfactory that the project was abandoned. This plan had originated when the Association was seeking its major outlet among the small manufacturers,1 many of whom made short-filler cigars but did not have a machine to shred the leaf. Removing Trash from the Market Prior to 1938, when the Association began to buy trash leaves, it was a leading crusader to have the trash tobacco removed from the market. The officers felt that this low grade offered serious competition to the better grades. Three different avenues of attack were used in this drive. The Association encouraged the growers to use the trash for fertilizer or to mix it with their poultry feeds. Many were induced to do so. The second attack was an endeavor to secure a law In Ohio to prohibit the sale of trash leaves. A member of the Association who was a representative in the Ohio General Assembly proposed bills in 1933 and in 1935 for this purpose. The bills claimed that the trash leaves consisted of the 1See page 229. 255 ’’unclean, unsanitary, and unsound leaves” which were ’’unfit for human consumption.”1 On both occasions the bill passed the house but died in a committee of the senate. The final means by which the Association sought to remove the trash from the market was the establishment of a chemical extraction plant. Early in 1934 an inventor and a promoter from New York City approached the Association with a new process of extracing nicotine, malic and citric acids from tobacco, and presented figures to show the great profit possibilities. After several months’ deliberations2 the directors voted to invest $2,500 In the venture. charged against the Reserve for Working Funds. This was The Eastern Dark Fired Tobacco Growers Association, Springfield, Tennes see, and the Western Dark Fired Tobacco Growers Association, Murray, Kentucky, each invested $5,000. A pilot plant was built in New Jersey and each Association shipped some tobacco for a test. The main plant was to be built in Kentucky and each Association was to provide an established percentage of the low grade tobacco used. Reports from the pilot plant ^■House Bill No. 55, Ohio General Assembly, 91st, Regular Session, 1935-1936. o Investigations by the writer revealed that the inventor of the new process had a poor reputation in chemi cal circles and that experiments of government experts and of private chemical firms had shown that it was too expen sive to extract these or any other chemicals from Miami Valley tobacco. The Virginia Dark-Fired Tobacco Growers Association has operated a nicotine plant to which it has diverted its poor tobacco whenever the price has fallen below a certain level. The venture appears to have been successful with this type of tobacco. (Cooperative Journal. July-August 1937, PP* 116-117.) 256 were sketchy and finally, in 1936, they stopped coming. Nothing has been heard of the inventor or the promoter since. The Ohio Cigar Leaf Tobacco Growers1 Marketing Association has never been an important factor in the tobacco market. It started small and has remained small. It has gone through many periods of difficulty, but has managed to survive. For the most part members have not been loyal to the Association, but have used it as a last resort in bad times or as a place to dispose of their poor tobacco. An examination of operations has shown that the rehandling of the tobacco and the control of expenses have been generally satisfactory. Sales have been a weak point. Mainly because of the failure with sales and because of the small volume of tobacco handled, the Association has not been able to make an average return to the growers above the market price. CHAPTER VIII SUMMARY AND CONCLUSIONS The various lines of investigation followed in the analysis of the tobacco marketing cooperatives which have existed in the Miami Valley, Ohio, can now be brought to gether and summarized. Conclusions as to the factors which have led to the formation and caused the failures of these ventures can be drawn. Let it be noted at once that no new factors have been discovered; nor was a search for them the reason for the study. The purpose has been to discover the factors, new or old, involved in the histories of the co operatives in this particular district. It appears that no attempts at cooperative marketing of tobacco were made in the Miami Valley before 1900. Soon after that time a few local warehouse associations were set up, but they did not survive long. The National Cigar Leaf Growers' Union of 1910 sponsored the first important move ment, which resulted in the formation of the eleven coopera tive warehouse companies of 1912, and of the related sales agencies. The Miami Valley Tobacco Growers' Co-operative Association of 1923-1927 and the Ohio Cigar Leaf Tobacco Growers' Marketing Association of 1931— 257 with its fore- 258 runner, the selling group of 1928-1930, complete the list of attempts to market tobacco cooperatively* The creation of these associations1, has been traced to four factors or causes* The most important of these was depressions in the tobacco market. In the three periods since 1909-1910-1912, 1920-1926, and 1929-1933— when prices were low or declining, demand weak, and the outlook for the growers discouraging, cooperative marketing was tried as a remedy for the situation. Of the associations mentioned above all the important ones were created in these periods* Another factor in the formation of the associations in these periods was the encouragement which the growers in the Miami Valley received from the apparent success of ex periments in cooperative marketing in other tobacco dis tricts, chiefly the Burley district of Kentucky. A third factor providing part of the impetus for the creation of the cooperatives was the activities of certain organizations, and the passage of laws favorable to coopera tive marketing. These organizations and laws were a part of the recurrent periods of interest, both in this district and in the whole country, in cooperative action in agriculture. The American Society of Equity in 1912 and the Ohio Farm Bureau Federation in 1923 sponsored and directed the crea tion of the associations. To a lesser degree the Farmers’ Equity Union was a factor in arousing interest in the moveFor ease of statement all these organizations, Including the cooperative warehouse companies, will be referred to throughout this chapter as associations. 259 ment in 1925. The Capper-Volstead Act of 1922, Ohio’s Farnsworth-Greer Cooperative Bill of 1923, and the Agricul tural Marketing Act of 1929 were both expressions of and contributors to interest in cooperative marketing# Repre sentatives of the Federal Farm Board, created by the last of these acts, actively participated in the organizing of the Ohio Cigar Leaf Tobacco Growers* Marketing Association in 1931* The final factor in the creation of these coopera tives was the growers' dissatisfaction with the countrybuyer system of marketing* Some growers sought relief from the low prices, uncertainty, and discrimination which they felt this system involved. Others were interested in secur ing for themselves in higher prices the money which went to the middlemen as costs and profits. They believed that by direct dealing between producers and manufacturers some of the operations in handling and marketing could be eliminated, and that others could be performed more efficiently. In the associations formed in 1923 and in 1931 the objection to the existing system was expressed in a desire to monopolize the market and to dictate prices. In the ventures started soon after 1900 the lack of proper facilities to market the to bacco, as well as objections to the system, appears to have led to the establishment of warehouses. Significant size and importance in the market never been attained by any of these ventures except the Miami Valley Tobacco Growers’ Co-operative Association* have 260 That association handled 76% of the 1923 crop and 21% of the 1924 crop, but these were the only year crops received* The eleven cooperative warehouse companies of 1912, in spite of their number, never received over 10% of the total Miami Valley production in any year, and most of them were out of existence after a few years. Those which survived a bit longer tended to become profit seeking ventures in the con trol of a few growers. The Ohio Cigar Leaf Tobacco Growers' Marketing Association has had a relatively long life (since 1931) in which it has overcome imposing obstacles. Yet, its operations have been even more limited than those of the earlier undertakings, for of the 1931 crop, when It attained its greatest size, it handled less than 6% of the tobacco grown in the district. All these associations have tended to reach their maximum size in the first years of operation and then to decline and, in a few years, with the exception of the Ohio Cigar Leaf Tobacco Growers' Marketing Associa tion, to pass out of existence. The mistakes and difficulties which have caused these failures— for so the operations of these associations must be regarded— have been many. They can be classified into two groups: internal factors, causes arising within the organizations; and external factors, causes beyond the con trol of the associations. One of the internal factors was the serious errors made in organizing the associations* To create enthusiasm among the growers the organizers and offi cers often have condemned the tobacco buyers and manufactur- 261 ers. These individuals in return frequently have provided effective opposition by refusing to buy from the associa tions and by Inducing growers not to support them. A second error in the formation of many of the asso ciations was the use of extravagant promises and excessive pressure to induce growers to join. When the associations were unable to fulfill the promises, the disillusioned mem bers withdrew. Perhaps the organizers and officers were guilty only of over-optimism in this respect, but their methods of getting members jeopardized the chances for suc cess of the associations. A third error in setting up the associations was the inadequate attention given to the organization structure and to the functions essential for successful operation. The duties of the various officers were not well planned or de fined. The selling function was almost never accorded the position which it should have had. The results have been inefficient management and poor sales records. Closely related to the errors made in securing mem bers has been another Internal factor which has contributed to the failures of the associations. These organizations, with the possible exception of the cooperative warehouse companies of 1912, have never been supported by the great mass of growers. the few. They were formed and have been operated by As a result, the members generally have had no deep Interest in the associations, and have not remained loyal. It appears that they have not known what they might 262 reasonably expect of cooperative action, and have not real ized what they must do to make the undertakings successful. They have tended to use the associations only when it has appeared profitable to do so. The Ohio Cigar Leaf Tobacco Growers’ Marketing Association especially has served often as a dumping ground during periods of low prices and for poor tobacco. From the histories of these associations it is dif ficult to draw conclusions as to the effects of different kinds of membership contracts and of membership relations programs on the loyalty of the members. In the cooperative warehouse companies of 1912 there were usually no written membership agreements and no membership relations work. The resulting unstable memberships of these companies appear to have been an Important factor in their dissolutions. On the other hand, the Miami Valley Tobacco Growers' Co-operative Association attempted to bind the members to Itself for five years without possibility of release. It also conducted a vigorous membership campaign and an exten sive membership relations program. Yet, its members com plained of a lack of contact with the association, and of a lack of control over Its operations; they rose in a revolt which destroyed the undertaking after only two years of operation. At almost the other extreme the Ohio Cigar Leaf Tobacco Growers' Marketing Association has made it very easy for members to withdraw or to deliver just those crops which they have chosen to deliver. It has been inclined to wait 263 for the growers to seek to join, and has slighted membership relations work, even to the point of being reluctant to give information to its members* Very likely because of the ease with which members have been able to withdraw when they have become dissatisfied, this association has heard little crit icism of its relations with the members, and has never been troubled by opposition from them* Although the Ohio Cigar Leaf Tobacco Growers1 Marketing Association has been enabled by this policy of leniency toward members to survive much longer than the Miami Valley Tobacco G-rowers1 Co-operative Association, it has at the same time been condemned to suf fer wide fluctuations in the quantity of tobacco received. Neither policy seems to offer a solution to the problem of membership loyalty* The examination of the associations has shown that factors other than the formal membership relations work have entered into the membership-management relations* These have been the size of the organizations; the personnel, sal aries, and attitudes of the managements; and the accessibil ity of headquarters to the members* The great size of the Miami Valley Tobacco Growers1 Co-operative Association and the location of its offices in a large city, Dayton, where they seemed remote and inaccessible to the growers, made difficult a close relationship between members and manage ment. This situation existed in spite of the membership relations work already mentioned and the fact that directors were chosen by an elaborate process intended to keep the 264 control in the hands of the members* The members of this association were suspicious of the experienced tobacco men, "outsiders,” hired to manage the association, and resentful of the high salaries paid them* The difference between the members and the management reached its climax in 1925 when, in the face of membership demands for more information and for a withdrawal provision in the by-laws, officers sought to use the election procedure to retain control of the asso ciation* In contrast, the cooperative warehouse companies and the Ohio Cigar Leaf Tobacco Growers1 Marketing Association have been small and their officers, though lacking in exper ience, have been closely acquainted with the growers and deeply concerned in the success of the undertakings* salaries paid have been low* The The offices have been located in small towns and the members have been made to feel that they are welcome to call. Although approval cannot be given to very small associations and to inexperience and low sal aries for the management, the suggestion may be made that important reasons for the friendly relations between the managements of these associations and their members may be found in the personnel and attitudes of the management and in the accessibility of the offices to the members. A third important internal factor involved in the failures of the associations has been mismanagement. From the examination of the associations' operations it appears that one reason for this has been the officers* failures to 265 plan operations carefully• Instead of driving toward well- conceived goals, they seem to have moved with the flow of events* There were fewer indications of lack of planning in the Miami Valley Tobacco Growers* Co-operative Association than there have been in the other associations. One evidence of the mismanagement was the poor ac counting methods of the Miami Valley Tobacco Growers* Co operative Association, and the lack of accounting in most of the cooperative warehouse companies* Mismanagement does not appear to have occurred in the handling of the tobacco, except in the Miami Valley Tobacco Growers* Co-operative Association* In that organi zation errors beset the handling activity from grading to repacking to such an extent that they must rank as a major cause of the failure of the association* One of these was the mistake of using too many warehouses scattered through out the whole district. This not only complicated the prob lem of control but also was very expensive. In this respect the other associations, with smaller quantities of tobacco and only one or two warehouses each, have made better rec ords • It is difficult to judge the efficiency of the man agements from the costs of operations because of the few available bases for comparison. From the data obtainable it appears that the associations generally have not been able to perform the handling and marketing functions cheaper than, or, in many instances, as cheaply as, the private 266 buyers and dealers. Although the Ohio Cigar Leaf Tobacco Growers1 Marketing Association has been able to overcome to a great degree the problem of fixed costs with fluctuations * in the quantity of tobacco handled--a problem which the Miami Valley Tobacco Growers' Co-operative Association did not solve--!t does not appear to have made a saving in oper ating costs. That the associations realized their weakness in this respect is shown by the fact that nearly all of them began by doing a complete rehandling job on the tobacco, and later reduced the operations to the minimum necessary to satisfy the customers. This poor showing can be attributed to poor managements and high overheads, and to the small, varying quantities of tobacco which most of the associations have handled. To what extent the poor management has been caused by the inexperience of the officers is inconclusive from the histories of the associations. Most of them have employed as managers farmers inexperienced in the tobacco market, but the Miami Valley Tobacco Growers' Co-operative Association, as it began operations, hired supposedly competent men exper ienced in tobacco marketing. Yet, in nearly every phase of the management of that association the officers, especially in the first year, committed many blunders. In fact, in the second year with several less experienced officers a notice able improvement was made. It seems likely that the errors made by the experienced tobacco men were due to the great size of the new undertaking and to the fact that the officers 267 were not experienced in managing farmers' cooperatives and were not vitally interested in the success of the venture. However, the officers must possess more than close contacts with the growers' problems and a deep interest in the under taking to insure good management. This has been shown by the experience of the other associations and of the Miami Valley Tobacco Growers' Co-operative Association after the management was changed in 1924. Probably the generally sat isfactory records in tobacco handling in the cooperative warehouse companies and the Ohio Cigar Leaf Tobacco Growers' Marketing Association have been made because experienced warehouse managers have usually been employed# In many instances the officers seem to have been imbued, perhaps because of their inexperience, with an over optimism which has led to serious mistakes. Extravagant promises, which could not be fulfilled, have been made to members, who have thereby been turned against the associa tions. In the Miami Valley Tobacco Growers' Co-operative Association too high estimates were placed on the tobacco with resulting overpayments on the advances to the members-an important factor in the failure of the association. Induced partly by this over-optimism, officers have attempted, with unfortunate results, to set arbitrary prices on their tobacco. A fourth internal factor which, at some time or other, has caused trouble for all the associations except the Miami Valley Tobacco Growers* Co-operative Association 268 has been a lack of funds for operations and for advances to the members. That association obtained adequate funds from a bankers' syndicate, but the plan was expensive and diffi culties were encountered in administering it and In making repayments. The cooperative warehouse companies of 1912 devised no adequate methods of dealing with the problem. After several years of financial stringency, the Ohio Cigar Leaf Tobacco Growers' Marketing Association has been able to secure all the funds necessary— except In emergencies cre ated by its sales practices— at low rates of interest by borrowing on tobacco in bonded storage from the Federal Intermediate Credit Bank, Louisville, Kentucky, and the Louisville Bank for Cooperatives. It seems no exaggeration to say that the continued operation of this association has been made possible by these loans. The credit facilities provided by these government-established financial Institu tions have solved one of the biggest problems of tobacco cooperatives• The gravest failing of the associations has been in selling, their primary function. Although this factor might be included in management, it has been so important that it deserves separate consideration. The officers have appeared to be at a loss for a way to attack the problem. Many dif ferent methods have been tried but none of them has been carefully developed and aggressively used. For the most part the officers have waited for the dealers and manufac turers to come to them to make purchases. In conducting 269 sales operations little attention has been given to the supply and demand in the market. The prices which the associations have been able to secure for their tobacco generally have not been high enough to give the members returns above the prices for tobacco on the farm. Of course, part of the poor returns must be attributed to the associations' inability, as mentioned pre viously, to make a saving on the costs of handling and mar keting. At times, especially in the Miami Valley Tobacco Growers' Co-operative Association, the members have suffered great losses in view of the prices which they might have secured from sale to the private buyers. In attempting to secure better prices the officers have made the mistake of setting high prices and then hold ing the tobacco in the futile hope that the manufacturers would be forced to pay the prices asked. Instead of bring ing higher prices, this practice has caused higher costs and the postponement of payments to the members. The long time, in some instances from three to five years, which the mem bers have had to wait for final settlement on their crops has not only reduced the real returns on the crops but also caused many members to withdraw. The record of the Ohio Cigar Leaf Tobacco Growers* Marketing Association has been very poor in this respect, especially on the 1931 crop on which it required over five years to make settlement on the Types 43 and 42 pools. Whether the associations have done much toward cor- 270 recting the evils which, the growers have felt to exist in the country-buyer system of marketing is problematical• The different associations either have not been large enough or have not operated long enough to show whether they could stabilize prices. The expressed intention of increasing the price to the growers by adding to it the profits of the dis placed middlemen and the anticipated savings in performing the handling and marketing functions has not been realized. The decline of the independent buyer--the buyer most objected to by the growers--does not seem to have resulted from the work of the cooperatives. It appears that in some years, in at least some sections of the district, the associations have been able to bring higher prices for the tobacco. It seems also that because of losses suffered in selling through the associations members have gained less from these higher prices than the outsiders. In most of the associations the officers who have had charge of sales have had little experience in tobacco marketing. During part of its history the Miami Valley Tobacco Growers’ Co-operative Association employed an exper ienced tobacco salesman who was able to dispose of the to bacco rapidly but not to secure good prices for it. His failure seems to have been due to changes in the market and to the conditions under which he worked. From an examination of the failures of the associa tions several suggestions can be made for a more satisfac tory performance of the vital function of selling. First, 271 the association should give the proper emphasis to this function by placing it in the charge of an officer trained and experienced in the work and able to devote adequate time to it* Second, this officer should understand the operation of a farmers’ cooperative marketing association and should have an interest in the tobacco growers’ welfare* Third, a careful study should be made of the market for the product and of the methods of selling* Out of this study a definite program should be developed and followed aggressively. Fourth, arbitrary price setting should be abandoned in favor of a pricing policy based on a careful study of market con ditions . A sixth internal factor responsible for the failure of the associations has been the attempts to operate on too small a volume of tobacco. This cause has been demonstrated in the operations of the cooperative warehouse companies and of the Ohio Cigar Leaf Tobacco Growers1 Marketing Association. How many pounds of tobacco or what percent of the production in the district must be received to make possible effective operation is hard to determine. Perhaps the minimum of five million pounds suggested by the Federal Farm Board1 and by the officers of the Miami Valley Tobacco Growers’ Co-operative Association2 is a fair estimate. At least, the volume should be great enough that the association would have some voice in the market and that it would be possible to employ good management and to conduct a strong sales program without 1See page 178. 2 See page 165* 272 burdening each pound of tobacco with a high operating cost. The difficulties of the Miami Valley Tobacco Growers1 Co operative Association with the large quantity of tobacco which it received the first year appear to have been caused not by the amount of the tobacco itself but by the attempt to start on a large scale without adequate preparation for the task. A final internal factor which has contributed to the failure of these associations has been internal dissension. This has occurred not only as revolts of the members against the associations, as in the Miami Valley Tobacco Growers’ Co operative Association, but also as discord among the direc tors and officers. The operations of the Ohio Cigar Leaf Tobacco Growers’ Marketing Association were hampered from 1935 to 1939 by this latter type of trouble. On one point the associations have had a uniformly good record. They have avoided the mistake of extensive investments in fixed assets, for in view of the short lives of most of the associations such investments would very likely have meant losses. The few cooperative warehouse com panies which owned their buildings were able either to dis pose of them satisfactorily during the period of war prices or to rent them for a fair return. Most of the associations found rented buildings and equipment adequate for operations. External factors have also contributed to the lack of success of these associations. The first of these has been a decline in the demand for Miami Valley tobacco. The 273 consumption of cigars, which provide the chief market for this tobacco, has decreased rapidly. Tobacco from the other domestic cigar leaf districts and imports from Puerto Rico and the Philippines have been taking a greater portion of the remaining cigar filler-leaf market. Oversupplies of Miami Valley tobacco on the market, in spite of reduced pro duction, and lower prices for this tobacco have been the results of these developments. The associations have had to fight against these odds without hope of being able to re verse the trends. A second external factor has been changes in the market price for tobacco. Many of the cooperative warehouse companies went out of existence when market prices rose during the war and members deserted the companies because they no longer felt the need for their services. A rapidly declining market price was an important factor in the de struction of the Miami Valley Tobacco Growers1 Go-operative Association, for it made it impossible for the association to make a fair return to its members. The associations do not appear to have been able, in many instances, to take advan tage of rising prices on tobacco received during low price periods• The opposition of the buyers and manufacturers, largely earned by the unwise statements and actions of mem bers and officers of the associations, has already been men tioned. The nature of the cigar leaf tobacco market has also been a factor in the difficulties of the associations. 274 The concentration of cigar manufacturing in the hands of a few large firms has narrowed the market on which the asso ciations sell their product. The quoting of prices and the making of sales have "been complicated by the facts that cigar leaf tobacco has not been traded on a commodity ex change, that there has been no central market for it, and that information on market prices, supply, and demand has been hard to obtain. It is interesting to note that of the twenty inter nal causes for the failures of cooperative marketing asso ciations listed by the Federal Farm Board in a report in 1932,1 fifteen played some part in the failures of the tobacco cooperatives in the Miami Valley* Some of the more important causes listed were: errors made in forming the association, disloyalty of members, poor sales programs, incompetent management, high operating costs, and lack of sufficient capital. No internal factors were found in the Miami Valley associations which were not listed by the Fed eral Farm Board* On the other hand, causes listed by this board which do not appear to have been involved in the failFederal Farm Board, Cooperative Marketing of Farm Products. Bulletin No. 10, June 1932, p. 13* This is one of the most extensive lists available. Similar, though not as detailed, lists of factors are given by other authorities, who also list general external factors. See: H. H. Bakken and M. A. Schaars, The Economics of Cooperative Marketing (New York: McGraw-Hill, 1937), pp. 196-203; F. E. Clark and L. D. H. Weld, Marketing Agricultural Products in the United States (New York: Macmillan, 1932), pp. 568-572; H. B. Price, op. cit.; J. W. Jones and 0. B. Jesness, Membership Relations of Cooperative Associations (Cotton and Tobacco), U . S . Department of Agriculture Department Circular No. 407, January 1927. 275 ures of these associations were: hasty organization, direc tors serving as paid employees, wasting funds to meet compe tition from private agencies, failure to create reserves, and excessive investment in fixed assets. The last of these the associations in the Miami Valley have been careful to avoid. Since the cooperative warehouse companies soon became profit ventures they were not in a position to use the same type of reserves as the other associations. Out of the many attempts at cooperative tobacco mar keting in the Miami Valley, only the Ohio Cigar Leaf Tobacco Growers' Marketing Association continues (July 1940) to operate, and it on only a very small scale. The future for cooperative marketing in this district is not promising. Before any great success can be achieved, problems of man agement and selling must be solved to make possible better returns to the members. No test has been provided of what cooperatives might be able to do in this district under man agement skilled in the work of cooperative marketing and interested in the tobacco growers' welfare, but it seems reasonable to suppose that such management would be more successful than the managements of these undertakings have been. Of equal importance is the need for growers to be interested in and instructed in cooperative action. Whether these conditions can be brought about and operations suc cessfully carried on in the face of the general market situ ation for Miami Valley tobacco, are unanswered questions. If the Ohio Cigar Leaf Tobacco Growers' Marketing Association 276 is to attempt to prove that cooperative marketing of tobacco can be done successfully in this district, it should begin by Increasing its membership and by devising a better sales program. By way of summarization the following factors may be listed as those involved in the creation and the failures of the tobacco marketing cooperatives in the Miami Valley: I. Factors leading to the formation of the associations# A# Depressions in the tobacco market# B# Formation of tobacco cooperatives In other districts# C# Activities of certain organizations and passage of laws favorable to cooperative marketing* 1# American Society of Equity, Ohio Farm Bureau Federation, Ohio State University, Federal Farm Board. 2# Capper-Volstead Act of 1922, Ohio’s FamsworthGreer Cooperative Bill of 1923, Agricultural Marketing Act of 1929# D. Growers* dissatisfaction with the country-buyer system of marketing# II# Factors causing the failures of the associations# A# Internal factors. 1# Errors made In forming the associations. a. Condemnations of tobacco buyers and manufac turers# b# Extravagant promises and excessive pressure used to induce growers to join# c. Inadequate attention to organization structure and to the functions essential to operations# 2# Lack of support from the great body of growers, a# Formed and directed by the few# b. Cooperative action not understood by growers. c. Poor membership-management relations* 3• Mlsmanagem ent• a# Lack of planning* 277 b. Poor accounting methods* c* Errors in handling the tobacco* d* Inability to reduce operating costs below those of private dealers* e* Managers inexperienced In cooperative marketing and uninterested in tobacco growers* Y/elfare* 4* Lack of funds for operations and for advances to members. 5* Poor sales programs. a. No well developed program aggressively pursued. b. Low prices secured on sales. c. Attempts at price setting. 6. Too small volume of tobacco handled. 7* Internal dissension. B. External factors. 1. Declining demand for Miami Valley tobacco. 2. Changes in market price for tobacco. 3. Opposition of private interests. 4. Nature of the cigar leaf tobacco market. a. Restricted market. b. Lack of central tobacco market, of trading in tobacco on commodity exchange, and of market information. APPENDICES A. MIAMI VALLEY TOBACCO STATISTICS Table I • Acreage and Production of Tobacco in the Miami Valley 1863-1939 Table II. Production, Disappearance, and Value of Tobacco, with Index of Purchasing Power of Farmers * Dollar in the Miami Valley1909-1939 B. ORGANIZATION PAPERS OF THE MIAMI VALLEYTOBACCO GROWERS' CO-OPERATIVE ASSOCIATION 1 • Marketing Agreement 2. By-Laws Page 279 279 281 283 283 289 C . ORGANIZATION PAPERS OF THE OHIO CIGARLEAF TOBACCO GROWERS' MARKETING ASSOCIATION 1. Organization Agreement 2. Marketing Agreement 3* By-Laws 278 302 302 305 310 APPENDIX A MIAMI VALLEY TOBACCO STATISTICS TABLE I. ACREAGE AND PRODUCTION OF TOBACCO IN THE MIAMI VALLEY 1863-1939* Year Acreage 1863 1865 1867 1869 1871 1873 1875 1877 1879 1881 1883 1885 1887 1889 1891 1893 1895 1897 1899 1901 16,400 4,400 7,900 5,500 17,800 18,900 11,600 14,300 15,400 17,600 12,400 18,900 17,900 21,300 28,800 31,700 24,700 30,700 52,600 50,100 Production (th. lbs.) Year Acreage Production (til. lbs.) 14,800 3,000 5,600 5,200 24,900 16,400 10,000 11,500 17,200 13,000 10,300 20,000 16,700 18,000 26,400 19,200 19,900 24,500 48,400 33,400 1903 1905 1907 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 45,400 58,000 67,700 71,600 60,000 51,300 60,300 63,600 47,100 29,900 28,000 34,900 16,500 28,600 33,800 14,100 16,200 16,100 16,300 31,500 46,800 48,900 54,600 55,800 37,400 54,300 61,700 39,000 28,200 25,900 34,100 12,200 21,500 33,700 12,700 17,400 15,700 16,800 ^The following sources were referred to in securing this data and that used in Figures 1-3, PP* 9-11 • For the limitations of the data see footnote 3, p* 12* DATA FOR OHIO BY COUNTIES: Annual Report of the Ohio State Board of Agriculture, 1863~190'9, The first report on tobacco production by counties was given for the year 1863* Annual Report of the Secretary of State of Ohio, 1891-1897* For some reason the statistics for these years were published in this report rather than in that of the 279 280 agricultural board. DATA FOR INDIANA B3C COUNTIES: Annual Report of the Indiana state Board of Asrlculture, I865-168Q a Report of (Indiana) Department of Statistics, 18811909* (Bureau of Statistics since 1905; Annual lSSl-1884, Biennial since 1885)* DATA FOR BOTH STATES BY COUNTIES: Census of the United States, Seventh to Fifteenth# U # S. Census of Agriculture, 1925 and 1935* DATA FOR BOTH STATES NOT BY COUNTIES: Chas. E# Gage, A id eric an Tobacco Types, Uses, and Markets# pp# 46-47# Data for 1909-1932# U# S# Department of Agriculture, Annual Report on Tobacco Statistics# Statistical Bulletins: #58 (data to 1935), #63 (1937), #67 (1938), and report for 1939 issued by the Agricultural Marketing Service# U# S. Department of Agriculture, Crop Report as of October 1# 1939# issued by the Agricultural Marketing Service* The personal records and estimates of several dealers and a broker interviewed during August 1938 and August 1939# 281 TABLE II. PRODUCTION, DISAPPEARANCE, AND VALUE OF TOBACCO, WITH INDEX OF PURCHASING- POWER OF FARMERS' DOLLAR, IN THE MIAMI VALLEY 1909-1939 Year 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1925 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 Brodyo- Stocks tlon*- Oct.? Total SWtir Minim rbs. MITttm lbs. Minim lbs. 54.6 56.0 55.8 53.5 37.4 54.1 54.3 58.2 61.7 53.0 39.0 38.6 28.2 26.6 25.9 25.2 34.1 21.8 12.2 15.6 21.5 32.8 33.7 24.2 12.7 16.3 17.4 13.2 15.1 12.2 a a a 101.9 95.9 78.2 84.2 68.2 73.5 76.0 78.9 90.9 89.4 84.2 84.9 84.6 64.4 82.0 66.0 55.1 46.4 42.2 61.9 66.0 62.4 63.4 65.8 60.2 51.7 48.0 42.0 16.8 ---- 155*4 133*3 132*3 138.5 126.4 135.2 129.0 117.9 129.5 117.6 110.8 110.8 109.8 98.5 103.8 78.2 70.7 67.9 75.0 95.6 90.2 75.1 79.7 83.2 73.4 66.8 60.2 58.8 Disap pear ance MITHm lbs. — — 59.5 55.1 48.1 70.3 52.9 59.2 50.1 27.0 40.1 33.4 25.9 26.2 45.4 16.5 37.8 23.1 24.3 25.7 13.1 29.6 27.8 11.7 13.9 23.0 21.7 18.8 18.8 — — Stock times Disap pear ance — — 1.71 1.74 1.63 1.20 1.31 1.24 1.52 2.92 2.27 2.68 3.23 3.24 1.86 3.90 2.17 2.86 2.27 1.80 3.22 2.09 2.37 5.33 4.56 2.87 2.82 2.75 2.55 — Av. Price z& Pur. Crop Pwr. Value1 of Farm ths . * t 9.5 8.2 7.8 8.0 11.0 9.1 9.0 12.0 24.0 16.0 20.0 16.0 11.0 14.0 13.0 13.0 11.4 8.5 15.6 17.5 13.8 10.1 5.5 4*0 6.0 8.6 7.2 9.5 8.8 8.8 8.5 5,186 4,592 4,352 4,277 4,119 4,927 4,384 6,984 14,806 8,480 7,797 6,174 3,106 3,726 3,364 3,275 3,883 1,854 1,904 2,732 2,960 3,307 1,855 967 760 1,404 1,254 1,250 1,330 1,077 1,428 f a 104 94 100 100 101 93 95 117 115 105 105 82 89 93 94 99 94 91 96 95 87 70 6l 64 73 86 92 93 78 a aData not available. ^ h a s . E. G-age, American Tobacco Types, Uses, and Markets, p. 46; U. S. Department of Agriculture, Annual Report on Tobacco Statistics. First. p. 15, 1959. p. 9; U. S. Department of Agriculture, Crop Report as of October 1 , 1939; reports of growers and dealers interviewed during March 1940 on the price for 1939 tobacco. 2J. V. Morrow and D. Smith, Tobacco Shrinkage and Losses in Weight In Handling and Storage, p. 55; U. S. 282 Department of Agriculture, Annual Report on Tobacco Statistics 1939, p. 49. ------------------------The index number of the purchasing power of the farmers1 dollar was computed as the ratio of the index number of prices received by the farmers for all their products to the index number of prices paid by the farmers for all com modities purchased. These index numbers (base 100 for the period 1910-1914) are given in U. S. Department of Agri culture, Agricultural Statistics 1959. pp. 496-497. The limitations of the index computed must be noted. The income index is for all commodities sold rather than just for tobacco in the Miami Valley district and is for the calendar year while the tobacco income is ordinarily received between December first of one year and April first of the following year* These appears no way of determining when this income is spent* Perhaps it is used to pay debts on goods purchased the preceding year, or perhaps it is saved and spread in purchases over the following year. The expen diture index is for the whole country rather than for the Miami Valley tobacco growers alone. In this table the index of purchasing power in a calendar year is associated with the crop income which most frequently is received in the first part of the following year. This was done since allowance for lag cannot be clearly justified and confusion of dates might result from any change. The method followed here was approved as perhaps the most satisfactory possible on the basis of the data available by D. S. Anderson, Associate Professor of Agri cultural Economics, College of Agriculture, University of Wisconsin in a letter of June 26, 1940 and by 0. C. Stine, head of the Statistical and Historical Research Division of the Bureau of Agricultural Economics, U. S. Department of Agriculture in a letter of July 3, 1940. APPENDIX B ORGANIZATION PAPERS OF THE MIAMI VALLEY TOBACCO G-ROWERS' CO-OPERATIVE ASSOCIATION 1. MARKETING AGREEMENT The Miami Valley Tobacco Growers' Co-operative Association, hereinafter called the Association, party of the first part, and the undersigned Grower, party of the second part, agree: 1* The grower Is a member of the Association and is helping to carry out the express aims of the Association for co-operative marketing, for minimizing speculation and waste and stabilizing tobacco markets in the interest of the grower and the public through this and similar obligations under taken by other growers* 2. The Association agrees to buy and the grower agrees to sell and deliver to the Association all of the tobacco produced by or for him or acquired by him as land lord or lessor during the years 1923, 1924, 1925, 1926 and 1927, under the terms and conditions hereinafter contained. 3* The growerexpressly warrants that he has not heretofore contracted to sell, market or deliver any of his said tobacco to any person, firm or corporation, except as noted at the end of this agreement. Any tobacco covered by such existing contracts or crop mortgages shall be excluded from the terms hereof for the period and to the extent noted. 4* (a) All tobacco shall be delivered at the earli est reasonable time after cutting, curing, drying, firing when customary, stripping and packing, to the order of the Association, at the warehouse or plant controlled or speci fied by the Association, or at the nearest warehouse, if the Association controls or specifies no warehouse or plant in that immediate district; or by shipment as directed to the Association; and by delivery to the Association of the in dorsed warehouse or other receipts or bills of lading, prop erly directed. (b) Any deduction, allowance or loss that the 283 284 Association may make or suffer on account of inferior grade, quality or condition at delivery shall be charged against the grower individually and deducted against him from any sums: due or that may hereafter become due from the Associ ation to the grower# (c) The Association shall make rules and regula tions and provide inspectors or graders to standardize and grade the quality and method and manner of handling, curing and shipping such tobacco; and the grower agrees to observe and to perform any such rules and regulations and to adopt the grading established by the State and Federal authorities and the Association# 5* The Association shall pool or mingle the tobacco of the G-rower with tobacco of a like type, grade and quality delivered in the same crop-year by other growers. The Asso ciation shall classify the tobacco and its classification shall be conclusive. The tobacco delivered in any crop-year to any point at the order of the Association shall be handled in one major pool; and the minor pools shall first be by type and then by grade and quality within each grade# 6* The Association agrees to resell such tobacco, together with tobacco of like type, grade and quality de livered by other growers under similar contracts, at the best prices obtainable by it under market conditions; and to pay over the net amount received therefrom (less freight, insurance and interest), as payment in full to the grower and growers named in contracts, similar hereto, according to the tobacco delivered by each of them, after deducting therefrom within the discretion of the Association, the costs of maintaining the Association and of handling, grad ing, and marketing such tobacco; and of creating reserves, funds for credit, and other general commercial purposes. The annual surplus from such deductions must be prorated among the growers delivering tobacco in the year on the ba sis of deliveries. 7. The grower agrees that the Association may handle, in its discretion, some of the tobacco in one way and some in another; may sell some upon delivery, may cure or process or manufacture all or any portion thereof, but the net pro ceeds of all tobacco or tobacco products of like type, qual ity and grade, less charges, costs, advances and reserves, shall be delivered ratably among the growers in proportion to their deliveries to each pool, payments to be made from time to time until all the accounts of each pool are settled. The Association may contract with the owners of proc essing plants to process and store tobacco delivered by the members of the Association. 8. The Association may sell the said tobacco, within 285 or without the United States, directly to manufacturers or exporters or otherwise at such time and in such form and upon such conditions and terms as it may deem profitable, fair and advantageous to the grower; and it may sell all or any part of the tobacco with or through any other agency now or here after established for the co-operative marketing of the to bacco of other growers, under such conditions as will serve the joint interest of the growers and the public; and any proportionate expenses connected therewith shall be deemed marketing costs under paragraph 6• 9* The grower agrees that the Association may borrow money in its name on the tobacco, through drafts, accept ances, notes or otherwise, or on any warehouse receipts or bills of lading or upon any accounts for the sale of tobacco or on any commercial paper delivered therefor# The Associa tion shall prorate the money so received among the growers equitably^ as it may determine, for each district and period of delivery* 10* The Association may establish selling offices, warehouses, plants, marketing, statistical or other agencies in any place* 11. The grower shall have the right to stop growing tobacco and to grow anything else at any time at his free discretion; but if he produces any tobacco or acquires any interest in any tobacco, as landlord or lessor, produced within the territory in which this Association operates, during the term hereof, it shall all be included under the terms of this agreement and must be sold only to the Associ ation* 12* Nothing in this agreement shall be interpreted as compelling the grower to grow any specified quantity of tobacco each year; but he shall deliver all the tobacco pro duced by or for him* 13* (a) This agreement shall be binding upon the grower as long as he produces tobacco directly or indirectly, or has the legal right to exercise control of any commercial tobacco or any interest therein as a producer or landlord produced within the territory in which this Association op erates during the term of this contract. (b) If this agreement is signed by the members of a co-partnership, it shall apply to them and each of them individually in the event of the dissolution or termination of the said co-partnership and to their proportionate inter ests therein under any circumstances. (c) The grower agrees that no member of his fam ily or his tenants have any control or interest in his share of the crop as indicated below, or otherwise. 286 (&) If the grower places any lien or crop mort gage upon any of his crops during the term hereof, the Association shall have the right to take delivery of his tobacco and to pay off all or part of the lien or crop mort gage for the account of the grower and to charge the same against him individually. The grower may place a lien or crop mortgage up on his tobacco, and shall notify the Association prior to making any such mortgage. The Association will assist and advise the grower in any such transaction as far as it deems proper. 14. From time to time the grower agrees to mail the Association any statistical data requested, on the forms provided for that purpose by the Association. 15* (a) The grower hereby expressly authorizes the Association to deliver to any warehousing or other corpora tion organized for co-operation with this Association any or all of his tobacco for handling, processing, or manufac turing, or storing; and to charge against his tobacco and his prorated share of the funds necessary to create a re serve equivalent to one class of its preferred stock annual ly plus bonus to retire the said class; and to pay the divi dends on all outstanding stock thereof. (b) The grower shall be charged for such dedu tions only on account of warehouses or plants within his district or for his benefit, to be determined conclusively by the Association; and for such deductions the grower shall receive a proportionate interest in such corporation. 16. If the grower has on hand, upon the date of mail ing notice of the actual incorporation of the Association, any tobacco of the 1922 or any other crop, free of liens and capable of delivery, he shall deliver such tobacco to the Association as it may direct, to be graded by the Association and marketed by it, in pools wholly separate from all other deliveries hereunder, but generally in the manner herein set forth. 17. This agreement is one of a series generally similar in terms comprising with all such agreements, signed by individual growers or otherwise, one single contract be tween the Association and the said growers collectively and Individually obligated under all of the terms thereof. The Association shall be deemed to be acting in its own name for all such growers In any action or legal proceedings on or arising out of this contract. 18♦ (a) Inasmuch as the remedy at law would be In adequate and Inasmuch as it is now and ever will be Imprac ticable and extremely difficult to determine the actual damage resulting to the Association should the grower fail 287 so to sell and deliver all of his tobacco to the Association, the grower hereby agrees to pay to the Association for all tobacco delivered, consigned, marketed or with-held by or for him, other than in accordance with the terms hereof, the sum of five cents per pound as liquidated damages, averaged for all types and grades of tobacco, for the breach of this contract; all parties agreeing that this contract is one of a series dependent for its true value upon the adherence of each and all of the growers to each and all of the said con tracts * (b) If the Association brings any action whatso ever by reason of a breach or threatened breach thereof, the grower agrees to pay to the Association all costs of court, costs for bond and otherwise, expenses of travel and all ex penses arising out of or caused by the litigation expended or incurred by it in such proceedings; and all such costs and expenses shall be included in the judgment and shall be en titled to the benefit of any lien securing any judgment here under. 19. The parties agree that there are no oral or other conditions, promises, covenants, representations or inducements in addition to or at variance with any of the terms hereof; and that this agreement represents the volun tary and clear understanding of both parties fully and com pletely. 20. The Association is also authorized to execute contracts or affiliation agreements with county, state and national farm bureaus for the purpose of securing the serv ices of the various service departments such as organization, auditing, traffic, legal, statistical, publicity and the like that are being maintained by these farm bureaus and the grower expressly authorizes the Association to pay such sum for these services as may be agreed upon by the directors of the Association and the farm bureau. The Association is expressly authorized to exercise any or all of the grading, inspecting, marketing, or other powers or rights granted hereunder, through any central agency to be organized for co-ordinating the activities of this, and similar co-operative marketing associations in this and other states. Any cost of maintaining such central agency shall be prorated among the said Associations on the basis of the gross sale proceeds from the products delivered to them respectively or otherwise; and shall be considered part of the costs and deductions provided for in Paragraph 6. 21. It is expressly agreed that this instrument is one of a series substantially identical in terms. All such instruments shall be deemed one contract for the purpose of binding the subscribers to the same extent as if all of the subscribers had signed one such contract. 288 It is further agreed that said Association shall issue to the grower a monthly paper called "The Miami Valley Tobacco News11, for which the grower agrees to pay said Asso ciation 50 cents a year# Head, considered and signed at _____________________ this ____________ day of _ _ _______________ 1923# (Do not sign without reading) Grower Post Office Address County_____________________ state_ My acreage in 1923 is ____ . ______________ Share of 1923 crop owned by me is Check whether landlord ( ) or tenant ( ). The Miami Valley Tobacco Growers Co-operative Association By ______________ President 289 2. BY-LAWS t, ^ 4.?e * tile undersl6n®d, together constituting and being all of the members, directors and incorporators of The Miami Valley Tobacco Growers' Co-operative Association, a co operative marketing association, without capital stock and not conducted for profit, do hereby adopt the following code by-laws as and for the by-laws of said Association: ARTICLE I The Miami Valley Tobacco Growers1 Co-operative Association may be hereinafter referred to as the Association* The purposes for which this Association is formed are set forth in the second paragraph of the Articles of Incor poration of the Association. ARTICLE II Board of Directors Section 1. The corporate powers, business and prop erty of the Association shall be exercised, conducted and controlled by a board of directors consisting of fifteen members• Sec. 2* (a) The directors named in the Articles of Incorporation shall serve only until their successors are elected and qualified as herein provided. Whenever in the judgement of the directors named in the Articles of Incor poration a sufficient number of members have been secured for the Association to begin its business, the president shall call a special meeting of the members for the selec tion of delegates to nominate directors in accordance with the provisions of Sections 6, 7, and 8 of Article XII. The delegates thus selected shall meet at such time and place as the board of directors shall determine and shall nominate from among the members residing in each district the number of directors to which such district is entitled. Thereafter the president shall call a special meeting of the members to elect directors from the persons so nominated and ten days notice of such meeting shall be given to each member in writing. (b) The directors shall be elected annually at the regular annual meeting of the members from the member ship of the Association (except as hereinafter provided) and shall hold office until their successors shall have been elected and shall have qualified. (c) The members shall elect thirteen direc tors from among members actually residing and growing tobacco in the respective districts from which elected. These districts shall first be the districts 290 specified by the organization committee as follows: District No. 1, Montgomery County; District No. 2, Darke County; District No. 3, Preble County; District No. 4, Miami County; District No. 5, Warren County; District No. 6, Butler County; and District No. 7, Greene County. For the purpose of forming the first board of directors the above districts shall be entitled to the following number: District No. 1, three; District No. 2, three; District No. 3, two; District No. 4, two; District No. 5, one; District No. 6, one; District No. 7, one. Thereafter such districts, or any others that may hereafter be provided for,.shall be entitled to directors upon such basis of esti mated production as may hereafter be provided for. Annually at least twenty days prior to the primary meetings, the board of directors may change the said districts so as to maintain at all times fair and equitable representation of the tobacco producing districts included in the membership. (d) Two directors shall be persons el by the thirteen directors chosen by the members and when elected shall have full authority as directors and shall primarily represent the interests of the general public in the conduct of the Association. These directors need not be growers of tobacco. Upon qualification such directors shall have the right to vote upon all questions coming before the board of directors. Sec. 3« Vacancies on the board of directors shall be filled by the other directors in office and such new direc tors shall hold office until the election of their successors by the members• In filling any vacancy on the board of directors, the directors shall select a member actually residing and growing tobacco in the district from which the director is missing, or if the vacancy is one of the public directors, it shall be filled by the selection of some person residing in the ter ritory in which the Association operates. Any director, except public directors, who ceases to be a member or who violates any contract with this Associa tion in any particular, shall cease to be a member of the board as soon as a majority thereof pass a resolution to such effect. Sec* 4. Within ten days after each election of directors on the first business day in November of each year after 1923 the newly elected directors shall hold a regular meeting and organize by the election of a president, two vice presidents, a secretary and a treasurer, and trans act any other necessary business. Such officers shall hold office for one year and until their successors are elected and take office. Notice of such meeting is hereby dispensed with. The first officers shall hold office until the elec tion of their successors in 1924. 291 Sec. 5* In addition to the finst meeting provided for above, a regular meeting of the directors shall be held monthly at such time and place as the board may determine* Sec* 6. Notice of the regular meetings of the direc tors shall be mailed to each director at his last known ad dress at least five days prior to the time of such meeting* Sec* 7♦ Special meetings of the board of directors shall be held whenever called by the president or by a majority of the directors* Any and ail business may be transacted at such special meeting. Each call for a special meeting shall be in writing signed by the president or directors making the same, addressed and delivered to the secretary, and shall state the time and place of such meet ings • Sec* 8. Notice of each special meeting of the direc tors shall be telegraphed or telephoned to each director at his last known place of residence at least two days prior to the time of such meetings* Sec* 9* Eight directors shall constitute a quorum of the board at all meetings. Sec. 10. The directors shall receive no compensation for their services other than their actual necessary expenses incurred in attending meetings of the board of directors and a per diem of ten dollars for the time actually covered by attendance at meetings and traveling thereto and therefrom* The directors may at their discretion provide reason able compensation for the members of the Executive Committee of the board plus all actual necessary expenses. ARTICLE III Powers of Directors The directors shall have the power: 1. To conduct, manage and control the affairs and business of the Association and to make rules and regula tions for the guidance of the officers in the management of its affairs. 2* To appoint and remove at pleasure all officers, agents and employes of the Association; prescribe their duties, fix their compensation and require from such as han dle any money, negotiable instruments or other property of the Association, adequate bonds for the faithful performance of their duties and obligations. 3* To call special meetings of the members when they deem it necessary and they must call a meeting at any time upon the written request of one-tenth of the members. 4. To make and enter into agreements with the fac tories, buyers or others for the sale, marketing or consign- 292 ment of the 'tobacco grown by members of the Association or products therefrom. 5. To carry out the marketing contracts of the Association and growers in any way advantageous to the Association representing all growers collectively. 6. To select one or more banks to act as depository or depositories of the funds of the Association and to deter mine the manner of receiving, depositing and disbursing the funds of the Association and the forms of checks and the person or persons by whom the same shall be signed, with the power to change at will such depositories and the person or persons signing said checks and the form thereof. ARTICLE IV Duties of Directors It shall be the duty of the board of directors: 1. To keep a complete record of all its acts and of the proceedings of its meetings and to present a full state ment at the regular annual meeting of the members showing in detail the condition of the affairs of the Association. 2. To supervise all officers, agents and employes and see that their duties are properly performed. 3* To cause to be issued appropriate certificates of membership. 4. To install such system of bookkeeping and auditing that each member may know and be advised from time to time fully concerning the receipts and disbursements of the Asso ciation. ARTICLE V Officers The officers of the Association shall be a president, two vice presidents, secretary and treasurer, together with any other administrative officers whom the Board of Directors may see fit in its discretion to provide for by resolution entered upon the minutes. The Board may appoint assistant secretaries in its discretion and may delegate to them any and all duties of the secretary hereunder or any other duties. The compensation of all officers, agents and employes shall be fixed by the board of directors. The secretary and treasurer need not be members of the board of directors or of the Association. ARTICLE VI President The president shall: 1. Preside over all meetings of members and directors. 293 2. Subject to tile advice of the directors, direct the affairs of the Association.. 3« Call special meetings of the board of directors whenever in his judgment the interests of the Association require the same. 4. Sign as president all certificates of membership and all contracts, notes, deeds, mortgages and other instru ments when so directed by the board of directors. 5. Discharge such other duties as may be required of him by these By-Laws or the board of directors. If at any time the president shall be unable to act, a vice president shall take his place and perform his duties and if a vice president shall be unable to act, the board shall appoint a*director to do so. ARTICLE VII Secretary and Treasurer It-shall be the duty of the secretary: 1. To keep a record of the proceedings of the meet ings of the board of directors and of the members. 2. To keep the corporate seal and the book of blank membership certificates, fill up and countersign all certif icates issued and affix said corporate seal to all papers requiring the seal, and to sign with the president such in struments as are by law required by him to be signed. 3* To keep a proper membership record showing the name of each member of the Association, the number of his membership certificate and the date of issuance, surrender, cancellation, forfeiture or transfer. 4. To receive and deposit all funds of the Associa tion, to be paid out only on check drawn as herein provided, and account for all receipts, disbursements and balances on hand. 5. To furnish a bond in such form and in such amount as the board of directors may from time to time require. 6. To execute and sign all contracts, notes, papers and documents as such secretary. 7. To act as secretary of the executive committee. 8. To discharge such other duties as pertain to his office or may be prescribed by the board of directors. It shall be the duty of the treasurer to take gen eral charge of the funds of the Association as directed by the board of directors. The treasurer may be the same person as the secretary or the treasurer need not be a natural person, but may be a bank. In such case the secretary shall perform the usual accounting duties of the treasurer except that the funds of the Association shall be deposited only as authorized by the board of directors. ARTICLE VIII 294 Executive ~jGommi tt ee (a) The board of directors shall appoint an executive committee of seven members of which the president shall be a member, determine its tenure of office and its powers and duties• * (b) The executive committee shall have such duties and1powers as may from time to time be prescribed by the board of directors and these duties and powers may be all or any part of the duties and powers of said board of directors, subject, however, to the general approval and control of the board of directors. (c) The executive committee shall also be the selling committee of the Association. Such committee shall study the problems of the particular types of tobacco grown by its mem bers and shall make such recommendations to the board of directors concerning the problems and policies affecting such types as in its judgment seems best. (d) Copies of the minutes of the meetings of the executive committee and any reports thereof shall be furnished to all of the members of the board of directors. ARTICLE IX Auditing Committee The board of directors shall appoint an auditing committee among its members, determine the number of its mem bers and its tenure of office. The board may prescribe rules and regulations with reference to the manner and form in which* claims shall be presented against the Association and the manner of auditing the same, and in lieu of any such ac tion by the board, the auditing committee may prescribe rules and regulations with reference to its meetings and procedure. The board shall cause an annual audit of the, affairs of the Association to be made by the auditing department of The Ohio Farm Bureau Federation, or If such auditing depart ment is unable to make such audit, then by some certified publlc ac count ant • ARTICLE X Books and Papers The books and such papers of the Association as may be placed on file by a vote of the board of directors and members shall at all times during business hours be subject to the inspection of the board and of any member of the Association or his representative duly authorized In writ ing. 295 ARTICLE XI Association News The Association shall cause to be printed a monthly paper which shall contain news of general interest to the members of the Association and which shall cost not to ex ceed fifty cents per member and shall be mailed monthly to all members of the Association* ARTICLE XII Meetings of Members Section 1. Regular meetings of the members shall be held at the office of the Association at ten o*clock on the first business day of November of each year for the purpose of electing directors and transacting any and all business which may properly come before the meeting* Sec* 2* Except when otherwise prescribed by law or elsewhere in these by-laws, special meetings of the members may be called at any time by the president or by a majority of the board of directors or by one-tenth of the membership. Each special call shall be in writing and shall state the time, place and purpose of such meetings; no business to be transacted other than as is stated in the call* Sec* 3* Notice in writing of each regular meeting of the members shall be given. Such notice must state the time and place of the meeting and that the purposes thereof are the election of a~ board of directors and the transaction of such other business as may come before the meeting. A copy of such notice shall be mailed to each member of the Associa tion at least ten day a prior to the time for holding such meeting* given by meeting, upon the the time Sec* 4. Notice of each special meeting shall be mailing to each member a copy of the call for such addressed to him at such address as shall appear books of the Association at least ten days prior to fixed for such meeting. Sec* 5* At any meeting ten per cent of the member ship who are present in person or present as voting by mail shall constitute a quorum for all purposes including the election of directors. Specific propositions,, including the election of directors, may be voted on by mail. Sec. 6. The members in each district shall meet annually for a primary election to be held In the district in such county or counties and conducted as, where and when specified by the directors, and shall select one delegate 296 for each quarter million or majority fraction of one quarter million pounds of tobacco produced during the preceding year by the members in such districts* The said delegates shall then meet where, when and as Instructed by the directors and shall nominate from the members residing in such district the number of directors to which each of said districts is en titled, to be voted upon by the members as hereinbefore pro vided ♦ If unable to attend in person, members may vote at the primary meetings by mail on a signed ballot prepared under the direction of the board of directors# Participation in such primary meetings or elections, in person or by mail ballot, shall be included as attendance in calculating the quorum for the annual meeting of members, and all votes shall be deemed cast for the directors nominated by the district delegates as the directors for the respective districts. Sec# 7# The directors shall be elected at the annual meetings to be held on the first business day in November of each year; and the primary meetings shall be deemed binding upon an attendance at this meeting, and the directors nomi nated by the delegates shall be deemed elected at the said annual meeting by all the votes cast throughout all the districts* Sec. 8. The board of directors shall from time to time determine the rules of conduct of the primary or other elections, and shall determine the conditions and the circum stances under which ballots shall be received, and may make any rules and regulations to control the procedure or accept ance of ballots at any such elections* ARTICLE XIII General Provisions Concerning Members (a) This Association is organized without capital stock for the purpose of serving its members and providing facilities upon uniform rules and regulations to be pre scribed by the board of directors of the Association. (b) Any person, firm or corporation, or a manager or officer of any corporation or a member of any firm en gaged in the production of tobacco may be admitted to the Association and shall have voting power and preperty rights In accordance with the general rules herein stated. The Association may include In its membership any tobacco grower, including the landlord or tenant or lessor or lessee of the land on whichi tobacco is grown, provided the landlord or lessor receives all or part of the rental in tobacco. All members agree to abide by all of the rules, regulations and By-Laws of the Association with reference to the handling and marketing of their tobacco or tobacco products. All mem bers shall sign standard marketing agreements from time to 297 time covering the tobacco or tobacco products produced by or for them, when and as such agreements are approved by the board of directors and presented to the members for signature and acceptance* The present tobacco marketing agreement is attached hereto and made a part hereof, as embodied in the Association Agreement* All members shall be bound by all the terms of any such agreement* (c) All members shall be bound by the obligations and provisions of the original Association Agreement, a copy of which is attached hereto and made a part hereof* (d) No member shall be permitted to withdraw from this Association during any period in which he is bound to deliver any products to this Association under a term con tract unless consent for such withdrawal shall have been given by the board of directors upon application to it by such member or members desiring to withdraw* (e) This Association shall issue a certificate of membership to each member who has signed a marketing agree ment in such form as may be provided by the directors, but said membership shall not, nor shall said membership certif icate be assigned by said member to any other person; nor shall a purchaser at execution sale or any other person who may succeed by operation of law or otherwise to the property interestSr of a member be entitled to membership or to become a member of the Association by virtue of such transfer* The board of directors of the Association may, however, consent to any assignment and transfer and the acceptance of the assignee or transferee as a member of the Association* The Board shall establish reasonable rules and regulations authorizing the acceptance of a transferee and recognizing as a member the purchaser of a member* s land or lease, who acquires such certificate of membership after signing a mar keting agreement and determine the conditions under which the executor, executrix, the administrator or administratrix of a deceased member may continue as a member representing such deceased member and the requirements for the issuance and transfer of an appropriate membership certificate to the suc cessor or successors in interest of such member* s land or lease, and likewise the conditions for transfer of rights and certificate to a purchaser at execution sale and any successor by operation or law. (f) No person shall be or remain a member of this Association unless he is and remains qualified as provided in paragraph (b) of Article XIII hereof; nor unless he shall market all the tobacco grown or owned by him in compliance with all the terms and provisions of the marketing agreements referred to in paragraph (b) of Article XIII hereof and then in force; but no person shall cease to be a member hereof unless and until the board of directors by a majority vote 298 passes a specific resolution to that effect. If any member shall cease, fail, neglect or refuse for any reason whatsoever to market all or any of the tobacco owned or grown by him, as provided by the said marketing agreements, then the board of directors may cancel his membership and his certificate and expel him from membership in this Association and all of his rights and interest there in shall by th&t act be cancelled and such member shall be entitled only to payment, as provided by law, of the equitably appraised cash value of his interest in the property of the Association* The expulsion of any member for any penalty imposed upon him for the breach of any of these by-laws shall be sep arate from and in addition to the provisions of the standard marketing agreements in reference to liquidated damages, or other remedies* It is expressly understood that the Associa tion may exercise any rights whatsoever under the said stand ard marketing agreements for a breach of such agreements and, in addition, impose any penalty set forth In these by-laws for the express violation of a by-law*, (g) The voting power of the members of this Associa tion shall be equal; and each and every member hereof shall have one vote* (h) The property rights and interest of each member in the property of the Association shall be equal; and each and every member hereof shall have one unit of property rights and interests. (I) The Association, by action of the board of direc tors, shall have the full right to purchase the full interest of any member In the property or other rights of the Associa tion, at the book value hereof, whenever in the judgment of the said board it is essential to the Interests of the Asso ciation to do so; and the statement of book value thereof by the board of directors shall be conclusive* Any member whose rights are so purchased shall cease to be a member of the Association and his membership certificate shall there upon be cancelled* ( f) Any person, firm or corporation properly quali fied may be admitted to the Association and shall have voting power and property and property rights therein on the same basis as all other members, in accordance with the general rules hereinabove stated* (k) The board of directors shall have the power to establish and to revise and amend from time to time rules and regulations by which each member shall be governed with reference to the proper handling and shipping of tobacco and to secure a proper grading and standard of quality# (1) Every person shall pay to the Association upon 299 entering the Assooiation a membership fee, and payable upon entrance, of Five ($5-00) Dollars. If the said entrance fee is not paid in cash the same shall be charged against the account of the member and be deducted from his net returns under the standard marketing agreement and these by-laws. For the purpose of providing field service and other services for the benefit of the Association and its members each member shall pay an annual dues of Ten ($10*00) Dollars; provided, however, that where any such member is also a paidup member of his county, state and American Farm Bureau Federation he shall not be required to pay such annual dues.Should any member at any time fail, neglect or refuse to pay said farm bureau membership fee then such member shall pay to the Association the annual membership fee as herein pro vided.. Said annual membership fee shall be used for the purpose of compensating said farm bureau for the field and other services which will be rendered by said farm bureaus to the Association and its members. (m) All expenses of maintaining the Association, including among other things, rent, salaries, taxes, insur ance, office and inspection expense, building, reserves, marketing and all other expenses, shall be met so far as possible from the membership fees and thereafter from the charge provided in the marketing agreements. Any surplus over and above the actual expenditures and obligations of the Association shall be conclusively presumed to be a surplus arising out of the cost or charges referred to in paragraph 6 of the standard marketing agree ments • (n) The members shall not be liable for debts of this corporation except to the extent of any unpaid portion of their entrance of membership fees herein. (o) In the event that any member knowingly violates any of these by-laws, he shall be liable to the Association for the payment of a penalty of Fifty Dollars for each and every such violation. Such penalties shall be imposed only by affirmative vote of at least eight of the directors and shall be in addition to any other punishments or penalties under these by-laws and in addition to any rights, vested in the Associ ation under the standard marketing agreements for any viola tion thereof. (p) The board of directors of this Association will provide for separate pools in the marketing of tobacco of type, grade, quality or other commercial classification. All returns to the members of this Association shall be based on the net proceeds from each of the said pools, less all charges provided in the marketing agreement and by laws of this Association, depending on their individual de liveries to each of said pools, and all such payments shall 300 be made as and when and in such percentages or proportions as the board of directors may deem advisable*. Prior to actual distribution to the grower members, the board of directors of the Association will be authorized to use; any of the funds in the possession of the Association or any property or assets or claims or rights of the Associa tion for any of the purposes or activities of the Associa tion within the general provisions of Article II of the Articles of Incorporation. (q) Each member agrees to market the tobacco grown or owned by him, In accordance with the provisions of the standard marketing agreement; and each member admits that it would be extremely difficult and Impracticable to fix the amount of damages, which the Association or its members would suffer if he should neglect, refuse, or fail to keep and perform the terms, conditions and agreements herein and in his marketing agreements contained, as to such marketing; and therefore It is expressly understood and agreed by and between each of the members of the Association, including any persons hereafter becoming members and acknowledging notice and acceptance of these by-laws, that if he shall re fuse,, neglect or fail to market his tobacco through the facilities and In the manner provided by the Association and in accordance with the terms of the agreements,, such member shall pay to the Association as liquidated damages, upon demand of the Association the sums set forth in the said marketing agreement. ARTICLE XIV Voting Any member shall be permitted to vote at any pri mary or other meetings in person; or he may vote by mail on a ballot to be prepared by order of the board of directors. But no proxies shall be voted In this Association. ARTICLE XV G-eneral Manager The board of directors may,, in its discretion, ap point a general manager, who shall hold office at the pleas ure of and on terms and conditions set by the board of direc tors. Any director, officer or other person may be elected to serve as manager. The general manager shall perform such duties as may be directed by the board of directors. ARTICLE XVI Borrowing Money The Association shall have the power, by affirmative 301 vote of at least eight directors, to borrow money for any corporate purposes, on open account or upon any assets of the Association or on any property of members in its posses sion, or upon any accounts thereof, or any property not yet distributed to the members, in such amounta and upon such terms and conditions as may from time to time seem to the board of directors advisable or necessary or as the board mayTdirect its executive committee to determine. ARTICLE XVII Any officer or stockholder or manager or member of any corporation or firm which has signed the marketing agree ment of the Association, and has become a member thereof, shall be eligible as a director of the Association; and for this purpose a membership certificate may be issued in the name of any such individual to be charged against or credited to the account of the corporation or firm of which he is an officer, stockholder, manager, or member, upon the written request of such corporation or firm* When any such individual ceases to be a director of the Association such membership certificate or all of the rights and interests represented thereby, shall be transferred again to the said corporation or firm represented by such person. ARTICLE XVIII The Seal of the Association shall contain these words and figures: “Miami Valley Tobacco Growers1 Co-operative Association, Incorporated 1923," in circular form. ARTICLE XIX These by-laws may be altered or amended at any an nual meeting of the members, called for that purpose by the directors, by a vote representing a majority of the votes cast. The written assent of a majority of the members shall be effectual to repeal or amend any by-laws or to adopt additional by-laws without any meeting. APPENDIX G ORGANIZATION PAPERS OF THE OHIO CIGAR LEAF TOBACCO GROWERS' MARKETING ASSOCIATION 1. ORGANIZATION AGREEMENT We, the undersigned, in order to insure the efficient production, warehousing and marketing of tobacco grown by us; to promote, foster and encourage the marketing of tobacco cooperatively; to reduce speculation with reference thereto; to stabilize the markets for and the values of tobacco; to enable the growers of tobacco to obtain benefits under the Agricultural Marketing Act; and for such purposes to co operate with the Federal Farm Board and other State and National Agencies; propose to organize a nonprofit co operative association without capital stock as hereinafter provided• In consideration of the premises, and of our mutual undertakings, and of the agreement of each and every party hereto, we, producers of tobacco, hereby agree as follows, each for himself and collectively, for the express benefit of and for the Association to be organized as follows: 1. We will become members of the Ohio Cigar Leaf Tobacco Growers’ Marketing Association, a nonprofit associa tion without capital stock, to be organized under the Cooperative Marketing Act of Ohio. 2. (a) The Association shall be organized with suit able articles of incorporation and by-laws as determined by an organization committee consisting of the following per sons : D. P. Albright, Hollansburg, 0.; C. C. Karr, Arcanum, 0*; John W. Bartel,. Covington, 0.; Chas. George, Yorkshire, 0.; Irvin Richter, Pitsburg, 0*; Jesse T. Landis, Pleasant Hill, 0.; 0. J. Sutton,. Union City, Ind.; 0. R. Welkert, Gettysburg, 0.; Henry Bowman, Versailles, 0. (h) If any member or members of this committee shall resign or be unable to act,, the remainder of the com mittee may elect a successor to fill any such vacancy, or may/ increase its membership if deemed necessary. The said organization committee may appoint an executive committee to conduct the details of Its affairs. The said committee, or 302 303 its executive committee, may incur necessary obligations for and on behalf of the committee and the Association to be organized, make necessary expenditures and take any such ac tion as may be deemed advisable to secure subscribers hereto* 3* The by-laws of the Association shall provide, among other things, that: (a) There shall be an annual audit of the books and records of the Association by certified public accountants, a report of the findings to be made to the members of the Association* (b) No director, except the president, shall be a salaried officer of the Association, and no director, officer or employee of the Association shall do business for profit with the Association. Directors:, other than the president, shall only be paid a per diem and expenses when attending meetings or attending to special business for the Associa tion. (c) All the officers or employees of the Association who handle funds of the Association shall be bonded. 4. The Association may admit to membership only tobacco growers, or the landlord or tenant, or lessor or lessee,, of land on which tobacco is grown, provided the land lord or lessor receives all or part of the rental in tobacco. 5* (a) The Association shall be managed by a board of directors which, until the election of their successors shall be those chosen by the organization committee as incorpora tors. The directors may be elected at large, or from five or more districts, from among members actually residing and growing tobacco in such districts; the area included in said districts to be fixed equitably by the organization committee, subject to reallocation by the directors of the Association; all as provided in its by-laws. (b) A public director shall be nominated by the Director of the Agricultural Extension Service of Ohio, and approved by a majority vote of the elected directors. Such public director need not be a grower of tobacco. 6. Every member of the Association shall have one vote * 7. Every member shall pay an entrance fee of two dollars. If such fee is not paid upon the signing of this agreement, it shall be deducted from the first returns due to the Grower under the marketing agreement. 8. (a) If by November 1, 1931, there is not a suffi cient quantity of tobacco pledged by growers on contracts 304 identical with this, in the opinion of the organization committee, to enable the Association to operate efficiently, the organization committee shall give notice to this effect in one or more newspapers of general circulation in the tobacco-growing counties of the Miami Valley of Ohio, and this agreement shall then be deemed cancelled, otherwise to remain in full force and effect* (b) If, however, on or before November 1, 1931, after the organization committee has reviewed carefully all facts and figures pertaining to the sign-up and has consid ered other conditions affecting the proposed organization, and has consulted and sought the advice of the Federal Farm Board, the organization committee is then of the opinion that sufficient sign-up has been secured to enable the Asso ciation to operate efficiently, the committee shall give notice to this effect In one or more newspapers of general circulation in the tobacco-growing counties of the Miami Valley of Ohio, In the form of a written statement signed by the chairman. Thereafter all subscribers hereto shall deliver their tobacco to the Association in accordance with the Marketing Agreement; provided that if the organization committee does not give such notice by March 1, 1931, then this agreement shall not cover tobacco grown In 1930. 9* The organization committee shall keep a true and detailed account of all receipts and expenditures of every kind and shall render a written report thereof to the board of directors of the Association when organized, and shall thereupon turn over to the Association any balance remaining in its hands free of obligation. If it is not so organized, such unexpended balance shall be prorated among the signers hereof who have paid their organization fees. 10. The subscriber applies for membership in the Association when organized and expressly agrees that signature to the Marketing Agreement shall be deemed to all intenos and purposes the same as signature to this Organization Agreement; all of which shall be irrevocable except as pro vided in section 8 of this Organization Agreement, section 2 of the Marketing Agreement, or the by-laws of the Associa tion, and he so agrees in order to Induce other growers to sign this agreement for his benefit, as well as their own general benefit and the public welfare. 11. Acceptance of this application for membership and the Marketing Agreement shall be deemed conclusive upon the mailing, by the Association, of a notice to that effect to the subscriber at his address noted below and such mail ing and notice shall be conclusively established by the affidavit of the Secretary of the Association. 12. The subscriber agrees to be bound by the terms of the following Marketing Agreement. 305 2. MARKETING- AGREEMENT The Ohio Cigar Leaf Tobacco Growers' Marketing Association, a non-profit association incorporated under the Cooperative Marketing Act of Ohio, hereinafter called the Association, and the undersigned, hereinafter called the Grower, agree: 1. The Association buys and the Grower sells and agrees to deliver to the Association all the tobacco pro duced by or for him, or acquired by him as landlord or lessee during a period of ten years from the date of this agreement, unless this agreement is terminated as hereinafter provided. This agreement Is intended by the parties to pass an absolute title to the Association to each of the crops covered hereby as soon as any such crop has a potential existence, but until delivery the tobacco is at the risk of the Grower. 2* After the Association has been in operation for the receiving of tobacco of one crop year,; either party hereto may cancel this agreement on December 1st of any year thereafter by notifying the other party in writing of this intention; such notice to be given during the month of November, immediately prior to the effective date of cancel lation. When any grower has exercised this privilege of cancellation he shall not be readmitted to membership until the expiration of one year, and then only by a majority vote of the Board of Directors of the Association. 3* (a) All tobacco shall reasonable time after cutting or Association, at the warehouse or or specified by the Association; to the Association. be delivered at the earliest curing, to the order of the plant controlled, operated, or by shipment, as directed, (b)The Association shall make rules and regula tions and provide inspectors or graders for receiving and grading the tobacco; and the Grower agrees to observe any suchrules and regulations and to abide by such grading. 4. The Association may pool or mingle the tobacco of the Grower with tobacco of like type, grade and quality de livered in the same crop year by other growers. The Board of Directors is authorized to determine the regions to be included In such pool or pools, the period or periods during which such pools shall be in operation, and the types, grades and qualities of tobacco which shall be included in each of the various pools. 5. The Association will resell all tobacco delivered by theGrower, together with tobacco of like type, grade and quality delivered by other growers under similar contracts, at the best prices obtainable by it under market conditions, 306 and will pay over the net amount received therefrom less freight, insurance: and interest, as payment in full to the Grower and growers named in contracts similar hereto, accord ing to the tobacco delivered by each of them, after deducting therefrom, within the discretion of the Association, the sums referred to in Section 9; the costs of maintaining the Asso ciation and of handling, grading, redrying, storing, prepar ing for market and marketing such tobacco; and reserve funds for credits and other commercial purposes, said funds not to exceed two per cent of the gross resale price# Such reserve funds may be used by the Association, in its conclusive dis cretion, for any proper purpose# Upon dissolution of the Association, or earlier, as determined by the Board of Directors, a portion or all of such funds or the unexpended part thereof shall be distributed to the members in accord ance with their contributions thereto. Such funds shall be subject to any liabilities of the Association# 6% The G-rower agrees that the Association, in its name, may borrow money on any or all tobacco in its posses sion, through drafts, acceptances, notes, or otherwise, or on any warehouse receipts or bills of lading, or upon any accounts for the sale of tobacco, or upon commercial paper delivered therefor; and that, in addition,, the Association may pledge any such tobacco as security for any of its obli' gations# The Association shall distribute the money so bor rowed, as advances or partial payments, equitably among the growers in proportion to their deliveries to the Association, or may use any part thereof in the proper operation of its business, as it may determine# 7# The Association may sell the said tobacco within or'-without the United States, directly to manufacturers or exporters or otherwise, at such time and in such form and upon such conditions and terms as it may deem profitable, fair and advantageous to the growers; and it may sell all or any part of the tobacco with or through any other agency for the cooperative marketing of tobacco, and any proportionate expenses connected therewith shall be deemed marketing costs under Section 5 hereof• 8# The Association may federate for any or all pur poses with any other cooperative marketing association, the methods and contracts of which are satisfactory to the Board of Directors of this Association; and all costs of operation of such federation and/or central agency, incorporated or otherwise, which may be formed by them shall constitute mar keting costs under section 5 hereof» The Association agrees that tobacco delivered by members of this Association shall not be pooled or mingled with tobacco delivered by members of other associations which may become members of any pro posed federation, and that the Association will not enter into any agreement obligating it to pay more than its pro portionate share of the expense of organizing and operating 307 any such federation or central agency. 9. (a) The Association may establish selling offices, warehouses or plants; statistical, marketing or other agen cies in any place; may acquire by lease or purchase, when necessary, plants or facilities; and may acquire, hold con trol and guarantee the evidences of indebtedness, common and/or preferred stock and/or the interest or dividends of any corporation formed for the purpose of carrying on any activity incident to the production, handling, marketing, manufacturing or processing of tobacco or tobacco products. The G-rower expressly authorizes the Association to have de livered to any warehousing or other corporation or agency, any or all of his tobacco for handling, processing, manufac turing or storing. (b) To finance or pay for any and/or all of the above transactions and the interest on the certificates here inafter referred to, the Association is authorized to charge the cost thereof against the tobacco sold hereunder and de duct such charges from the proceeds thereof. Such charges and/or deductions are to be made as prorated annual deduc tions or charges running against deliveries of various years: upon a basis to be fixed at or before the incurring, by the Association, of the indebtedness or obligation, when in the conclusive Judgment of the Board of Directors a single charge or deduction would be inequitable. (c) The Association, after the sale of each crop, shall issue to the Grower a certificate evidencing deductions made for the purpose of acquiring such facilities or securi ties, or for retiring such certificates, which certificates shall bear interest at five per cent per annum, callable, in the order in which issued, in whole or in part at par by the Association on dissolution or earlier as determined by the Board of Directors; or in lieu of such payment, the Associa tion may cause to be issued to the Grower securities propor tionate to the outstanding certificates, evidencing a lien upon the property acquired with such deductions, or common or preferred stock in a corporation or corporations owning such properties• 10. The Grower expressly warrants that he has not heretofore contracted to sell, market or deliver any of his said tobacco to any person, firm or corporation, except as noted at the end of this agreement. Any tobacco covered by such existing contracts or crop mortgages shall be excluded from the terms hereof for the period and to the extent noted, if the lien holder insists upon the exercise of any right of possession or sale. 11. The Grower is authorized to place a crop mortgage upon any of the crops grown by him during the life hereof, subject to the right of the Association to have any such crop 308 of tobacco delivered hereunder, but in settling with. Grower the amount of any such mortgage with interest shall first be paid to the mortgagee, provided that the Association has received actual notice thereof# The Association may pay off all or any part of any such crop mortgage for his account and charge the same against him individually# 12# This agreement is one of a series generally similar in terms comprising with all such agreements, signed by individual growers, or otherwise, one single contract be tween the Association and the said growers, but it is mutual ly agreed that the cancellation of any agreement or agreements in this series shall not operate to invalidate this agreement, and that the Association may enter into agreements with other growers differing in terms from those contained herein with out invalidating this agreement, provided that the Grower at his request may sign a similar contract as a substitute for this agreement. 13* (a) Inasmuch as the remedy at law would be in adequate, and inasmuch as it is now and ever will be imprac ticable and extremely difficult to determine the actual dam age resulting to the Association, should the Grower fail so to deliver all of his tobacco, the Grower hereby agrees to pay to the Association for all tobacco delivered, consigned or marketed, or withheld by or for him, other than in accord ance with the terms hereof, the sum of five cents per pound as liquidated damages, averaged for all types and grades of tobacco, for the breach of this contract; all parties agree ing that this contract is one of a series dependent for its true value upon the adherence of each and all of the growers to each and all of the said contracts. , (b) The Grower agrees that, in the event of the breach or threatened breach by him of any provision hereof regarding delivery of tobacco, the Association shall be en titled to an injunction to prevent a breach or further breach thereof, and to a decree for the specific performance hereof; and the parties agree that this is a contract for the pur chase and sale of personal property under special circum stances and conditions. 14. By signing this Marketing Agreement the Grower applies for membership in the Association and the signing hereof by the Association shall constitute an acceptance thereof. 15# The parties agree that there are no oral or other conditions, promises, covenants, representations or induce ments in addition to or at variance with any of the terms hereof; and that this agreement represents the voluntary and clear understanding of both parties fully and completely. 309 Read, considered and signed at IP113-0 _ _ ___________ day of (Do not sign without readingT" _____________ “ ’ — Grower* s. signature_______ (Sign here) CPrint Grower*s Name here) Address T r .F.D* or Street No.) Township _____________ (Town) County___ _______ State______ _ _ __________ 1930 Total production was _________________ acres. My share as (Landlord) (Tenant) was _______________ per cent. 1931 Total production w a s _______________ acres. My share as (Landlord) (Tenant) will he ___________ per cent. (Strike out word not applicable) Witness sign here ____________________________________ Address of witness Accepted by the Association as of t h e day of 193___ in accordance with the resolution of the Board of Directors. Ohio Cigar Leaf Tobacco Growers* Marketing Association By ________________________ ____________ Secretary If any liens exist against tobacco at time Grower signs he should give details here: 310 3. BY-LAWS We, the undersigned, being a majority of the members of the Ohio Cigar Leaf Tobacco Growers’ Marketing Association, a cooperative marketing association without capital stock and conducted not for profit, do hereby adopt the following Code of Regulations and By-Laws for the regulation of said Association. ARTICLE I. The Ohio Cigar Leaf Tobacco Growers* Marketing Association may be hereinafter referred to as the Association. The purpose or purposes for which this Association is formed are set forth in the Articles of Incorporation, and it shall have all powers and privileges granted by the General Code, Sections 10186-1 to 10186-30 inclusive. ARTICLE II. BOARD OP DIRECTORS. Section 1. The corporate powers, business and prop erty of the corporation shall be exercised, conducted, man aged and controlled by a Board of Directors of 7 elected mem bers,. and the public director provided for in Article II Section 4 of these Regulations. Section 2. Term of Directors. The members of the Board of Directors shall be elected to serve for three years provided however that at the first election three shall be chosen for three years, two for two years,, and two for one year, and thereafter at each annual meeting of the members the successors to the members whose terms have expired shall be elected for three years. The members of the Board shall hold office until their successors are elected and qualified. Section 3« The first board may be elected at large, and thereafter, if the members so determine,, the election shall be from districts or classes of growers. In such case the directors shall equitably fix the districts and/or allo cate the directors to the several classes of growers and may reapportion and/or reallocate the membership of the board from time to time as appears equitable. Section 4. A public director shall be appointed by the Director of Agricultural Extension Service of Ohio and approved by a majority vote of the elected directors. Section 5» Vacancies. (a) Vacancies in the Board of Directors shall be filled by the other Directors in office and such new Direc tors shall hold office until the next annual meeting of the members and until their successors are elected and qualified. (b) Any Director who ceases to be a member or who 311 violates any contract with, the Association or any provision of the Regulations shall cease to be a member of the Board as soon as the Board of Directors shall pass a resolution to that effect* Section 6. Meetings of Directors. (a) Immediately after each election of Directors, the newly elected Directors shall hold a regular meeting and organize by the election of a President, Vice-President, Secretary and Treasurer and transact any other business law fully coming before said meeting* Notice of such meeting is hereby dispensed with. (b) Said Board of Directors shall meet regularly at such time and place as it may determine* (c) Notice of the regular meetings of the Board of Directors shall be mailed to each Director at his last known address at least three days prior to the time of such meeting* (d) Special meetings of the Board of Directors shall be held whenever called by the President or by a majority of the Directors* Any and all business may be transacted at a special meeting. Each call for a special meeting shall be in writing signed by the person or persons making the same, addressed and delivered to the Secretary, and shall state the time and place of such meeting. (e) Notice of special meetings of the Board of Directors shall be telegraphed or mailed to each Director at his last known address 24 hours prior to the date of such meeting: provided, however, that at any special meeting at which all of the directors are present notice of such meet ing shall be deemed to have been waived. ARTICLE III. COMPENSATION OF DIRECTORS. Section 1. The Directors shall receive no compensa tion for their services as directors other than re-imbursement for money actually expended by them which is hereby fixed at five cents per mile In attending the meetings of the Board and other necessary traveling and hotel expenses when travel ing upon business of the Association and a per diem of $3#00 for the time actually spent in attendance at meetings and upon authorized business of the Association. Section 2. No Director shall be a salaried officer or employee of the Association; except the secretary. ARTICLE IV. The Directors shall have power: 1* To conduct, manage and control the affairs and business of the Association and to make necessary rules and 312 regulations for th© guidance of the officers in the manage ment of its affairs• 2# To appoint and remove at pleasure all officers, agents and employees of the Association, prescribe their duties and fix their compensation and to require from them security for the faithful performance of their duties, 3« To call special meetings of members when they deem it necessary and they must call a meeting at any time upon the written request of one-tenth of the members* 4. To make and enter into agreements with factories, packers or others for the packing, processing, handling, in suring, marketing of the tobacco grown by members of the Association and to do all things necessary to accomplish the purposes of the Association. 5* To carry out the marketing contracts of the Asso ciation and growers in every way advantageous to the Associa tion representing the members collectively. 6. To select one or more banks to act as the depos itory of the funds of the Association, to determine the man ner of receiving, depositing and disbursing the funds of the Association, the form of checks and the person or persons by whom the same shall be signed with the power to change such banks and the person or persons signing said checks and the form thereof at will. ARTICLE V. DUTIES OF DIRECTORS. It shall be the duty of the Board of Directors: 1. To keep a complete record of all its acts and the proceedings of its meetings, and to present a full statement at the regular meetings of the members, showing in detail the condition of the affairs of the Association. 2. To supervise all officers, agents and employees and see that their duties are properly performed. ARTICLE VI. OFFICERS. The officers of the Association shall be a President, Vice-President, Secretary and Treasurer together with any other administrative officers that the Board of Directors may see fit in its discretion to provide for by resolution. The Board may appoint assistant secretaries and may delegate to them any or all of the duties of the Secretary hereunder or any other duties. The compensation and tenure of all officers shall be fixed by the Board of Directors. The Secretary and/or Treasurer may not be members of the Board of Directors of the Association. The offices of Secretary and Treasurer may at the discretion of the Board be held by the same person. (b) President. If at any time the President shall be unable to act, a Vice-President shall take his place and perform his dutiesi and if the Vice-President shall be unable 313 to act,, the Board shall appoint a Director to do so. The President, such Vice-President or Director shall: 1# Preside over all meetings of members and Directors. 2. Subject to the advice of the Directors, direct the affairs of the Association. 3. Call the Directors together whenever necessary. 4* Sign, as President, all Certificates of Member ship and all contracts, notes and other instruments when so directed by the Board of Directors. 5* Discharge such other duties as may be required of him by these By-Laws or by the Board of Directors. 6. Report at each annual meeting of the members, salaries of officers and department heads, and the average salary of minor employees in each department. (c) Secretary. It shall be the duty of the Secretary: 1. To keep a record of the proceedings of the meet ings of the Board of Directors and of members. 2. To keep the corporate seal and book of blank membership certificates; fill up and countersign all certif icates issued and affix said corporate seal to all papers requiring a seal. 3. To keep a proper membership book, showing the name of each member of the Association, the number of his membership and date of issuance, surrender, cancellation, forfeiture or transfer. 4. To execute and sign contracts, notes and papers and documents as Secretary. 5* To discharge such other duties as pertain to his office or may be prescribed by the Board of Directors* (d) Treasurer. It shall be the duty of the Treasurer: 1. To receive and have in charge all moneys belong ing to the Association and to disburse the same as may be ordered by the Board of Directors. 2. To keep an accurate account of the moneys re ceived and disbursed by him and generally perform such duties as may be required of him by the Board of Directors. 3. Upon the expiration of his term of office he shall turn over to his successor or the Board of Directors all money or property of the Association in his hands. ARTICLE VII. AUDITING COMMITTEE. The Board of Directors may appoint an Auditing Com mittee from among its members, determine the number of its members and its tenure of office. The Board may prescribe rules and regulations and the manner of auditing the same; in lieu of such action by the Board, the Auditing Committee may prescribe such rules and regulations with reference to its meeting and procedure. The Board, in its discretion, may delegate these 314 functions to an Auditor. Semi-annual audits shall be made by a certified public accountant and report shall be filed by him with the Board of Directors prior to the annual meeting. There shall be an- annual examination of the affairs of the Association by public agencies, and reports to member ship of their findings. ARTICLE VIII. BOOKS AND PAPERS. The books of the Association and such papers as may be placed on file by vote of the Board of Directors shall at all times,, during business hours, be subject to the inspec tion of the Board and of any member of the Association or his representative, duly authorized in writing. ARTICLE IX. MEETING'S OF MEMBERS. Section 1. Regular Meetings. The regular meeting of the members shall be held on the first Tuesday In the month of February of each year for the purpose of electing a Board of Directors and of transacting such other business as may come before the meeting. The Board of Directors shall select the time and place of the meeting. Section 2. Special Meetings. Except where other wise prescribed by law or elsewhere in these regulations, a special meeting of the members may be called at any time by the President or by a majority of the Board of Directors or by one-tenth of the membership. Each such call shall be in writing and shall state the time, place and purpose of such meeting. No business shall be transacted at a special meet ing other than as is stated in the purposes for the call. Section 3* Notice of Regular Meetings. Notice of each regular meeting of the members shall be given. Such notice must state the time and place of the meeting; and that the purposes thereof are the election of a Board of Directors and the transaction of such other business as may come before the meeting. A copy thereof shall be mailed to each member of the Association at least ten days prior to the time for holding such meetings. Section 4. Notice of Special Meetings. Notice of each special meeting shall be given by mailing each member a copy of the call for such meeting, as his address shall appear upon the books of the Association, at least ten days prior to the time fixed for such meeting. Section 5. Quorum. At members and in numbers at least present by voting by mail shall purposes including the election otherwise provided by law. any meeting one-tenth of the fifty present In persons or constitute a quorum for all of Directors except when 315 Section 6. Election of Directors* At least ninety days prior to the annual meeting the Board of Directors shall select a nominating committee of five which committee shall make nominations for the offices of Director for the next ensuing term and shall report their nominations to the Board of Directors for approval and thereupon the Board of Directors shall in the notice for said annual meeting set forth the nominations so approved; provided, however, that at any annual meeting at which Directors are to he elected, any member may be nominated from the floor* Members may vote at any meeting by being present in person and the Board of Directors shall by resolution provide for the voting upon any question or the election of Directors by mail and the determination of any calculation of the quorum at any such meeting on votes cast by mail shall be considered as though the member was present. ARTICLE X. GENERAL PROVISIONS CONCERNING MEMBERS * (a) This Association is organized without capital stock, for the purpose of serving its members only and pro viding all of its facilities to them upon uniform rules and regulations to be prescribed by the Board of Directors of the Association. (b) Members* Any person engaged in the production of tobacco may be admitted to the Association and have the voting power and property rights therein including the land lord or tenant, lessor or lessee of land on which tobacco is grown provided the landlord or lessor receives all or part of the tobacco. All members shall agree to abide by these by-laws, regulations, rules and resolutions of the Board of Directors. The membership fee shall be Two Dollars ($2.00) provided that if said membership fee is not paid when the member joins, it shall be charged to the account of the mem ber and deducted from his first returns under the Marketing Agreement and these regulations. All members shall sign the Standard Marketing Agreement from time to time covering the tobacco grown and produced by or for them when and as such agreements are ap proved by the Board of Directors and presented to the mem bers for signature and acceptance. The present Tobacco Marketing Agreement is attached hereto and made a part of these Regulations. All members shall be bound by the obligations and provisions of said agreement. ARTICLE XI. MEMBERSHIP CERTIFICATE. This Association shall issue a Certificate of Membership to each member who has signed a Marketing Agree ment, in such form as may be provided by the Directors; but said membership shall not, nor shall said Certificate 316 thereof, he assigned hy said member to any other person; nor shall a purchaser at execution sale, or any other person who may succeed, by operation of law or otherwise, to the property interest of a member, be entitled to membership or to become a member of the Association by virtue of such transfer# The Board of Directors of the Association may, however, consent to any assignment and transfer and the acceptance of the assignee or transferee as a member of the Association. The Board of Directors will establish reasonable rules and reg ulations authorizing the acceptance of a transferee and rec ognizing as a member the purchaser of a member's land or lease, wino acquires such member*s certificate of membership after signing the Marketing Agreement; and determine the conditions under which the executor or administrator of a deceased member may continue as a member representing such deceased member; and the requirements for the issuance and transfer of an appropriate membership certificate to the successor or successors in interest of such member* s land or lease and likewise the conditions for transfer of rights and certificate to the purchaser at execution sale and any such lessor by operation of law. No person shall be or remain a member of this Association unless he is and remains qualified as provided in Paragraph (b) of Article X; nor unless he shall market all tobacco grown or owned by him in compliance with all the terms and provisions of the Marketing Agreement, but no such person shall cease to be a member thereof nor be relieved of the duties and obligations of membership unless and until the Board of Directors passes a resolution to that effect. If any person shall cease, fail, neglect, or refuse for any reason whatever to market all or any of the tobacco owned by him as provided by the said Marketing Agreement, then the Board of Directors may cancel his membership and his certificate and expel him from membership in this Associ ation; and all his rights and interest therein shall by that act be cancelled and such member shall be entitled only to payment, as provided by law, of the equitably appraised cash value of his Interest in the property of the Association, provided, however, that such expelled member shall not be entitled to receive any money from the Association until all monies, dues and penalties due the Association have been paid to it. The expulsion of any member or any penalty imposed upon him for the breach of any of these Regulations shall be separate from and in addition to the provisions of the Standard Marketing Agreement in reference to liquidated dam ages, or other remedies. It is expressly understood that the Association may exercise any rights whatsoever under the said Standard Marketing Agreement for a breach of such agreements and in addition impose any penalty set forth in these Regu lations for the express violation of a Regulation. ARTICLE XII. VOTING POWER OF MEMBERS. 317 The voting power of the members of this Association shall be equal, and each and every member hereof shall have one vote* .ARTICLE XIII. PROPERTY RIGHTS AND INTEREST. The property rights and interest of each member in the property of the Association shall be in proportion to the tobacco grown and delivered by such member to the Asso ciation. The Association, by action of the Board of Directors, shall have the full right to purchase the full interest of any member in the property or other rights of the Association, at the book value thereof, whenever, in the judgment of the said Board, It is essential to the Interests of the Associa tion so to d o ; and the statement of book value thereof by the Board of Directors shall be conclusive. Any member whose rights are so purchased shall cease to be a member of the Association, and his membership certificate shall there upon be cancelled* ARTICLE XIV* NEW MEMBERS. Any person properly qualified may be admitted to membership In the Association upon agreeing In writing to abide by the rules, by-laws and regulations of the Associa tion and upon the signing of the Marketing Agreement upon affirmative vote of the Board of Directors. ARTICLE XV. (a) The members shall pack, grade and sort the tobacco grown by them and deliver It to the Association in accordance with the rules and regulations of the Board of Directors, and if any member delivers tobacco to the Associa tion in violation of the aforesaid rules, the Receiving Agent may reject said tobacco or may cause the same to be properly packed, graded and sorted in accordance with the rules and regulations and in such event the offending member shall be charged with the cost thereof; provided, however, that any member feeling aggrieved at the action of the Receiving Agent shall appeal to the Board of Directors and the decision of the said Board shall be final* (b) The Board of Directors shall have the power to establish, revise and amend from time to time rules and regulations in reference to the grading and classification and standard or quality of the tobacco grown, delivered and to be marketed by this Association. ARTICLE XVI. EXPENSE OF MAINTAINING THE ASSOCIATION All expenses of maintaining the organization, includ ing, among other things, rent, salaries, office, inspection 318 expenses, building, reserves, marketing and other expenses, shall be made so far as possible from membership fees and thereafter from the charge provided in the Marketing Agree ment • ARTICLE XVII. (a) The Board of Directors shall provide for separate pools in the marketing of tobacco by kind, grade, quality or other commercial classification. (b) All returns to the members of this Association shall be based upon the net proceeds for each of said pools less all charges provided in the Marketing Agreement and the By-Laws and Regulations of this Association depending upon the individual deliveries to each of the said pools, and all such payments shall be made as, and when, and In such per centages or proportion as the Board of Directors may deem advisable. the use any for (c) Prior to the actual distribution to the members, Board of Directors of the Association is authorized to any of the funds in the possession of the Association or property or assets or claims or rights of the Association the purpose or activities of the same. ARTICLE XVIII. CO-OPERATION WITH OTHER AGENCIES. The Board of Directors may make such provisions as are necessary for complying with or taking advantage of the Agricultural Marketing Act and/or other Acts of Congress providing for the assistance of agriculture and/or the lend ing of financial aid to producers of agricultural products and/or co-operative marketing association of such producers and for working in harmony with the governmental agencies. These regulations may be altered or amended at any regular meeting of the members or at any other meeting of the members called for that purpose by the Directors by a vote of the majority of the votes cast, except as otherwise provided by the General Code of Ohio. BIBLIOGRAPHY Page H H • I. III. IV* V. VI. BOOKS 320 PUBLIC DOCUMENTS 320 ARTICLES, NEWSPAPERS, AND PERIODICALS 325 UNPUBLISHED MATERIALS 327 PERSONAL LETTERS 328 PERSONAL INTERVIEWS 329 319 BIBLIOGRAPHY I . Books Baker, Jacob, Cooperative Enterprise (New York: Vanguard Press, 1937TT Evans, Prank and Stokdyk;, E. A., The Law of Agricultural Co-operative Marketing (Rochester, New York: Lawyers Co-operative Publishing Co*, 1937). Hibbard, B. H*, Marketing Agricultural Products (New York: D. Appleton & Co*, 1921). ~~ Jesness, 0. B*, The Cooperative Marketing of Farm Products (Philadelphia: J* B7 Lippineott Co., 1923). Rowe, Harold B*, Tobacco Under the A. A. A* (Washington: Brookings Institution, 1935). A section pp. 27-84 gives a good description of tobacco production and marketing. Steen, Herman, Cooperative Marketing (Garden City, New York: Doubleday, Page & Co., 1923). II. Public Documents Arnold, C. R. , The Tobacco Situation (U. S. Department of Agriculture and Ohio State University Agricultural College Extension Service, mimeograph, Jan. 11, 1932). Christensen, Chris L., Business Set-Up of a Cooperative Marketing Association (U. S. Department of Agriculture Department Circular No* 403, November 1926). -, Farmers Cooperative Associations in the United States 1929 (u. S* Department of Agriculture Circular No. 94, August 1929). Includes a good history of the movement In tobacco marketing to that date. 320 321 Coleman, Louise M., United States Tobacco and its Market (U. S. Department of Commerce Bureau of Foreign and Domestic Trade Information Bulletin No. 757, May 1931). Of particular value on the foreign trade in tobacco. Collins, Wm. and Bakken, Henry H., The Cooperative Tobacco Marketing Situation In Wisconsin^Farm Credit Adminiatration Cooperative Division Special Report No. 19, mimeograph, November 1937). Dodge, J. R., "Statistics of Manufactures of Tobacco," Tenth Census of the United States 1880, Volume on G-eneral Statistics, pp. 881-947 (U. S. Census Office, 1883). Elsworth, R. H., Agricultural Cooperative Associations, Marketing and Purchasing, 1925 (u. S. Department of Agriculture Technical Bulletin No. 40, June 1928). . Cooperative Marketing and Purchasing 1920-1930 (U . S . Department of Agriculture Circular No. 121, August 1930)• ________ , Development and Present Status of Farmers* Cooper ative Business Organizations (U. sT Department of Agri culture Department Bulletin No. 1302, Dec. 29, 1924). ________ , Statistics of Farmers* Cooperative Business Organ izations 1920-1935 (Farm Gredit Administration Cooperative Division Bulletin No. 6, May 1936). Erdman, H. E., Organizations Among Ohio Farmers (Ohio Agri cultural Experiment Station Bulletin No. 3^2, June 1920). Brief reference to the cooperative warehouse companies. Fetrow, Ward W., Cooperative Marketing of Agricultural Products (Farm Credit Administration Cooperative Division Bulletin No. 9, October 1936). Floyd, Marcus L., "Tobacco," Twelfth Census of the United States 1900, Vol. VI, pp. 499-504 (U. S. Census Office, W 52T. ------------- “ Frear, Wm. and Hibshman, E. K., The Production of Cigar Leaf Tobacco in Pennsylvania (U. S. Department of Agriculture Farmers Bulletin No~* 4l6, March 1918). Cage, Charles E., American Tobacco Types, Uses and Markets (U. S. Department of Agriculture Circular No. 249, January 1933). An excellent description of the develop ment of tobacco types and of the history of production and marketing of tobacco. The Tobacco Industry in Puerto Rico (U. S. Department,Qf Agriculture Circular No. 519, March 1939). This 322 describes the changes in Puerto Rican tobacco produc tion and manufactures affecting the cigar leaf districts in the United States* Gamer, W* W., Tobacco Culture (U* 3* Department of Agri culture Farmers Bulletin No. 571, September 1936). Emphasizes the localization of tobacco culture* Gamer, W* W* and Others, "History and Status of Tobacco Culture," United States Department of Agriculture Year book 1922, p p . 395 - 4 6 6 (1923)• Very good* ________ » "Superior Germ Plasm in Tobacco," United States Department of Agriculture, Yearbook of Agriculture 1936, pp. 785-830 (1936). Gatlin, G. 0., Preliminary reports on tobacco marketing: Cooperative Marketing of Tobacco in Maryland; Cooperative Marketing of Tobacco in Wisconsin; Cooperative Marketing of Burley Tobacco; Cooperative Marketing of Tobacco in the Miami Valley of Ohio (U . S . Department of Agriculture Bureau of Agri cultural Economics Division of Cooperative Marketing, mimeographed, 1926)• These reports are very brief and merely outline the history in each district. Holmes, G. K*, 11Three Centuries of Tobacco," United States Department of Agriculture Yearbook 1919, pp. 151-175 C1920). Hulbert, L. S., Legal Phases of the Cooperative Association (U. S. Department of Agriculture Department Bulletin No. 1106, 1929). Indiana Department of Statistics (Bureau of Statistics after 1905), Annual Report. (Biennial after 1884), for the years 1881-1909.Statistics of tobacco production in Indiana. Indiana State Board of Agriculture, Annual Report for the years 1863-1880. Statistics of tobacco production. Jesness, 0. B., The Cooperative Marketing of Tobacco (Kentucky Agricultural Experiment Station Bulletin No. 288, October 1928). Especially good on Burley district. Jesness, 0. B. and Kerr, W. H., Cooperative Purchasing and Marketing Organizations among Farmers in the United States (U* S. Department of Agriculture Bulletin No. 547, September 1917)• Jones, J. W., Membership Relations of Cooperative Associations (Farm Credit Administration Cooperative Division Bulletin No. 9, October 1936). Excellent discussion of the problems of membership contacts and loyalty. 323 Jones, J. W. and. Jesness, 0. B •, Membership Relations of Cooperative Associations (Cotton and Tobacco) (u. S. Department of Agriculture Department Circular No* 407, January 1927). Killebrew, J, B., ”Report on the Culture and Curing of Tobacco in the United States,” Tenth Census of the United States 1880, Volume on General Statistics, p p 583-880 T u . S. Census Office, 1883). Very valuable as a source of early history. Chapter XIII, pp. 707-729, deals with Ohio and has a very complete description of the introduction and development of tobacco in this district. Manny, T . B ., How Ohio Farmers Think of Farmer-Owned Business Organizations in that State (U. S . Department of Agriculture Circular No* 240, August 1932). Reports some reactions of growers who had been In tobacco pools. Mathewson, £• H., Tobacco Marketing in the United States (U. S. Department of Agriculture Bureau of Plant Industry Bulletin No. 268, 1913). Morrow, J. V. and Smith, Dudley, Tobacco Shrinkages and Losses in Weight in Handling and Storage (U.S. Depart ment of Agriculture Circular No. 435, July 1937). Includes statistics on stocks of cigar leaf tobacco from the beginning of records in 1912. Ohio, Secretary of State, Annual Report for the years 18911897. Statistics on tobacco production by counties. Ohio State Board of Agriculture, Annual Report for the years 1863-1909. Statistics on tobacco production. Pennsylvania Department of Agriculture, Pennsylvania1s Farms. Crops and Livestock 1926 (Bulletin No. 445, May 1927). Data on tobacco production Table 77, p. 101. Scanlan, John J. and Tinley, J. M., Business Analysis of the Tobacco Growers Cooperative Association (U. S. Department of Agriculture Circular No. 100, October 1929). A thorough analysis of the formation and operations of this association. Strazheim, R. E. and Falconer, J. I., An Estimated Gross Cash Income from the Sale of Agricultural Products from Ohio Farms by Counties 1927 (Ohio State University and Ohio Agricultural Experiment Station Mimeograph Bulletin No. 22, October 1929). Tobacco as a cash crop. , The Estimated Gross Cash Income from the Sale of Agricultural Products from Ohio Farms by Counties 1929 Ohio State University and Ohio Agricultural Experiment Station Mimeograph Bulletin No* 27, September 1930). 324 Taeusch, C. F., Rural Cooperation and Cooperative Marketing 1913 (Ohio Agricultural Experiment Station Circular No# 141, Dec# 15, 1913)# Contains a short description of the cooperative warehouse companies# U# S. Bureau of Census, Thirteenth Census of the United States 1910. Vols* VI, VII (1913). This and the--following census reports contain data on cigar leaf tobacco production by counties in Ohio and Indiana. » Fourteenth Census of the United States 1920, Vol. VI, Agriculture Part I (1922). ________ » United States Census of Agriculture, 1925, Part I The Northern States (1927). ________ * Fifteenth Census of the United States 1930, Vol. II, Agriculture Part I (1932). ___ $ United States Census of Agriculture, 1935. Vol. I (1936). U. S. Census, Superintendent of, Seventh Census of the United States 1850 (1853). ________ , Eighth Census of the United States i860, Volume on Agriculture in the United States (1864). , Ninth Census of the United States 1870, Volume on Industry and Wealth (1872). U. S. Census Office, Tenth Census of the United States 1880, Volume on General Statistics (1883)* Special sections devoted to tobacco, pp. 583-947, are very good. ________, Eleventh Census of the United States 1890, Vol. III, Statistics of Agriculture (1895). ________, Twelfth Census of the United States 1900, Vol. VI, Agriculture, Part II, pp # 499-50^ (1902). A short special section on tobacco, in addition to data. U. S. Commissioner of Internal Revenue, Annual Report for the years 1899-1937. Data on cigar manufacturers. U. S. Department of Agriculture, Yearbook for the years 1905-1935. Production and price data on tobacco. ________ , Agricultural Statistics 1939 (1940). Data on purchasing power of farmer s dollar, pp. 496-7. U. S. Department of Agriculture, Agricultural Marketing Service, Annual Report on Tobacco Statistics 1939 (September 1939). This, with the earlier reports, 325 provides an important source of data on tobacco produc tion, price, and consumption. -------— » C**QP Report as of October 1, 1939 (mimeographed, October 10, 1939). ---------- ----______9 Stocks of Leaf Tobacco Owned by Dealers and Manu facturers, October l a 1939 (mimeographed. Nov. 21. 1939). U..S. Department of Agriculture, Bureau of Agricultural Economics, First Annual Report on Tobacco Statistics. Statistical Bulletin No. 5o (May 1937). _______ , Annual Report on Tobacco Statistics 1937. Statistical Bulletin No. 63 (February 1938). ________ , Annual Report on Tobacco Statistics 1938. Statistical Bulletin No. 67 (December 1938). ________ , The Tobacco Outlook for 1939 (Nov. 4, 1938). Stocks and market situation. U. S. Federal Farm Board, Cooperative Marketing Makes Steady Growth, Bulletin No. 8 (April 1932). ________ , Cooperative Marketing of Farm Products. Bulletin No. 10 (June 1932)• Especially pp. 70-75. ________ , First Annual Report 1930 (1931). Reports activity in sponsoring tobacco cooperatives pp. 21-2. _____, Statistics of Farmers1 Selling and Buying Associa tions, United States. 1863-1931, Bulletin No. 9 (June 1932). Tobacco cooperatives pp. 59-61. U. S. Federal Trade Commission, Cooperative Marketing, pp. XXXIV-XXXVII, 186-203, 306-310 (U. S. Congress, 70th, First Session. Senate Document 95, 1928). A letter of transmittal and a report to Congress on cooperative marketing in the U. S. Good review up to that date. III. Articles, Newspapers, and Periodicals Agricultural Cooperation, U. S. Department of Agriculture Bureau of Agricultural Economics, bi-weekly mimeograph 1923-1929. Contains many reports on tobacco pools. Barth, Harry A., “Cooperation in the Blue Grass,” Journal of Political Economy, Vol. 33, August 1925, pp. 455-465. 326 Baruch, B. M., "Developing Plans for Tobacco Marketing Organization,11 Commercial and Financial Chronicle, Vol. 112, Jan. 29, 1921, p^ 4-28. Possibilities of dealing In tobacco on commodity exchanges. Christensen, Chris L., "The Place of Pooling in Cooperative Marketing," American Cooperation 1928. Vol. II, pp. 122134 (American Institute of Cooperation, Washington, 1928). Cincinnati Chamber of Commerce, Annual Report, especially for the years 1877, 1882, 1887, 1594", “and 1909. Contain brief reports on the Cincinnati tobacco market. Collins, Wm., "Present Status of Cooperatives in Tobacco Marketing," American Cooperation 1933. pp. 521-532 (American Institute of Cooperation, Washington, 1933)* Cooperative Marketing Journal (Cooperative Journal after 1934) (National Cooperative Council, monthly December 1926 to July 1928, bi-monthly September 1928 to December 1938, Washington). Corey, Merton L., "Market Control vs. Sound Business Manage ment," American Cooperation 1928, Vol. II, pp. 424-435 (American Institute of Cooperation, Washington, 1928). Dayton Daily News, issues for 1910-1914. Dayton Journal, issues for 1910-1914. Ela, Emerson, "Operating a Tobaaco Cooperative Under the New Deal," American Cooperation 1934, pp. 245-255 (American Institute of Cooperation, Washington, 1934). , "Selling and Price Problems of the Northern Wis consin Cooperative Tobacco Pool," American Cooperation 1925, Vol. I, pp. 512-523 (American Institute of Cooperation, Washington, 1925). Elsinger, Verna, "The Burley Tobacco Growers Experiment," American Cooperation 1928. Vol. II, pp. 499-621 (American Institute of Cooperation, Washington, 1928). A complete report of the operations of this venture. Hutson, J. B., "Application of the Agricultural Adjustment Act to Tobacco Competition," American Cooperation I933> pp. 477-488 (American Institute of Cooperation, Washington, 1933)• Jones, J. W., "Some Causes of the Difficulties of the Dark Tobacco Association," American Cooperation .1927, Vol. I, pp. 60-72 (American Institute of Cooperation, Washington, 1927). 327 Mathews, John L., "The Farmers Union and the Tobacco Pool," Atlantic. Vol. 102, October 1908, pp. 482-491. 3. Valley Tobacco News, published by the Miami Valley Tobacco Growers Co-operative Association, Dayton, 0 * First issue October 1923, monthly issues of November 1923 to March 1924 combined in one number. Last issue April 1924. Generalized reports of operations* Miller, E. E., "The American Fanner as a Cooperator," Forum. Vol. 52, October 1914, pp. 595-602. Morrow, j. V., "Tobacco Types Make the Flavor," Marketing Activities. April 1940, pp. 9-15 (Issued monthly by the U. S. Department of Agriculture Agricultural Marketing Service, Washington). A good description of the use of different types of tobacco in tobacco products. Ohio Farm Bureau Federation News, published by Ohio Farm Bureau Federation, Columbus, 0. Issues 1923-1927 (weekly to May 1924, thereafter monthly). After April 1924 contained a section which was the official publi cation of the Miami Valley Tobacco Growers1 Co-operative Association. Price, H. B., "What Future for Tobacco Cooperatives," American Cooperation 1934. pp. 256-266 (American Institute of Cooperation, Washington, 1934). Excellent presentation of the difficulties faced. Price, H. B. and Others, "Outlook for Cooperative Marketing of Tobacco," Journal of Farm Economics. Vol. 15, October 1933, PP» 720-722. Fine analysis of unsolved problems. Saplro, Aaron, "Rolling Their Own," Survey. Vol. 50, April 1, 1923, pp. 15-19 ff. Problems in the Burley district. Stokdyk, E. A.. "The Modern Set-up in Cooperative Financial Structure, American Cooperation 1938. pp. 705-710 (American Institute of Cooperation, Washington, 1938). Taylor, Carl C., "The Story and the Lesson of the Tri-State Tobacco Cooperative Association," American Cooperation 1935, pp. 489-519 (American Institute of Cooperation, Washington, 1933)• The Tobacco Industry-Annual Review, published by Chas. D. Barney & Co., New York. Reports for 1926 and 1929. IV. Unpublished Materials 328 Articles of Incorporation of the: National Cigar Leaf Growers* Union, twelve--including the one reorganized—— cooperative warehouse companies of 1912, Growers Sales Co#, Miami Valley Tobacco Growers Cooperative Associa tion of 1919, Miami Valley Tobacco Growers* Co-operative Association, Miami Warehousing Corporation, and Ohio Cigar Leaf Tobacco Growers* Marketing Association from the files of the Secretary of State of Ohio. By-Laws and Minute Books of: The Farmers Tobacco Co., Farmersville, 0.; The Union City Farmers Tobacco Co., Union City, Ind.; The Lytle Farmers Tobacco Co., Lytle, 0.; The Miami Valley Tobacco Growers* Co-operative Association, Dayton, 0. — By-Laws printed and only part of Minute Book available; and The Ohio Cigar Leaf Tobacco Growers Marketing Association, Greenville, 0. Business Records— in part of The Farmers Tobacco Co., Farmersville, 0.; The Farmers Cooperative Cigar Leaf Tobacco Co., Verona, 0.; The Miami County Leaf Tobacco Co., Covington, 0.; The Union City Farmers Tobacco Co., Union City, Ind.; and The Miami Valley Tobacco Growers Co-operative Association, Dayton, 0. In addition the following audits of this last association were used: by the Ohio Farm Bureau Federation Auditing Service, Columbus, Ohio, as of Oct. 31* 1924 and Feb. 28, 1925; and by Wall, Hardman, and Lane, Dayton, Ohio, as of July 31* 1925, October 31* 1925, October 31, 1926, and April 6 , 1927. — in full of the Ohio Cigar Leaf Tobacco Growers* Marketing Association, Greenville and Brookville, Ohio • Darke County Farmers Leaf Tobacco Co. vs. John Robeson et al., Case No. 25380, Court of Common Pleas of Darke County, Ohio. Complete court records of the case. Eastwood, George R., History of Cooperative Marketing of Tobacco in the Miami Valley (Unpublished thesis for M.Sc. degree at Ohio State University, 1931)* A sketchy and poorly executed report. Marketing or Membership Agreements o f : the Miami Valley Tobacco Growers* Co-operative Association, Dayton, 0. (printed); and the Ohio Cigar Leaf Tobacco Growers’ Marketing Association, Greenville and Brookville, Ohio (printed). V. Personal Letters Bain, H. M., Principal Agricultural Economist, Farm Credit 329 Administration, Washington, D. C. March 25, 1939. Beach, W. S., Associate Professor of Plant Pathology, Penn sylvania State College, State College, Pa. Nov. 6 and Nov. 20, 1939. Collins, W m •, Chief of Tobacco Section, U. S* Department of Agriculture Agricultural Adjustment Administration, Washington, D. C. June 29, 1939. Elsworth, R. H., History and Statistics of Cooperation, Farm Credit Administration, Washington, D. C. July 28, 1939. Foster, L. G., President of Columbia Bank for Cooperatives, Columbia, S. Car. (Formerly vice-president and secretary of the Louisville Bank for Cooperatives, Louisville, KyJ July 26, 1939. Gage, Charles E., In Charge of Tobacco Division, U. S. Department of Agriculture Agricultural Marketing Service, Washington, D. C. Nov. 4 and Dec. 22, 1939. McCulloch, J. R., Warehouse Manager of Northern Wisconsin Co-operative Tobacco Pool, Viroqua, Wis. July 12, 1939. Melton, LeRoy, President of Farmers Equity Union, Greenville, 111. Nov. 17, 1939. VI. Personal Interviews Albright, D. P., director of Miami Valley Tobacco Growers1 Oo-operative Association 1924-1927 and president of Ohio Cigar Leaf Tobacco Growers1 Marketing Association 19311939, Hollansburg, Ohio, August 23, 1938. Albright, J. K., incorporator of Darke County Farmers Leaf Tobacco Co., Greenville, 0., August 19, 1939. Bartel, John W., director and manager of the Miami County Leaf Tobacco Co. and director and president (1939-- ; of Ohio Cigar Leaf Tobacco Growers#‘ Marketing Association, Covington, Ohio, August 28, 1939* Blackford, Frank, president of the National Cigar Leaf Growers* Union, president of the organizing committee of the Miami Valley Tobacco Growers* Co-operative Associa tion, and member of the Ohio Cigar Leaf Tobacco Growers' Marketing Association, Eldorado, 0., August 30, 1939. Block, John, Independent buyer of West Alexandria, Ohio, 330 August 21, 1939. Brown, J* E., Incorporator of Darke County Farmers Leaf Tobacco Co., Greenville, 0., Aug. 23, 1939. Brubaker, Harvey, director of the Gratis Township Leaf Tobacco Co., Gratis, 0., Aug. 21, 1939. Brundrett, R. H., secretary-treasurer of the Miami Valley Tobacco Growers' Co-operative Association (1924-1927), Dayton, 0., Aug. 24, 1939. Byers, Walter B., member of Miami Farmers Leaf Tobacco Co. and director of Miami Growers Leaf Tobacco Co., Miamisburg, 0., Aug. 22, 1939. Cromwell, C. C., manager of the Farmers Cooperative Cigar Leaf Tobacco Co. and director (1933-- ) of the Ohio Cigar Leaf Tobacco Growers' Marketing Association, Verona, 0., Aug. 29, 1939. Eidson, B. K*, director of Darke County Farmers Leaf Tobacco Co., Greenville, 0., Aug. 19 and 26, 1939. Fox, Frank M., secretary and manager of the Warren County Leaf Tobacco Co., Carlisle, 0., Aug. 22, 1939. Friend, Robert, member of the Lytle Farmers Tobacco Co., Lytle, 0., Aug. 28, 1939. Hindsley, Robert, son of James W. HIndsley, secretarytreasurer of the Union City Farmers Tobacco Co., Union City, Ind., Aug. 23, 1939. Hippie, Harley, manager of the Miami Farmers Leaf Tobacco Co., Miamisburg, 0., Aug. 22, 1939. Kenrick, Walter, manager of the Lytle Warehouse Co., and of the Lytle Farmers Tobacco Co., Lytle, 0., Aug. 28, 1939. Ketrow, C. C., director of the Union City Farmers Tobacco Co., Greenville, 0., Aug. 26, 1939. Leisz, Chas., member of the Miami Farmers Leaf Tobacco Co., Miamisburg, 0., Aug. 22, 1939. Loxley, Benjamin, Jr., member of Miami County Leaf Tobacco Co., Covington, 0., Aug. 28, 1939. Makepeace, Samuel, member of Farmers Leaf Tobacco Co., Troy, 0., Aug. 28, 1939. Marion, John 0., director and manager of the Farmers Tobacco Co., Farmersville, 0., Aug. 21, 1939. 331 Robsion, J# M., president of Warren County Leaf Tobacco Co#, Franklin, 0., Aug* 22, 1939. Sheaffer, Fred, director and president (1924-1927) of Miami Valley Tobacco Growers* Co-operative Association, Germantown, 0., Aug. 25, 1938 and Aug. 22, 1939. Shoenberger, Fred L., organization director of Ohio Farm Bureau Federation (1919-1928), now secretary-treasurer of Ohio Dairy Products Association, Columbus, 0., Aug. 14, 1939. Stern. M. E., tobacco broker and sales manager of Miami Valley Tobacco Growers* Co-operative Association,(1924-1927), Dayton, 0., Aug# 25 and 28, 1939. Williams, F. H., Co., Gratis, secretary of Gratis Township Leaf Tobacco 0., Aug. 21, 1939. Statements of Jesse T. l»andis, Pleasant Hill, 0., secretarytreasurer of the OhioCigar Leaf Tobacco Growers* Marketing Association and of the directors of that association during the writer*s connections with them since 1933.