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MAY 11, ltSl THE BRECKINRIDGE NEWS, CLOVERPORT, KENTUCKY PAGE THREE A Marketing Plan to Solve Kentucky's Tobacco Problem to Through the courtesy of The Courier-Journal and The ?9l, advertising experts. For example, Louisville Trmeq Th Rrrknridiri Mouic ?o a hi n nnhliah fnr JuIkc Ul"B,.,ain Sftys. "s possible ijouisvuie Ximes, 1 ne HreCKenrtdge News IS able to publish tor(to extend the markets on tobacco?"! 4 Ar1 Al m..L!j.!u 3 .!1 !! 1! t . -t rt ...... .1.- . ! . tl - I uo itaucia mc suujoinea arucie to solve Kentucky s tobacco problem. This article, published in The Louisville Times on Monday, May 9, is the address of Mr. Aaron Sapiro, of California, delivered in Louisville on March 25th and 26th before a selected committee of men who were in terested in the production of tobacco. It was Judge Robert W. Bingham, of Louisville, who was the means of bringing Mr. Sapiro to Kentucky. The low prices offered for Kentucky Burley tobacco when it was placed upon the block at the opening of the current season, impelled Judge Bingham to attempt t6 form a co-operative marketing associa tion among growers. He knew from various sources that such growers' movements had been successful elsewhere in stabiliz ing marketing and price conditions and it was his idea to do as much for tobacco growers in Kentucky. So after conferring with several prqminent men of Ken tucky, Judge Bingham decided to bring Mr. Sapiro to Louisville. Mr. Sapiro has been the guiding genius of the great farm com modity marketing associations of the Pacific slope which havS transformed that land into a horn of plenty out of which stable and excellent profits come to the producers of prunes, wheat oranges, raisins, beans and eggs. After hearing Mr. Sapiro outline the California plans and practically apply them to the Burley tobacco growing condition in Kentucky, Judge Bingham was named chairman of a commit tee composed of W. E. Simms, of Woodford ; James C. Stone, of Fayette ; Ralph M. Barker, of Carroll, and John T. Collins, of Bourbon, who will organize a plan similar to the California plans, for the Burley tobacco growers of Kentucky to market their to bacco. Very soon organization of the various Burley counties is to begin, and when that has been achieved, contracts will be pub lished and distributed and signatures will be solicited. i When and if at least seventy-five per cent of the Burley to bacco acreage has signed, the greatest rehabiliation movement in the history of this State will begin. Only part of Mr. Sapiro's plan is reprinted herewith in this issue of The Breckenridge News, but some idea may be gotten from that which is printed of the California plan and how it may be practically applied to the marketing of tobacco as well as rais ins or any other product. It is worth reading more than once and should be of interest to the readers of the News. The Time Factors. Take things like oranges. I will show you how they work. California oranges used to flop into the market almost in a period of four months. They began to realize other oranges were coming in and stealing our cus tomers. The distribution was bunch ed. The United States produces 30 per cent, Spain :!0 per cent, Italy 30 per sent and scattered countries 10 tm Per ccnt- ve Jncu lo B": ways in IJR which we could get the American production moving to the market on li h-ieie nf nnnroximatelv one-twelfth D'-fLeach month. You will be interested l to know tncy nave worncu oui .ucm- f ods. Today shipments arc not exact ly even, but they arc approaching an even one-twelfth per month. They have learned how to distribute the production evenly, so as to feed our markets gradually and evenly. They learned how to take advantage of the ! time factor, Take eggs. The time factor is stor age. About two-thirds of the supply are produced in three and a half months of the year. In the other eight and a half months the other one-third is produced. You know, from experience in all parts of the country, that there is a flush and famine period in production. What is the merchandisintr problem there? The merchandising problem is time and place again. In spring we store eggs. The association stored 2,000,000 dozen eggs last year from the flush period for use in the October-to Dec ember period. Wc did motfe than that. We found a process by which you could take perfectly fresh eggs and by machinery dip them in oil at a temperature of 240 degrees. By moving the eggs through that oil for five seconds it boils that little fila ment underneath the shell and makes it impervious to air. You then have a prpecssed egg which you may put in ordinary storage for a year or two years; and you can poach the egg at the end of that period. You can boil that egg, serve it soft boiled and never tell by taste or smell or any other thing that it is not an abso lutely fresh egg. You cannQt make it fresher than it started out, but you can keep it fresh. The association was on the job. Last year we processed about 25,000 cases of thirty dozen to the case. Wc sold them as California processed eggs. We made a fine premium on those eggs. That is taking care of the problem of time and place again. We arc not missing any legitimate tricks by which we can for our growers any merchandising advantage of egs. At the same time the public is going to get marvelous advantage through processed eggs, when those eggs be come better known, because instead of paying very high prices for perfect ly fresh eggs in fall and winter, they should use processed eggs. We put out high grade fancies for the rich people who want them; but we be lieve the people should use the pro cessed eggs and get whatever bene fit they can from the better merchan dising method. So we use the element of time and place in those things. Applying It To Tobacco Where you have a nonperishable product you have a perfectly easy thing. You can put your tobacco in hogsheads and store it. You don't have tobring it on the auction floor ,Svhcn you think it is ready for mar keting, but you can sell it when it is ready for a fair price, ' I want to tell you, the auction sys tem is the most unintelligent plan in .any single nonperishable product in wnicn explains a marKeting pian full in The Courier-Journal and the world. The whole problem in merchandising is first to take the word "supply" and see if you can put in the variable factor of time and place. Then your next problem with the term "supply and demand" is to sec how you can extend or stretch .that demand. Wc don't sit and just have a group of fellows knowing as little as our selves around the table to try to work this thing out. We got experts in, men who are experts in the one thing of creating markets. We call in the labo ratory experts of the Saturday Even- ing Post group, the Lord & Thomas group of the various other adver tising firms. We say, "We have a problem here. We are not going to pay you for the study of it, but if you work out a decent plan for us and show us how wc can create a demand you are likely to get a great big ac count for advertising. Otherwise you get a great big friend. At all events you have laboratories for that pur pose. Will you use them? They do have laboratories and they do use them without expense to us. We have been able to get some wonder ful ideas which have proved their worth to the extent of literally mil lions of dollars. Wc have done work on our own hook. We have our own technical experts. They experiment with prosaic tilings like prune butter. They combine different products to make a sort of jam that England and Belgium buy by twenty carload lots. We make lots of money by boiling the 50-00 and 00-70 size, and you can buy boiled prunes of the right size not the great big prunes. Nobody boils 20-HOs; the only thing to boil is the middle sizes. The large one? break in boiling. We made quite a bit of money on the cooked prunes. Wc experiment all along the line. Wc experiment on the package prune three-pound boxes, five-pound boxes so they won't sugar, won't mold, won't spoil with the heat so the peo ple won't have to buy them out of the dirty boxes that are put on the floor at the groceries. We experiment with the packages, with everything.' We see how we can get people to eat more. We sent men to China. They came back and told us that the people over there who could afford to buy prunes were very limited in number, but there were enough in a big country like China to justify "opening a market. Then theiy said, you will have to give away samples because, they don't know what California prunes are. We plan ned to give away small samples, two or three prunes in a little box. Wc even had a Chinese expert pass on it. We showed him the kjnd of boxes we were going to use with our labels on them. You see, our label had a purple prune. He threw up his hands in horror, "You can't give away those?" "Why?" "Purple is the sign of old age and death; you couldn't give those away; they wouldn't touch them." On that account when we start to develop the Chinese market, we will not use purple on our boxes. Wc are going to develop that market; we arc going to develop the Japanese market. Wc will give away samples. We will have to get out posters and put them on poles, We are going to try to make arrangements for plastering them on jinrickishas. We are right on the job as to merchandising meth ods. . Extending the Tobacco Market We don't work through lawyers, we U1 tuursc, umj is noi a rcauy wise question to ask a lawyer: he has trou hie enough in knowing the law. But I do know there arc men who believe that thct market in China alone for tobacco is beyond the conception and the thought and the dream of you American tobacco men. I will give you an interesting idea from a very clever Chinese editor in San Fran cisco. I asked him once about certain things that could be extended in China. His first answer was to take me out to show me all the Chinamen who were smoking cigarettes. They love them as much as the boys in the army loved them. He said, "The man who would introduce that in China wouiu not omy maKc a tortunc tor himself; he would do a great good for China. It would drive out opium. particularly the cheaper grades. Of course; he said, 'they haven't much cheaper brands. The volume of busi ness would warrant you putting them out on a very cheap basis." There is another thing. Do you think for a moment that the maximum in America has been reached on to bacco? I think if you will look over the per capita consumption in this coun try, you will find a wide difference. The stunt for the wise merchant is to bring the per capita consumption up to the maximum in every country where it does not seem to be making the population stand on its head. If your per capita consumption is twice as large as in France then you should put on a French advertising campaign. If it is greater here than in South America,, South America is your field for an advertising campaign. If it is greater here than in Canada, Canada is a great field for your advertising campaign. If it is greater in the city districts than in the rural districts, then the rural district is a great field for your advertising campaign. If the consumption and with that as your standard, you bring all the other dis tricts up. You get advertising experts on the job and have interesting stories oji how some cities arc below other cities. Utah passed an anti-cigarcttc law. Did you men put out anything at all against it? Not a bit. To whom did you leave it? To the speculators who make money on you. Do you think tjliey have any influence with the bunch of farmers in the Utah Legisla ture? A growers' association would have had influence, if it had been rep resented there. The erowcrs are the ,.1n.. ...l.n ... ...!.. J in-ii ivhu nui uuiy uivc uuc sane who answer in legislation that is being i,,,.i..i .,.,:... i. ii 'i .... "T but the growers are the men who have to think- of this problem from the . vv.ii.u C4tuii3i HIV: BU-l.t 1 ICU WULU, I largest standpoint in the industry. Remember that the function of the manufacturers is not to sell the entire crop. His function is to sell as much of that crop as he is stuck with. He may not be stuck with all of it; you may be stuck with the major part of it. His advertising interest ceases when he has sold his part of the crop. Your advertising interest never ceases until the crop is smoked, or chewed, or used up in some form. Your prob-j lems arc (iinerent; Din it is only the grower who ever looks on this from the problem of the industry. The manufacturer looks on it from the problem of what he has bought or is legally bound to take; that is his sole limit. He. can go into next year, does n't have to be in the field. You have to be in the field because you own the land on which the tobacco is pro duced, which is fit for tobacco, and not best fitted for any other product. Relations With The Trade. The growers and the co-operatives, through experts, study the merchan dising problem from a totally differ ent viewpoint. That doesn't mean that you must make war on the manu facturer. On the contrary, you need him, and you know it. He needs you; and you know it. The function of the co-operative is to show him his need, as well as to show you your need and get the two of you working together. There is even a place for the ware houseman. The warehouse figures in two capacities auction center and a storage center. There is no excuse for the warehouse as an auction center. There is (nced for the warehouse as a storage center. There is another problem. Suppose the manufacturer won't deal with you. I have known that problem to be advanced at times. I am going to ans wer that. The' manufacturer is a pretty smart fellow. He has proven that by being on the manufacturing end of the game instead of the growing end of the game. He is on the end of the game where you make dividends, whether the price is high or low. You are on the end of the game where you make profits when the price is high, which you lose when it is low. He has shown his wisdom by being in on the best end of the game under the present system. You manufacturers are square, intelligent fellows. You will find they will deal with you when you arc a fact, established as an or ganization. During the process of or ganization they may be negative, but when you are established they recog nize you ns a fact. But if, by any chance, you should mil into a condi tion where some of the manufacturers won't deal with you, there is nothing to prevent you men from going into lines of work into which the manufac turers forces you. The prune growers didn't own a single packing plant the first year. They made contracts with the pack ers, until they started to take advan tage of the growers. vYou can blend some 30-40s into 20-30s and get a profit. We were entitled to that. They forgot to give it to us. Beginning with the second year we began to acquire picking plants. Wc have now twenty two. Beginning with next' year we will have no mjed' for any- oatside packer. Of the prunes grown by1 Cali- fornia prune growers, over eighty per cent will be packed in our own plants. Likewise wc have our own shook ... ... . mills; and likewise wc arc beginning to acquire our own forests for our kind of timber. In fact you can integrate the indus try if they make you do it. Wc didn't start out to do it, but we were wise enough to give ourselves the right. When they aroused us wc started to put up plants. Mr Coykcndall, mana ger of the prune growers, cnvolvcd a system by which, by the use of pre ferred stock in a subsidiary company, you get the money for your plant. You get the money on the guaranteed pre ferred stock right when you need it and pay it off out of the money re ceived from the crop. It is ideal for financing the physical needs of a co operative enterprise. building warc- bouses or factories if you have to have them. I don't advocate going into the other fellow's business; there is a 'place for the warehouseman as well as a place for the factory. I don't be- Iicvc in nlavmc the other fellow's game until he compels you to do it. But if he compels you to do it don't be bashful. But you will find that nine times out of ten the factories and warehouses arc distinctly intelligent and broadgauged factors. If they arc not broad-gauged at least, they arc sensible enough to recognize a fact when they face it. They do business with that fact. The Financing Problem. Co-operatives couldn't exist unless they could find some method for mak ing advance payments, payments on account when they get the product. Wc have gone through that process time after time in California. We use different methods. In some cases the association gets direct credit on the basis of its storing the product. Take, for example, the prune grow ers. In 1919 the prune growers had a written arrangement with a group of bankers; they considered the prob lem locally. with the local bankers and then they invited their city cor respondents and they got the socallcd New York bankers into the pool. They formed a great pool under which by written agreement, we could bor row up to $10,000,000 at 4 3-4 per cent for our needs during the year. Wc didn't even have to give up the warehouse receipts. Wc gave a state ment of the quantities of fruit coining into the warehouse. Wc got all the funds needed for the advance pay ment and paid the growers 4 to 8 cents, depending on the size and quality. That 4 to 8 cents advance payment we paid them was a good deal more than the average that they used to receive for the entire crop .... , . I over a penoa oi six years,, ana airaosi I twice as much as they received for j the average of the entire crop over a period ot twelve years. 1 lien, in audi tion to that, they got the ballance of the payments, the average bringing them up to more than 11 cents a pound for the entire year. They got that balance from time to time 1 cent in October. 1 cent in December and so on until the prunes of the season were sold That is one system. The Grain Financing. A still better system was evolved by the Washington Wheat Growers' Association this last year, this panic year. It is the most interesting thing worked out by a co-operative enter prise in the United States. It was worked out chiefly through the skill of Mr. Jewctt, general manager. They arranged with a lot of local bankers throughout Washington and Idaho territory what the fair loan value on the crop would be. They were busi ness men. They were not wild specul ators. They did not go tothc bankers and say: "Give us 90 or" eighty per cent." They went in and they fixed the amount and the banks said: "You fellows are certainly sound." We ar ranged for an amount of $1 to $1.25 a bushel for wheat, depending on the grade. Let us illustrate with No, 1 Walla Walla wheat at $1.25. Here was the process: The grower delivered his wheat to any public warehouse or any public elevator. If he delivered it at an elevator he got a so-called grain or wheat ticket showing he delivered there 10,000 bushels of No. 1 red Walla Walla. If he delivered it Jo the public ware house he got a warehouse receipt. He took the receipt over to the as sociation manager or mailed it in. That was delivery of his crop. The association mailed a regular form (that would be, a three or a six mouths' draft, because those drafts arc acricultural paper) for $12,500 to be signed by the grower and, of course, it was sent to him signed al ready by the association. If the grow er needed money or wanted money I think they always wanted money he took the draft to the approving local bank. With the draft went a list of bankers that approved the plan (We insist on the growers dealing with the local banks whqrever they will deal with us. The local bank dis counts the draft at the current rate 0 or 01-2 or 7 per cent.) If the draft is a three-months draft, as most of them were, the bank deducted its three months at 0 or 0 1-2 or 7 per cent and handed him $12,500 less the discount. The bank then had that draft which was an inland trade bill, technically, signed by the grow er and accepted by the association. At the end of the day wc sent over to the bank, which notified us that it had that draft, the warehouse re ceipts covering that transaction. (Or the association may give the draft to the grower with the warehouse re ceipt attached.) So the bank has that draft signed by the grower and the as sociation, with the warehouse receipt attached. The grower's name is worth some thing because in most cases he is known personally to the banker. And if not, the bank knows there is some thing behind that, something of value. If the moral value and the grower's signature are not worth anything, the bank knows the association has not only that man but a great many grow ers signed up for a period of four more years and the bank knows that is worth something The banker says he doesn't care primarily cither. What he cares about is the wheat. He fav ored a studied market, value and at a conservative basis, not at a high basis in a choppy market because anybody with sense knew that 1920 markets on wheat were not conserva tive or stable markets, but choppy markets. Here the association and the banks agreed. The bank has on hand a paper that is rcdiscountablc by the Federal Re serve Bank by direct written ruling from the Federal Reserve Board. If he is a member of the counts direct with the Spokane branch and gets the money. If not, he keeps the paper or sells it to his city correspondent. The city correspondent may sell it again, or may discount that paper. A MEMBER Suppose any paper matured and the product is not sold? MR. SAPIRO Wc pay the draft as it matures, because the co-operative association handles loads of products in its different pools all the time and therefore averages the prices. We al ways keep money for that purpose and wc always keep selling. But wc struck a problem that was worse than that. Our banks can re discount twice their capital and sur plus. Take a county like Whitman county, in Washington they produce nothing but wheat. All their demands come in at one time. These banks lent the limit on this particular type of paper. They lent the limit to outside growers. They suddenly found out that they had in the Federal Reserve Bank paper twice their capital and surplus. The Federal Reserve Bank notified them and they notified us. They said, "No more of your paper goes to us. Wc want to help you but 1 wc cannot do anything for you. We cannot get any more money. Our city correspondents say they cannot get , any more money. Our city correspon dents say they cannot get any more , for us and the Federal Reserve Bank has closed on us." j Wc had to come from a group of places all at one time. We said, "The I growers have to have money." The Grain Bonds. I So Mr. Jewctt found a plan the best yet. Here was, the solution , short-time bonds, the same kind of commercial paper that Armour and Swift and a lot of Eastern manufac turing people put out every year to tide them over the peak of production. They arc for three, six and nine ' mouths When we first tried it out we issued half a million 8 per cent bonds dated December 1, 1920, all payable in June, 1921. all six months' commodity bonds. We deposited all of the bonds with the Lincoln Trust Company of Spokane. We made written agree nieii with that bank that wc would deposit warehouse receipts or crain tickets with them. For every bushel of wheat represented by the receipt or ticket they delivered to us one dollar's worth of bonds If wc deliver warehouse receipts for a thousand bushels of wheat they deliver up to us one thousand dollars in bonds in units of $100 or multiplies thereof Then wc sell the bonds. People would know it was a short-time commod ity bond, secured in each case for each dollar for one bushel of wheat represented by a receipt in the Lincoln Trust Company, and that if wc sold any of that wheat we would not only be putting aside $1.04 for each bushel, but in addition a surplus of additional security for the rest of these bonds if the trust company called on us for more money to act as collateral or more warehouse re ceipts. So as wc sold the wheat we kept some of the so-called surplus money above the payment amounts on hand. If necessary we could put more m as collateral. A MEMBER: Were they offered to the public? MR. SAPIRO: With great trcpida-' tion we started to sell them to the public. We didn't know how they would take them. Our eyes were open ed when we sold in Spokane and vic inity a hundred and fifty thousand dol- In a new size package 10 for 10 cts (jP LjQL.j?jq lars' worth of the bonds in thirty days. Before wc knew it wc had a demand for more than wc could offer. The banks loosened up. Wc suddenly found a rpal medium for growers' paper offered for the first time in the United States with a specific nonper ishable commodity behind it. Wc found that the people asking for it were not the men on the street who doesn't know about bonds, but the bank, the big merchants. They came in with tales about how every bond they bought with long maturity had been going down. They wanted to get some kind of bond that had a short time maturity, in which they could put their money for six months and get all the money back in six months some bond which had se curity behind it of sonic specific com modity that they knew about, like wheat or cotton. I went to New York and took it up with a couple of bankers there. At their request (they represent inciden tally three of the largest banks in New York City) I am supposed to re port with sonic kind of proposition as to how much the Northwestern wheat States that is the associations of Montana, Idaho, Washington and Oregon arc going to put out in these bonds this year. They wrfnt to know if they cannot underwrite them in New York. I am likewise supposed to meet with the representatives of the second largest paper house -in the United States to talk over the pro position. They want the proposition underwritten and arc talking of buy ing as much as $25,000,000 worth of bonds. The fly in the ointment is with our local banks. Wc don't want to put all our paper out that way. We want to keep our banking system as it is. We want to put into bonds only the a mount the local banks cannot handle on the draft and acceptance system. The Extremes Meet Happily. I want you to know that it is that commodity bond phase that attracted Mr. Baruch, who had been thinking along this lire ironi the standpoint of the banker. Here you find two systems (the co-operative system from the standpoint of the grower, and Mr. Baruch thinking from the standpoint of the banker) absolutely meeting. It was exactly the plan he worked out for the South Carolina cotton men without knowing that it had been done by the growers in the Washington wheat group. Then the Federal Farm Loan Bank had been thinking out something a long this line Mr. Lever said it was exactly the form of thing he had4been iniiiKing ai)out tor larmcrs. But it actually works. It has been done on a small scale; the principle is demonstrated. It has not been talk ed over with a single bank or bond man in the United States who has not grown 'enthusiastic. And I have talk ed of it not to the so-called "pikers" among bankers, but to some of the leading bankers of the United States and one of the largest paper houses in the country. They are really inter ested. They want propositions on it. The co-operative marketing associa tions have succeeded not only in working out something on the mer chandising plan, but, inasmuch as financing is inseparable from mer chandising they succeeded in working out tilings on th; financial plan We have been in this business long enough to learn, we have been in this business long enough to succeed. We have learned the methods in financing as well as the methods in actual mar keting. It Will Work With Tobacco. Every one of the things I have been saying to you applies to tobacco. I realize that while I have been talking in reference to wheat, eggs, raisins and things like that you have been applying those things to tobacco. I have been doing the same thing. I have likewise been applying that to tobacco. I have not applied that to tobacco in complete ignorance of your tobacco problem. Before I went oyer to the Virginia and North Carolina meetings I presented a series of ques tions to the Virginia and North Caro- Continued On Page 6 LUCKY STRIKE sCIGARETTE, MANY smokers prefer it. They'll find that this compact package often Lucky Strike Cigarettes will just suit them. Try them dealers now carry both sizes: 10 for 10 cts; 20 for 20 cts. It's Toasted d-