In addition to our work on direct marketing of livestock, several studies of the Department throw some light on trends in the direct marketing of other farm products. For example, the Bureau of Agricultural Economics is working with the agricultural colleges in North Carolina, South Carolina, Georgia, and Alabama on a study of shipping point markets for fruits and vegetables in the Southeast. Also, the Bureau's studies of terminal markets for perishables have given some attention to the direct buying of these commodities by chain stores. In general, these studies show a continued growth in direct marketing. This trend appears to be due both to the increased use of motor trucks and to inefficiencies and high costs in the large central and terminal markets. The motor truck enables many farmers and shippers to by-pass these large markets and thus to save unnecessary expenses. This process may in many cases benefit farmers either by reducing marketing costs or by getting better distribution in smaller markets which are unable to use carloads of certain foods. It also may tend, in many cases, to decentralize the price-making forces and to make the problem of market news more difficult. We hope there will be no attempt to prevent direct marketing by laws and regulations. Rather, we believe the costs in central and terminal markets should be reduced and the market news service should be expended. COOPERATIVE MARKETING Much progress has been made in the cooperative marketing of agricultural products and no inconsiderable proportion of the farmer's produce moves through cooperative channels at the country end of the marketing system. For many years the Department of Agriculture, through the Farm Credit Administration, has encouraged the farmers' cooperative movement by helping farmers to set up cooperative marketing agencies and by providing credit on equitable and convenient terms. More recently the Farm Security Administration has gone a step farther and has provided credit for underprivileged farmers in setting up cooperatives for the purchase of supplies and production equipment. We believe that cooperative marketing ought to become a more important factor in agricultural marketing than it has heretofore been and that it ought to be encouraged in certain new forms and new fields. If farmers are to be fully protected in dealing with large corporate processors and distributors, they will need cooperatives at the country end able to bargain with such distributors on an equal basis. Some of the existing cooperatives have attempted to do this, but many of them have sent their products around, rather than through, the mass distributor. The result is that the farmer is often without any organization in selling direct to the large-scale food distributor. Cooperative marketing furnishes one instrument for meeting this problem. In our view, some of the principles and practices of cooperative marketing might well be used by groups other than farmers. For example, independent retailers, through their voluntary and cooperative organizations have done much to match the corporate retailers in distributive efficiency. We believe that they should go still further than they have and that some governmental agency might give them help and encouragement in this direction-perhaps even to the point where they are helped with organization problems and credit facilities, just as the Department of Agriculture now helps farmers' marketing cooperatives. The Department of Agriculture's program in the past has not included programs for the encouragement of cooperation on the part of either dealers or consumers. Some Federal agency probably should at least keep in touch with developments in this field. At our request, Dr. C. W. Warburton, Acting Governor of the Farm Credit Administration, prepared the following statement dealing with some of the current problems in agricultural cooperation. "While agricultural cooperation has made substantial progress in the United States over the last century, the development in some periods, in some parts of the country, and with respect to some commodity groups has not kept pace with the maximum development that could have been achieved. Even today there are important commodity and population groups that are unfamiliar with what agricultural cooperatives have done and what they can do. This presents a major problem. "Another problem to which serious attention should be directed is the impact on farmers' cooperatives of the radically changed economic environment in which they find themselves. Adjustments of cooperative enterprise to new conditions are essential in order that they may be of the greatest service to both farm and consumer groups and so they may be in a strong position to collaborate in Government action programs. Adjustments of this type are never easy and as the problems become more complex, the difficulty increases and the need for research and guidance becomes more acute. "Thus to meet these problems-the need for acquainting new and important groups with the benefits derived from cooperative endeavor and the need to assist existing organizations in making essential readjustments the present programs of education and service work should be implemented. Effective solutions for these problems seem to demand that a vigorous program should be instituted to help producers organize cooperative associations that will be in a position to render essential services and to provide 'yardsticks' against which other forms of economic organization can be measured. At the same time an equally necessary approach is to provide basic research to yield facts on which present organizations can do a better job." Sincerely yours, FVW: lmg. F. V. WAUGH, Head, Division of Marketing and Transportation Research. CC: For Mr. W. Hunt, Federal Trade Commission. (Statement by Albert L. Meyers, Senior Economist, Department of Agriculture, in connection with testimony supra, pp. 385-408.) NEW USES FOR AGRICULTURAL PRODUCTS Programs for the diversion of agricultural products to new uses and to uses not customary in commercial practice are authorized in clause (2) of Section 32, Public, No. 320, 74th Congress, as amended. This clause reads as follows: "(Such sums-shall be used-to) (2) Encourage the domestic consumption of such commodities or products by diverting them, by the payment of benefits or indemnities or by other means, from the normal channels of trade and commerce, or by increasing their utilization through benefits, indemnities or by other means, among persons in low-income groups as determined by the Secretary of Agriculture." These programs are administered by the Surplus Marketing Administration. Diversion of agricultural products to new uses or uses for which these products are not ordinarily used, is clearly diversion from the normal channels of trade and commerce. Such diversion tends to encourage domestic consumption by utilizing surpluses which might otherwise remain unused, and they are, by definition of diversion, taken out of the uses in which they are customarily consumed. Objectives of New Use Programs. In some respects the new use programs may be compared to the development and demonstrational work of large industrial corporations. The problems are: (1) to discover practical new uses that will continue to use the commodity from year to year without permanent payment by the Government, and (2) when discovered to develop them to a point at which they will be utilized on a commercial scale. The difficulties encountered in new use programs are serious. New uses are difficult to find. Otherwise they would be discovered and adopted by the trade itself. Generally there is some technical problem to be solved. After the problem is solved, and even in cases where no technical problems exist, considerable effort is usually required both to acquaint the trade with the new use and to overcome the conservatism which may prevent or delay its adoption. Usually the results of actual use on at least a modified commercial scale are the arguments which seem to be most convincing in this connection. No new use project ever started unless it appears to give good promise of commercial success. Even so it must be expected that there will be a large number of projects which for one reason or another will not be accepted for commercial exploitation for every one which does prove successful. Research departments of industrial firms know in advance that probably over 90 percent of their experiments will yield negative results, yet they are content to continue the process because they know that a few successful developments will more than compensate for the cost of a large number of failures. In appraising this type of program, therefore, it should not be necessary to show that all or even a majority of the programs result in the establishment of new commercial uses for the product. If only a few of the new uses become commer cially profitable the long run gain to agriculture may be considerable. Other projects, while they may not be immediately successful, may be of great importance in the event foreign sources of competing products are cut off by war. An example is the sweetpotato starch project in Laurel, Mississippi. This project has good prospect of achieving real commercial success, and has already demonstrated that the product is equal to the best imported tapioca starch and the best substitute therefor and that it would be available in quantity at a moderate price if the supply of tapioca starch from the Orient were cut off. Many new use programs and some of the uses themselves may appear small when considered individually in comparison with the total size of one crop. The sum total of a number of small uses, however, may amount to a considerably expanded market, particularly if these are added to year by year in a continuous stream of a few successful new projects. For many commodities, including cotton, there is no one use which absorbs a large part of the total crop. The establishment of the new Agricultural Regional Research Laboratories will prove of great help in experimentation and will allow the staff of the Surplus Marketing Administration to devote more of its efforts to introduction and demonstrational work. The new use programs will supplement the laboratories by making possible tests on a commercial scale of ideas developed by the laboratory technicians. From the point of view of surplus elimination diversion and new use programs are economical and effective. The maximum cost of most of these programs is the cost of the raw material suplied. Most of the diversion and new use programs have involved much less than the raw material costs, and while the process of surplus removal is slower than in the case of relief purchases the programs often lead to continued outlets for the commodity after the payments have stopped. Since the best understanding of the value of diversion programs can be obtained by analysis of the programs themselves, an effort will be made in the following pages to evaluate the diversion and new use programs of the Marketing Division in a single year (1938-39.) COTTON NEW USE PROGRAMS Expenditures for new uses of cotton (in 1938-39) estimated as follows: The bale covering program at the top of the list was for Sea Island and some upland cotton only. As the yield was unusually small the covering provided served for the crop of two seasons. The users were enthusiastic and we understand that most of them continued its use for the crop of 1940 without further aid from us. The cotton housing materials included roofing, coverings for exterior and interior walls and cotton insulation. Most of the demonstrations, particularly on insulation, yielded such favorable preliminary results that the program is being continued and expanded this year. Although it is too early to be definite the program at this stage gives every promise of being commercially successful. If it does, cotton insulation may prove to be the one of the most important single new uses for cotton ever developed. Capture of only 10 percent of the estimated potential market for insulation would mean an increased cotton use of 450,000 bales a year. The demonstrations with cotton roofing and cotton wall covering are still in precess and their utility should be determined this year. The projects for covering tree seedlings and soil erosion control appear to have given satisfactory results in most of the first demonstrations. At present it is not possible to predict the extent to which these uses will spread. The program for cotton bags was mainly devoted to bags for certified seed potatoes, selected table stock potatoes in consumer size packages and peanuts. 304946-41-30 Although this appropriation was not continued in 1939-40 we understand that, due partly to our programs and partly to the high price of jute, the use of cotton bags for these purposes is spreading fairly rapidly. Mr. A. E. Mercker, potato marketing specialist, after a survey of the western potato regions gave us the following report on the use of cotton bags: "On my recent trip through the West the increased use of cotton bags as containers for marketing potatoes was noticed. The following estimated percentages of the carlot shipments were packaged in cotton containers: Minnesota and North Dakota, 10 percent; Colorado, 65 percent; Nebraska, 50 percent; Idaho, 10 percent; and 5 percent each for shipments from Washington, Oregon, and California. In the lower Rio Grande Valley of Texas 50 percent of the shipments were made in cotton containers. The most popular size appeared to be the 100-pound size, followed by the 50-pound, 10-pound and 25-pound sizes. "The cotton bag lends itself to much more effective printing of brand labels and is very attractive in appearance. Shippers are also improving loading methods so that commodities in cotton bags incur the minimum of bruising. As further improvements are made in these techniques, many objections to the use of cotton for marketing potatoes will be overcome." Carlot potato shipments from designated States through May 6, and cars loaded with potatoes in cotton bags, as estimated by Mr. Mercker If the 16,154 cars estimated by Mr. Mercker to be packed in cotton were all packed in 100-pound bags, this would mean 5,815,440 bags or approximately 7,660,000 square yards of cotton. Packing in smaller bags uses even more cotton. Chain and "giant" stores are showing a great preference for potatoes in consumer size packages and seem to prefer cotton bags so that the percentage of potatoes so packed should increase in the next few years. Cotton mats for the curing of concrete roads have been officially approved by the State Highway Department of 26 States. Although no reports of the extent of actual use are available, the fact that the cotton mats have proven cheaper than some of the other materials previously used should lead to a fairly good adoption. The January 1940 issue of Public Roads states "In conclusion, the data from 19 States indicate that the cost of curing concrete pavements with cotton mats should not exceed that of other accepted methods. The survey also corroborates the laboratory findings that such mats not only retain moisture in the concrete but also have the valuable property of controlling temperatures in the slab, thus providing a type of protection not afforded by the usual surfacesealing materials. A commercial manufacturer has now taken over the project and his estimate of potential annual use of cotton is 25,000 bales. The use of cotton cloth to cover tobacco seed beds has now been taken over commercially by a large manufacturer of insecticides who plans to market the cloth along with its product. The manufacturer estimates his sales will amount to about 2,000,000 square yards of the cloth a year. If this estimate is correct this would mean an annual use of 762,500 pounds of raw cotton which at 10 cents a pound would mean an continuing annual market for $76,250 worth of raw cotton resulting from a Government expenditure of $1,394. The Cotton Textile Institute is also actively engaged in promoting this use among its members. In a recent bulletin they point out that there are 50,000,000 square yards of tobacco seed beds in this country which constitutes the potential market. Other manufacturers are not making the product. The demonstrations with cotton road reinforcing material under the methods most widely used have proved to be unsatisfactory. However, other demonstrations on airport runways have appeared to yield better results. Further development of techniques will be necessary to come to definite conclusions. TOBACCO During the fiscal year 1938-39 two diversion programs for tobacco were in operation. The first was a direct diversion program under which tobacco was diverted to the manufacture of byproducts of which the most important was nicotine sulfate for use in insecticides. Tobacco stems and tobacco unfit for other use, have been the usual sources of nicotine. This program, however, paid benefits for the diversion of fire-cured and dark air-cured types of tobacco, of which there was a large surplus, to byproduct uses. The surplus resulted from a decreased use of snuff and chewing tobacco and a decline in exports. Under this program 4,217,799 pounds of tobacco were diverted by tobacco cooperative associations and marketing corporations at a cost of $140,804.15 which represented the difference between the scheduled advances and the amounts received from the byproducts purchasers. This program which had continued for several years was effective in disposing of a large part of an accumulated surplus which had threatened the producers cooperatives with bankruptcy and at the same time it has contributed greatly to an increased use of nicotine for insecticide purposes. It is believed that a large part of this increased market will be retained without indemnity payments, as the superior qualities of nicotine as an insecticide have been demonstrated more widely than ever before. One great advantage of nicotine over metalic poisons is that no toxic residue remains on the fruit when it is harvested and marketed. SWEETPOTATO DIVERSION PROGRAM In the fiscal year 1938-39, the sum of $60,000 was allocated to the sweetpotato diversion program, of which sum $33,163.67 has been used. Payments were made to producers at the rate of 20 cents per bushel, and a total of 1,659,844 bushels were diverted to the manufacture of starch. About 1,650,000 pounds of starch were produced or about 10 pounds per bushel. The average selling price of the starch for the year was 4.02 cents per pound. While the plant closed the season with a deficit in operations, definite progress was made toward future profitable operation. With small production, marketing costs were still high and because the product is still not well known it does not yet command the premium price that its quality would justify. With a production in the 1939 season some 70 percent larger than in 1938 the plant showed a small profit for the year. Progress has been made in methods of dehydrating sweetpotatoes to make possible more nearly continuous operation of the plant, which would greatly greatly reduce overhead costs. As a byproduct of these dehydration experiments it now appears that it may become profitable to produce dehydrated sweetpotatoes for livestock feed. If in this its first year of capacity operation, the Laurel Starch Plant can show even a small profit, it seems possible that with dehydration to permit of operation for 200 days in the year as compared with the present 100 days, it may soon be possible to operate on a commercial scale without indemnity payments. The payment per bushel has already been reduced to 15 cents. The previous material gives an example of a typical year's operation of new use programs and a somewhat extended explanation of some of the programs themselves. The following material indicates the progress of new-use programs to date. Programs in Commercial use without Subsidy. 1. Cotton fabrics for use in the fumigation of tobacco seedlings. 2. Cotton materials for curing concrete. 3. Cotton for shading or protecting tree seedlings. 4. Open mesh cotton bags for fruits and vegetables. 5. Cotton fabric for lining irrigation ditches to prevent erosion. 6. Also, although not strictly in new use, might be listed the acceptance by the Army of an all cotton mattress as distinct from a ratio of 60% cotton, 40% linters, which not only provides a better mattress for the same cost but also saves linters for defense purposes. |