Representative TEN EYCK. Yours is the highest classification? Mr. POWELL. Yes; our rate on lemons at the present time is $1.663 a hundred pounds, and on oranges $1.92, exclusive of the war tax. Representative FUNK. In other words, as I understand you, the amount received by the producer is reduced in proportion as the freight rate is increased?

Mr. POWELL. Yes; or any other fixed cost that takes place after you harvest your product, because you can not add to a perishable commodity any of those costs. It has got to be sold for what it is worth on the day it reaches the market, and you can not add any of those costs on the selling price. A manufacturer can simply reduce his production, but in the case of this commodity that can not be done. The fruit must reach its full volume, and it must be shipped and sold for what it is worth.

Representative FUNK. In which class would you include grain? Mr. POWELL. I am not familiar enough with grain marketing to draw a comparison. Of course, it is not perishable like citrus fruits, and it is not as stable as steel or an entirely nonperishable commodity.

Representative TEN EYCK. Undoubtedly these figures that you have given to us set forth what the farmer gets out of his product with the most efficient organization that exists in the country to-day for sales and distribution: is that not so?

Mr. POWELL. And on a product grown or produced away from the average market.

Representative TEN EYCK. Yes.

Mr. POWELL. I might say that through the cooperation of the industry with the trade we have been able to reduce these margins. and we have been able to reduce them by showing the merchant that he can make more money by so doing. In other words, a good many systems of merchandising are based upon slow turnovers at high margins per turnover. We have conducted an educational campaign for several years with the wholesale trade organizations and the retail trade organizations through which we have attempted to show them that by better displays, attracting the consumer more, and putting reasonable margins on their products they will turn them over quicker; that there will be less waste in the product: that they can afford to sell them for less; they can use their capital more times per year; and the jobber or retailer will get a higher net profit on the whole year's business. In other words, to reduce the cost of a perishable commodity to the consumer, our experience leads us to believe that you first must have large volume, so that you can ship in carload quantities; you must have a standardization of the product; you must have an equitable distribution; you must couple that up with the cooperation of the trade; you must have national advertising, regular supplies, and when you do that then your wholesale or retail dealer can adopt a merchandising system that is efficient, and he can not adopt a merchandising system that is efficient with irregular supplies, with fruit that rots, or where there is a great loss in it.

Now, our experience has led us to believe that the farmers ought to cooperate with the men with whom they do business, and only by cooperating with them and helping them to understand your problems, and by your understanding their problems, can you get the maximum of efficiency.

Representative TEN EYCK. The farmers should standardize the grades of their products before shipment?

Mr. POWELL. That, Mr. Congressman, is the first requisite of any system of modern merchandising. No merchant can deal in nonstandardized commodities and charge reasonable margins on them. That is the first thing that must be done. You must have efficient merchandising.

Representative MILLS. Have you made any study of the high cost of retail distribution?

Mr. POWELL. Yes, sir; I have studied that subject a great deal. Representative MILLS. What is the answer?

Mr. POWELL. The high cost?

Representative MILLS. Yes.

Mr. POWELL. It depends very largely on the whims and the demands of the man who creates a high cost of retail distribution. Representative MILLS. That is the consumer?

Mr. POWELL. The consumer. The cost of distribution in any class of store is usually, in our commodity at least, in response to the demands of the man who deals with that store. If it is a chain store, and the man is willing to go to that store and get his stuff and take it home, of course the service rendered is light. If he deals with a Fifth Avenue store in New York, it is a different proposition. There is a type of buyer who likes to be seen coming out of a store on Fifth Avenue, drive his machine up to that store, and have it known that he is able to deal with that store. If he does that, then he is paying for the service. And we have found that the question of retail cost is largely a matter of the whim of the customer, and the only way it can be reduced is by adopting these fundamentals which I have spoken of, which permits the merchants in any class of these stores to eliminate waste, to make quick turnovers, and to sell at reasonable margins per turnover, and therefore have a large number of turnovers per year. I do not think that there is any formula, any patentmedicine formula by which you can reduce these costs.

Representative MILLS. There is no short way out?

Mr. POWELL. I don't know of any short way out.

Representative MILLS. In so far as retail buying is concerned? Mr. POWELL. I have never discovered any short methods that can be applied to agriculture or agricultural products. All of it is a matter of evolution; and if it goes too fast, there is a devolution that follows it always, and you have to start over again. All of our improvements in purchasing or distribution or advertising or anything else have had to creep step by step, and we have had to get our experience as we went along. If we go too fast, it costs us money, and we have to start over again.

Now to come to your question, Mr. Congressman. You asked me about the relative merits, as I understand it, of the delivered method of sale versus the f. o. b. method of sale. As I see it, the agricultural machinery of this country very largely collapsed in 1920 for a number of reasons. One was because there was not an export outlet for surplus. We dumped back on the farmers' hands an immense amount of material which could not be merchandised. It created a surplus here which depressed the market.

Second, the financial conditions of the country were such that the men who have usually bought farm crops at the point of production,

either the local buyers or the representatives of the distant buyers, could not be financed because the distribution and the future sale is a speculative operation. Under financial conditions existing this year no bank could afford to finance an operator who went into Oregon from New York or Philadelphia, or who went into California. other distant market and bought a year's supply, because it was a speculative venture under present financial conditions.

or any

Therefore the two chief reasons for the collapse in the marketing of the commodities in which I am interested and with which I am familiar, were: First, lack of credit facilities for purchase, and second, a lack of outlet for the surplus.

Now the organization which I represent learned this lesson 25 years ago. It learned the lesson that in bad years, whenever merchandising conditions are bad, that no merchant will attempt to finance a crop for distribution, because he can not afford to do so, nor can the bank afford to finance him, and therefore we learned 25 years ago that the f. o. b. method of sale must be eliminated, on a perishable product at least. So we established these agencies all over the United States for the purpose of distributing this product to our own agents; in other words, the producer assumes the speculative risk of distribution himself. He financed the first distribution. The man in the market who buys then only has to finance his daily purchasing, and it is no strain on anybody.

This year in California, at least, there are only two commodities that I know of that have moved out under normal conditions, in normal quantities, and sold on a basis comparable with prewar prices. One is walnuts and the other is citrus fruits. And the reason for it is the fact that the industry itself has distributed these commodities to the primary market, and there has sold them to 3.000 or more dealers who have only had to buy their daily supplies. Now that was no financial strain on anybody. The man can do that. We have done that in the citrus business for 25 years. Walnuts have always sold on an f. o. b. basis. This year the California Walnut Growers' Association, foreseeing this financial difficulty, changed their system of merchandising. They reduced their prices 30 per cent at the beginning of the year, because they knew prices had to come down. Next they established warehouse centers all over the United States, shipped their product to those warehouses and sold, where normally they had sold 15 to 50 carloads of walnuts, in 10-bag lots. The result is they cleaned up their crop, with the trade fighting for the supplies at the end of the year.

Now, there is the answer as I see it, Mr. Congressman, to your question. The value of the delivered method of sale versus the f. o. b. sale is a credit question very largely. I do not believe that any producers' organization can establish a national advertising system and can cooperate with the wholesale and retail trade, unless it applies delivered methods, because it can not harmonize and equalize distribution, which is essential to a national advertising of a product or a cooperative method of trade.

Representative MILLS. Do you attempt to maintain prices at all by retaining any of your fruit from the market?

Mr. POWELL. We can not. On a perishable commodity we have got to ship it. On a perishable commodity, if you try to in any way influence your price situation by holding you are likely to lose more

by holding than you would make by any rise in price, and we have found through years of experience that the only way to market a perishable commodity is to ship it when it is ready to ship, to take what it is worth at the time you sell it. You may get a low price one day and a high price another day, but they equalize and wash themselves out. It always sells under those conditions for what it is worth. Speculation is eliminated, and you get an average price based upon the value of the product throughout the year. We could not control the price if we tried to. We could not control the price on a perishable commodity, because you must sell when it is ready to be sold. You can sometimes on a storage commodity influence price, but if you fix prices and influence them, then whether you gain by it or lose by it depends entirely on whether you are a successful or unsuccessful guesser. The principles which govern the price in the long run are the principles of supply and demand. If you guess right you have a feeling that you are a pretty wise merchant. If you guess wrong you forget about it and don't tell anybody about it.

So much for the delivered versus the f. o. b. method of sale. Are there any questions on that? I am covering this, Mr. Chairman, rapidly, because I know your time is limited, and I am not quite sure whether these are things in which you are interested.

The CHAIRMAN. We are.

Mr. POWELL. But personally I think that this is very significant. The breakdown this year was due to a lack of credit facilities. And yet, with the reduced buying power, there was sold a volume of fruit above the normal, a semiluxury like oranges, under a delivered method of sale, where nobody had to take a speculative risk. The largest volume of fruit in the history of this business was sold this

year.

The CHAIRMAN. When you speak of a lack of credit, do you mean by that that the machinery could not arrange credit, or that the economic conditions were such that it was not safe to do it?

Mr. POWELL. It was unsafe to extend credit under the present economic conditions. I might say that in our own industry we have no lack of credit. We have been cooperating so long in southern California that I think there is no branch of the economic structure of the country that cooperates more with our industries than the banks themselves. The banks have realized that the cooperative movement is essential to the stability of these agricultural industries, and I think I am safe in saying that no cooperative organization in California has ever been denied any credit that its securities entitle it to. I am sure that is true of the citrus industry.

Representative MILLS. And that was true in 1920?

Mr. POWELL. That is true all the time in California.
Representative MILLS. And true to-day?

Mr. POWELL. It is true to-day, and it has been true all the time that I have known the industry in southern California. Now, so much for the distributing.

Representative SUMNERS. I want to ask you one question with reference to the distribution. Do you have important competitive areas outside of your section coming to market at the time when you are coming to market?

Mr. POWELL. Yes; our orange business is a year-around business. The navel business begins in November and extends to June. Our

Valencia business begins in May and extends to November. So it is a complete year around business. Now during the period of the Florida crop we have a very active competition in all eastern parts of the United States with the Florida product. Then we have a very severe competition throughout the summer with other perishable fruits; that is, competition between oranges and cantaloupes and peaches and other perishable products is as severe as the competition between California and Florida oranges in the wintertime.

Representative SUMNERS. Now, how do you adjust the volume of your shipment with reference to the total shipments coming in from other sections?

Mr. POWELL. We do not attempt to adjust it. What we do is this: At the beginning of the year we make an estimate of the probable volume of fruit to be shipped out during the year. Now we know that each district of California ships its fruit within certain periods, and that to bring back the most for that product it must be shipped during the period when it is in the best condition. We know from years of experience that about a certain percentage ought to come forward every week, first from the State, and second from each community. And so the shipments automatically adjust themselves to the experience of the past. Each association has its complete record for 10, 15, or more years period. They know in January that they have got to ship a certain proportion of their estimated crop in February, because if they do not, and try to hold it, they have got a surplus.

Representative SUMNERS. In the absence of some understanding between you and other competing territories, how can you avoid loss and congestion in the market at one place and inadequate supply at the other?

Mr. POWELL. Well, we do not attempt to have any understandings with any other part of the country on distribution. We know that in order to handle our own business it must come forward at the time it is fit to come forward, irrespective of competition anywhere else.

Representative SUMNERS. What I am trying to find out is this: How do you arrange to route your shipments in to the points that are least supplied by other shipments?

Mr. POWELL. Well, we know every day through our agent what the supply is in every market in the United States. We know what the cantaloupe supply is, not in car lots, but the general market conditions. Every day we receive from our agents telegrams that come in to our central office. At the height of the season we receive three to four hundred a day. Now that information goes out every night in bulletin form to all the associations, so that every association has every telegram that comes in, so they know what the conditions are, and they use that information as the basis for their judgment. And each association knows, from a period of years, what conditions to expect. It has its customers in various markets. It knows what proportion it shipped each year to Detroit or Cincinnati or Buffalo or Rochester or Washington.

do

Representative SUMNERS. Yes; but what I am trying to find out is, you have any knowledge with reference to the movement into the various markets from the sections where your organization does not operate?