TEXAS AGRICULTURAL EXPERIMENT STATION A. B. CONNER, DIRECTOR, College Station,-.Texas BULLETIN NO. 636 JULY 1943 A SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS \V. E. PAULSON Division of Farm and Ranch Economics LIBRARY A, xi M. COLLEGE QFiTEXAS AGRICULTURAL AND MECHANICAL COLLEGE OF TEXAS T. O. \VALTON, President B40—T43-5M-L1 S0 w” f i The cooperative cotton gin associations gin from 20 to 25 per cent of gthe Texas cotton crop. Ten years ago Texas had 75 cooperative gins; today the number is 375, a five-fold increase in a decade. Less than 20 per cent of the cooperative gin associations are outstand- ingly successful. A large percentage of the associations have not attained v a satisfactory level of efficiency. - A historical sketch of the cooperative gin movement in Texas is in- cluded in this Bulletin as the means of emphasizing the difficulties and problems which had to be mastered before strong and sound cooperative gin associations could be perfected. A detailed analysis is given of four successful cooperative gin associa- tions. The purposes of this analysis in the main are: ~ "Phn; punn='.y;wwayl-z»mi Standardl Actual 1927 $ 2.93 $ 4.37 . $0.70 $2.60 $1.06 $2.57 $6.22 9,013 1928 3.92 5.24 0.91 2.06 0.59 1.42 4.07 5,133 1929 3.72- 4.924 0.91 3.23 0.59 0.98 4.80 5,737 1930 11.26 11.68 1.01 —4.42 0.24 0.61 —3.57 1,198 1931 3.19‘ 2.59 0.79 1.55 0.21 0.49 2.25 8,049 1932 2.58 2.28 0.61 2.56 0.39 0.52 3.46 10,547 1% 2.91 2.64 0.64 3.28 0.36 0.95 4.59 10,871 1934 11.70 121.81 0.70 ~6.66 0.55 1.35 —4.76 1,278 1935 3.16 3.00 0.72 2.78 0.53 1.87 5.18 81,965 1936 7.70 8.22 0.81 —3.42 0.44 1.57 -1.41 2,458 1937 21.56 2.52 1.02 1.84 0.24 1.35 3.43 13,523 1938 4.24 4.50 0.95 0.09 0.32 1.35 1.76 6,069 19.39 7.90 8.28 0.93 —3.40 0.33 1.20 —1.8'7 2,401 1940 4.7! 5.17 0.99 ——0.32 0.52 1.54 1.74 5,023 1941 3.32 3.46 1.31 2.22 01.44- 2.29 4.95 9,722‘ Average 3.71 3.93 0.86 1.67 0.45 1.39 3.51 6,670 lAccording to cost equation for Large Gins, High and L-ow Plains Area. See Appendix B. 26 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION purchase price paid members. Table 6 shows a breakdown of the vari- ous items of costs and profits". Over the 15-year period the average cost of ginning was 6 per cent greater than the standard cost. Out of every dollar of net cost of gin- ning service, members paid 82 cents to cover the cost of operating the gin plant and 18 cents “to cover the cost of bagging and ties. The sources of each dollar of net profit were: 47 cents from ginning; 13 cents from bagging and ties; and 40 cents from cottonseed. Ginning costs per bale ranged from a low of $2.28 in 1932 to a high of $12.81 in 1934. The average profit of $3.51 a bale has made easy the profit-financing of the investment‘ in the gin plant; the remainder of the profits dis"- tributed as cash patronage dividends has served to emphasize the advan- tage of members operating their own cooperative gin. Nevertheless, the profits of $1.67 a bale on ginning and 45 cents a bale on bagging and ties signify that‘ the first money costs of ginning were higher by those amounts than the actual costs" of the service. These profits were in the nature of “over-advances” paid by members to insure a margin of safety in meeting operating costs. The profit of $1.39 a bale on cottonseed indicates that members were paid that much less than the price obtained on the sale of the cottonseed. This profit was in the nature of a “retain.” Dividend Rates All cash dividend payments of the Childress Society have been made on the patronage basis. Beginning with 1925-26, the first season cash dividends were paid, profits on ginning and bagging and ties were dis- tributed on the running bale. The number of bales on which members left the cottonseed with the gin was determined. This number of bales divided into the profit to be distributed as dividends on the cottonseed established the rate per bale. Thus the total dividend to a given mem- ber was made up of two parts: the rate on ginning and bagging and ties was multiplied by the number of bales he ginned; the rate on cotton- seed per bale was multiplied by the number of bales on which he left‘ the seed with the gin. This plan of dividend distribution was in force from 1925-26 to 1936-37. Beginning with 1937-38, the profit to be distributed on cottonseed is divided by the number ot cwts. of cottonseed handled.‘ This establishes the dividend rate per cwt. of cottonseed. The cottonseed dividend to a given member is then determined by multiplying this rate by the num- ber of cwts. of cottonseed he leaves with the gin. Table 7 summarizes the dividend rates for each season from 1925-26 to 1941-42. During the 17-year period 1925-26 to 1941-42, the Childress" associa- tion enjoyed 13 profit years and suffered four loss years. In two» of the profit years, cash dividends were paid in excess of net profits; in two of the loss years cash dividends were paid. SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 27 Table '7. Bases for Computing Patmnage Dividends Childress Farmers’ Cooperative Society ’ Dividend Rate Cottonseed ‘ Total Average Per R/B Dividend Ginning and Per Bale Per Gwt. Aver. Dividend Per B. 8a T‘. on on on C/S R/B C/Sl C/S Per R/B $3.00 $2 75 $1 64 $4.64 2.00 ____ __ 2.00 3.70 2.65 2.23 5.93 2.30 1.60 1.04 3.34 4.00 1.45 0.93 4.93 1.15 0.60 01.36 1.51 2.25 0.75 0.50 2.75 3.50 1.50 0.97 4.47 2.50 1.50 1.17 3.07 1.00 1.00 0.60 1.60 2.25 15.0 cents 1.00 3.25 2.00 12.5 ' 0.75 2.75 1.00 ____ ____ 1.00 1.50 12.5 0.71 2.21 2.50 20.0 1.40 3.90 ihlApplied only'on bales from which all the cottonseed was left with the gin. ~. urns on Capital Invested . As indicated above, members of the Childress organization have never A eived cash dividends on the capital invested in the gin plant. Never- §Leless, the net Profits computed as returns 0n the investment should “indicative of the efficiency with which the productive capital has been mployed. Table 8 shows the net profit, or loss, of each season as a iieturn on the investment. The average return on the capital invested {was 31 per cent. In a private corporation such a return capitalized Table 8. Returns on the Capital Invested in Fixed Assets Ohildress Farmers’ Cooperative Society . Q Cost of Returns Investment ;.‘ Year Fixed Net Profits on Per Bale -» Assets Investment Ginned 1927 $52,529 $57,141 108.8% 9 5.83 1928 517,685 211,142 36.7 11.24 1929 59,373 s 23,968 40.4 10:35- 19m 60,065 —5,1&J' —8.6 50.14 1931 61,881 17,522 28.3 7.69 1932 Gmlm 36,682 56.3 6.18 1933 71,369 59,786 71.2 6.57 1934 72,559 —6,839 -9.4 56.78 1935 71,799 48,313 67.3 8.01 - 1936 90,8321 —3,331 —3".7 36.95 1937 94,010 47,443 50.5 6.95 1938 96,310 10,621 11.1 15.70 1939 95,671 -4,719 —4.9 38.87 1940 95,715 9,579 10.0 19.06 1941 l 96,843 ' 49,522 51.1 9.96 Average 76,064 23,509 30.9 11.40 lThird battery added to gin plant. 28 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION at a rate of 8 per cent would have a market value of $242,000. Still this cooperative has no opportunity of selling its plant at this capitalized 4 figure. All the association could sell Would be the physical plant and ~ not the patronage. The plant had a net worth of $63,000 as of March 31, 1942. Evidently, the patronage has a far greater asset value, in this instance, than the physical property. . The profit prospects of charter members‘ of a cooperative are far dif- ferent from those of the charter members of a private corporation. The organizers of a cooperative assume the same risks of losses if the business fails as do the organizers of a private corporation. But the members of a cooperative do not have the same opportunity of great financial gain on capitalized net profits if the business" succeeds as do the stock- holders of a private corporation. This difference results from the man- irer of distributing the dividends: On the stock in the private corpora- tion; on the patronage in the cooperative. § Figure 6. The Farmers’ Cooperative Societyiof Childress has never purchased the cotton of its patrons. Instead facilities have been provided ‘to aid‘ the member in selling his cotton. Cotton oifice. Financing Pro-gram In discussing the financing program of the Childress cooperative, the sources of the funds which have been acquired and the disposition of these funds should be of interest. Table 9 itemizes' the funds as to sources and disposition. Profits of the seasons prior to 1927-28, with the exception of 1925-26, had to be approximated. It should be evident that the assets of the association have been financed out of profits and the depreciation reserve. Of all funds acquired, 77 per cent has‘ been paid out as cash dividends. Of all net profits realized, 89 per cent has been distributed as cash patronage dividends. The Childress Society is non-stock. The individual members have no concrete evidence of ownership either in the form of certificates or book entries. While the member holds an ascertainable equity in the asso- ciation, the net Worth divided by the number of members, he cannotsell SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS Table 9. Analysis of Funds Childress Farmers’ Cooperative Society Seasons 1922-23 to 1941-42 ~"r':r-"~4 v-win U"1\iQ'V;l'~“'{fWW“l‘v‘9"‘ VIHrflWt‘ 21,520 47.6 6.33 1941 45,539 7,266 16.0 15.36 Average 38,263 \ 9,811 25.6 101.71 The return of 2 per cent in 1929 was the low and the return of 46 per cent in 1937 was the high; the average for the period 1929 to 1941 was 26 per cent. The sources of funds of the gin department‘ and the dis- position of those funds should be of concern. Table 21 itemizes the Table 21. Analysis of Funds Danevang Farmers’ Cooperative Society Seasons 1927-28 to 1941-42 l l l fPercentage , Dollars 1 o1 l Total _4 __ Sources of Funds-s l 1 Net Profits after Depreciation __________________________________________ -_} 155,390 i; S1 0 Provision for Depreciation (not involving cash) ______ ___ ______________ __§ 33,572 l 17.5 - Incre-ase in Capital Contribution ________________________________________ _. 2,184 1 1 Notes for Capital Contribution Paid _____________________ _-. __________ _-; 69-6 l 0 4 Total- _________________________________________________________________ "l 191,942 ‘ 100.0 ‘ . Disposition oi Funds: l To Increase Permanent Assets __________________________________________ _- 16,904 8.8 To Pay 01f Mortgage _________________________________ -3 ________________ -_1 19,972 10.4 To Increase Working Capital ___________________________________________ -_, 1,397 0.7 Investments _ _ . _ _ _ _ _ _ _ _ _ __ _ _______________ _-, 169 0. 1 Prepaid Expenses (Insurance) __________________________________________ _-; 386 0.2 I Adjustment of Profits _____ __ ~ ____- 5,053 } ' Write Ofi Depreciation Reserve from Revaluation _____________ __ 7,197 | 12,250 6.4 Total Used in Operations _ _ _ . _ _ _ _ _ . _ . _ _ . _ . . . _ _ _-\ 51,078 S 26.6 Paid as Cash Dividends _________________________________________________ _- 140,764 73.4 Totall-____’ ............................................................ -_ 191,942 f 100.0 SUCCESSFUL COOPERATIVE COilTON GIN ASSOCIATIONS IN TEXAS 47 nds as to sources and disposition. Of the total net profit over the -year period, more than 9O per cent has been distributed to the mem- ers as cash dividends. Profits left in the business to finance the gin vestment have absorbed five cents out of each dollar of first money 6st paid by members for ginning service. ll The financing of the Danevang organization has followed a pattern .i_stinctly different from that of any other cooperative in Texas. The anner in which the gin plant was financed in 1927 gives a clue to the ocedure which has been followed since. The secretary’s report sum- marized the financing program of 1927 as follows: umber of members, 84 embership fees paid in ____________ _- $ 840.00 Working capital (cash) _______________ -_ 4,780.28 $65.00 per member orking capital (notes) -1- 696.09 5 ans made to Society by members 16,942.36 Due on or before 10 years loans made to Society by members 3,450.00 Due on or before 3 years Loan of $16,942.36 made by 54 members Loan of 3,450.00 made by 16 members _ 30 members made neither loan bans From Non-Members a. Paid ______________ -_(due on or before 3 years) 100.00 6-13-27 M ______________ -_First National Bank (6 mo.) ........ __ 5,000.00 6-14-27 ~ ------------- -_(5 years’) 1,000.00 6-28-27 jIQaniSh Mutual Insurance Co. (10 years)__ ______ __ 2,000.00 5- 8-29 All the members paid the membership fee of $10. This became the ‘rmanent property of the Society and was assigned to the “Educational fund.” In addition, each member was required to subscribe $65 (later . Aised to $100) in “Working Capital.” The surplus left in the business fluring the period 1921-1926 furnished $1,270 of the “Working Capital.” gt the time the gin was built, 87 per cent of the “Working Capital” had en paid in cash either directly or through profits left in the business. the fund in the “Working Capital,” however, $2,500 was assigned to V’ e gin business and the remainder t0 the supply business. 0f the $34,112.64 raised in cash to finance the gin plant, members ‘rnished $26,012.64, or 76 per cent. Of the $8,100 raised from outside urces, $6,100 was repaid by August 1, 1927. The $2,000 borrowed ‘m outside sources and not repaid until two years‘later Was obtained m the Danish Mutual Insurance Company, a cooperative belonging to p‘ e members of the Danevang society. The association borrowed an éwerage of $530 from 16 of the members on the ten- and three-year iotes and an average of $314 from 38 members on the ten-year notes. should be clear that as of August 1, 1927, members furnished directly, 7r indirectly, 100 per cent of the funds required to build the‘gin plant. At the end of two years all the notes of the association in favor of ethemembers were liquidated with funds derived from the profits of the 48 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION ginning business. At the annual membership meeting 0f January 25, 1929, an important decision which has controlled. the financing procedure followed thereafter, was made by the members. The minutes of this meeting record: “After discussing the gin business" of the past two years, three plans numbered 1, 2,/and 3 having been outlined by the directors, was read by the secretary. Plan N0. 1 being recommended as the most favorable of the three, it being as follows: total cost of gin fixtures and property $33,328.89—appraised value of 25% less, present value $24,997.42. Stock on hand $472.30, cash in Bank $3,806.15 mak- ing a total value of $29,275.87 this" being divided at‘ the rate of $2.50 per bale on 7,462 bales totalling $18,655. The seed being divided at the rate of $3.75 per ton on 4,721,025 lbs., making a total of $8,851.87. The two totals added together equal $27,506.87 which is to be divided equally to each member in proportion to the number of bales ginned and quantity of seed left at the _gin. After issuing notes for the said amount there being a total of $1,679 left for the beginning of a new period. This plan was carried by a unanimous vote . _. ‘ ‘Gin Notes" . The notes issued to the members in the annual meeting of 1929 are usually referred to as “gin notes.” Several features of the “gin notes” need explanation. At the beginning members lent 87 per cent of the funds needed to build the gin plant. It would seem that‘ this act of the members in lending funds was viewed as a special favor to the associa- tion, a favor which the association had to reciprocate later. As soon as the loans of the members had been liquidated from the profits of the ginning business, the association was under obligation to mortgage its assets almost to their full value in notes issued to the members in accordance with the patronage of the first two years, these notes in turn to be liquidated from the profits of the ginning business through the second cycle of operations. This relation between the member and his association seems to create a conflict of interest. The interest of the member is unduly recognized to the detriment of the interest of the association. At the time the “gin notes” were first issued, and at each re-iss'ue thereafter, the association loses most of its credit standing in that its assets other than “Working Capital” are mortgaged almost to their full value. Under a program of “gin notes” patronage dividends are never paid on current ginnings. The profits of 1927 and 1928 paid for the gin plant. These two seasons constituted the first cycle. The “gin notes” issued at the close of the 1928 season became the first claim on the profits of the subsequent seasons until paid in full. These following seasons became the second cycle. At‘ the end of the second cycle the gin plant was re-appraised and “gin notes” issued to members based on the patronage of this period. These “gin notes” then became a first claim on the profits of the third cycle, and so on. SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 49 At the beginning of a cycle when the “gin notes” are issued a revolv- ing fund plan of financing would seem to be put into operation. But this is not so. In the first place, the members as‘ the holders of notes against their gin association do not stand in the relationship of owners 'of the _assets of their association; instead they are creditors; their association is indebted to them. In the second place, as the profit of the patronage of members" is applied against the “gin notes,” the members are not given an assignment of equity corresponding to the profit furnished. Instead as the notes are paid off the net Worth of the association increases by like amount. In the balance sheet this net worth is designated as undivided profits. This, however, is not undivided profits in the usual sense. In reality profits are not being left in the business. The profits are used to retire the notes. What happens is that an unencumbered and unassigned equity of the members comes into being which becomes the basis for the “gin notes” issued on current business to be repaid from profits of the subsequent‘ cycle. Finally, the issue must be raised as to advantages and disadvantages of “gin notes” as against the various forms of certificates available in the financing of non-stock- cooperatives. Clearly the Danevang group wishes to bring patronage into the financial plan. Whatever is accom- plished in reaching this end by the use of “gin notes” may be accom- plished fully as well with some form of certificate. While the certificate enjoys all the advantages" possessed by the “gin notes,” it is free from the serious objections of the “gin notes.” “Gin note” financing while tied into the patronage dividend policy also affects the whole financing pattern. For instance, the balance» sheet of the Danevang cooperative as of December 31, 1941, showed that thehardware department had notes to members outstanding to an amount of $12,100 and the grocery department to an amount of $8,400. This represented funds which had been borrowed from the members to carry on the business and which were entirely independent from “gin notes.” On this total of $20,500 the association was paying interest at the rate of 6 per cent. This is a profitable arrangement to the fortunate members who have money to lend to their cooperative but expensive financing to the unfortunate members who have no money to lend. This money could, be borrowed from the Houston Bank for Cooperatives at the rate of 2% per cent. But under the present financing plan of the Danevang cooperative, the Houston Bank for Cooperatives cannot possibly extend credit. A co- operative which may have a net worth of $40,000 today but which may have a net worth greatly depleted tomorrow because its assets have been mortgaged to the members in the form of “gin, hardware, and grocery notes” cannot qualify as a good bank risk no matter how suc- cessful its business operations may have been. There is evidence that the “gin note” has been questioned in recent years. The minutes of the board meeting of February 9, 1940, contain this entry: “Motion of __________________________ _-and seconded by _________ ............... _- to investigate 21/2 % loan of the Houston Bank for Cooperatives", and to 50 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION issue earning certificates to members in place of notes if that became necessary and advisable to secure loan. Carried.” The minutes of the board meeting of March 1, 1940, contain this entry: “Loan from Hous- ton Cooperative Bank discussed. Motion to table application for this loan on account of the requirement from the Houston Cooperative Bank to obtain such a loan in conflict with our present rules of distribution of profits as in Article 5. Par. 2. Motion carried unanimously.” At the annual meeting of January 24, 1941, members “discussed whether coop- erative should issue promissory notes‘ or earning certificates for distri- bution; motion for promissory notes carried.” Substituting Certificates for “Gin Notes” The Danevang association has much to gain by adopting the certificate form as a substitute for the “gin note.” The certificate could yield the same rate of return as the note; it would be as salable as the note by members who cannot hold until maturity. The members" would be in the status of owners of the assets of their association as holders of certificates rather than in the status of creditors as holders of “gin notes.” Under the certificate plan the net worth of the association would not be wiped out periodically, in great part, as is" the case with’ the re-issue of “gin notes” at the beginning of each successive financing cycle. With the certificate the association, so far as its financing pro- gram is concerned, would be eligible to make loans from the Houston Bank for Cooperatives. ‘ It would seem desirable to substitute certificates for the member's investment of $100 to the “Working Capital.” -In that this capital re- quirement is the same for members with a small volume of business as for members with a large volume of business, the principle of contribu- tion to capital according to patronage is violated. The certificate form-of ownership facilitates‘ a revolving fund plan of financing. In a financing program of this kind, current contributions to capital should be based on a definite retain per bale rather than on the total net profit. In revolving all the profit, the cycle would become unduly short. If a period of about seven years were adopted, an as- signment of equities at the rate of one dollar per bale on the volume of ginning the past seven years would approximate 60 per cent of the cost of the fixed assets in the gin plant. If the volume in future aver- ages about the same as in the past, a retain of one dollar a bale would turn 6O per cent of the fixed assets about every seven years. The re- tain of one dollar a bale could be assessed at the time of ginning as an added charge or it could be assessed against the returns from the sale of cottonseed. Under this plan all the net profit of the gin department other than that needed for reserves, for operations, and the like, would be available currently as cash patronage dividends. SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN ‘TEXAS 51 and Second Generation Members interesting development in the Danevang society is what is" usually to as the contest‘ between the “old men” and the “young men.” i members of the second generation. This rivalry came to a head he early 1930’s. The cause of the second generation was aided rially by some of the outstanding leaders among the first genera- Rather speedily the victory went to the “young men.” With the cry, in large part, went the leadership in official capacity. The Silage age of the seven members and the alternate of the board of tors of 1942 was 43 years. Three of these members were in their -' two were in their 40’s; and three were 50, or older. x the Danevang cooperative, control has very wisely been passed on _S e younger men while the older men were still in a position to give ‘ice and counsel out of their richer experiences. Thus the situation, foo common, has been avoided in which the leaders of the first gen- Aon stay in control until the very end of their lives and then all of 'dden control must be passed on to the younger men who are totally Qained and who, too late, cannot then profit by the advice of the men fought the battles of the early years of the cooperative. on of Eligibility of Members e success of the Danevang cooperative made membership very at- g ve There is evidence that cotton growers outside the community ored for the right to become members. The minutes of the annual bership meeting of January 25, 1929, contain this entry: ‘_‘Aft'er fderable discussion as to where the line should be in taking in neW bers it was left to the Board of Directors to agree upon . . ." For umber of years members were accepted only from the “community” h meant from within the boundary of the D'anish settlement. __e question of defining the qualification of members entered into jcontest between the “old men” and the “young men.” The older hers were more inclined to be ruled by the purposes for which the 7' unity was originally started. Thus the cooperative should be 0D- _ exclusively for the Danish farmers of the community. One argu- _}_= advanced was that if outsiders were admitted to membership the ‘ased volume of ginning would quickly wear out the gin machinery. '_ younger men with a keener eye to the business principles involved _tained that the increased volume of ginning would so reduce costs nning that the worn out machinery could be replaced from the added with profit to spare. iother question arose, which a first thought would seem to have no Qing 0n membership, that of providing a second gin plant. The evang society ginned 4,138 bales in 1930. As is the case almost out exception with cooperative gins, after the first season of heavy fme, an agitation was" started to build a second gin plant. This eneral this was a conflict between members of the first generation g 52 A BULLETIN NO‘. 636, TEXAS AGRICULTURAL EXPERIMENT S"I“A'I"IO'N Figure 9. During the_rush of the ginning season the Danevang Parmers’ Cool erative Society operates on a 24 hour day. matter was discussed at the annual membership meeting of January 23,. 1931. To the credit of the Danevang members on a motion to build a second plant only eight votes were cast in favor and more than 50 against. In 1931,. 5,323 bales were ginned. This tended to keep alive the in- terest in a second gin plant. In 1933 a group of Bohemian farmers at Midfield, nine miles south of Danevang, organized a cooperative gin association. The, volume of ginning the next four seasons" was so lowi that the association faced bankruptcy. This gin plant was offered to . the Danevang cooperative in 1937 at a bargain price. This proved the opportunity of acquiring the second plant. But what action to be taken regarding the patronage- of the Bohemian farmers in the vicinity became , a persistent question. Should these farmers be taken into full memQ bership? The settling of this crucial question was delayed for several years. In the meantime the Danevang association accepted the patronage of these outsiders. The cost of operating the Midfield plant was aver- - aged with the cost of operating the Danevang plant. At the end of each season the same dividends were voted for the outside patrons as for the members. The o-utsiders, however, received their dividends in cash whereas members had their dividends applied on the outstanding “gin notes.” Thus. the outsiders received all the benefits without being called upon to help finance the association. Even before the issue regarding the acceptance to membership of the Midfield group had bee-n settled, one of the leaders of that group was received as a member. The Midfield farmers even though receiving dividends in full were not satisfied with their status. They wanted either to buy the gin plant or to be taken into full membership in the ‘ Danevang organization. With the Danevang group the possible action seemed to be: accept the Midfield group as members and leave the gin at the present site; or sell the gin to the Midfield group and thenbuild A a second gin at Danevang; or move the Midfield gin to Danevang which would force the Midfield farmers to work out their own solution for" ginning service. The issue of extending the membership was faced at the annual meeting of February 20, 1941. The minutes of this meet- _a ing record: “Considerable discussion concerning Midfield gin; motion ' SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 53 Zcarried to leave gin at Midfield and accept members from Bohemian farmers, if of good standing and dependable.” i; however, were not accepted Wholesale. 5T meeting of April 4, 1941, is this entry: _cations' before the board; A (Midfield Bohemians).” ‘w. These Bohemian farmers, In the minutes of-the board “About 25 membership appli- each case analyzed separately; 18 accepted At the board meeting of April 25, 1941, “Twenty A applications for membership; nine accepted; 11 tab1ed.” i" comers. 7v ‘.51 ’ support of old members, Peter Harton states: V; mvmw m. .»< i w. -=|<..,-; Membership today in the Danevang cooperative is not open to all Membership is restricted to what is characterized as the “trade territory,” a term‘ somewhat more vague than the term “community.” The duty of defining the trade territory rests with the board of direc- tors. Regarding the matter of gaining new members and retaining the “To have to go around and try to entice new members" and keep older ones every year in order to keep enough volume of business is something which we Danevang folks can hardly imagine, especially since we never have solicited any- one to become a member of any of our co-ops, but on the contrary have turned down lots‘ of applications for membership. Truly, we can realize from such facts that circumstances have- been exceptionally favorable for our organizations, and besides congratulate ourselves that we have '1‘ "i. . ,, . --m=1:"fi "Yvwr - . rather than by the board of directors. e the board had to submit the question to a membership meeting if re- placements in the gin plant were made in excess of $500. -bership meeting of February 20, 1941, the upper limit on replacement , under the control of the board was raised to $1,500. . each annual membership meeting. ; alternate was added to the board and a rule adopted that not more than ‘a five board members may be re-elected. !!I not fallen for the temptation to believe that ‘bigger’ also means ‘better. Membership Participation One of the impressive features‘ about the Danevang society is the fre- quency with which general membership meetings are held. The habit * of the general meeting was developed during the early troublesome days when the settlers held frequent gatherings to buoy up their drooping spirits‘. Important decisions are always made in a membership meeting For instance, until recently At the mem- The relation among the members is not always free from discord. Pronounced clashes of opinion develop at times. Each member has , too much opportunity for expressing his own views to make possible a ' peaceful harmony which may flow from a powerful, centralized, and dictatorial leadership giving orders subserviently followed. But this can be said of the Danevang cooperators that after a decision has been j reached as to a given course of action, harmony prevails in carrying out ‘ the expressed will of the majority. The Danevang group is governed by a board of directors of seven mem- bers, elected for a one-year period. Thus the whole board is elected at At the annual meeting of 1938, an It‘ would seem that the Dane- vang group has" no fear of changes in the board. Rather, changes are 54' BULLE- IN N0. 636, TEXAS AGRICULTURAL EXPERIMENT STATION encouraged. Nominations are made by secret ballot. in 1938-, 71 ballots were cast and 58 members received one or more votes. The sixteen members receiving the highest votes, including not more than five board members, were placed in nomination. Balloting was then continued until eight members received majority votes. Of these eight, the last man elected became the alternate. The office of alternate may serve several purposes. portunity of training for future service 0n the board. So far the alter- nate is usually elected t0 the board the succeeding season. If the man- ager should be chosen from the board, his membership as a director is automatically canceled and the alternate becomes a full-fledged mem- ber of the board. Through a later provision, at any meeting of the board, if a member be absent, the alternate may serve in his stead. It offers an 0D- Need for Improvement Felt By every criteria which may be applied, the Danevang cooperative has been outstanding in its success. Nevertheless, leaders in the associa- tion are not satisfied with present attainments. The minutes of a special board meeting of February 12, 1940 record: “There was a general discussion for the purpose of determining if possible in any way our cooperative business could be improved.” There is a decided feeling that many of the members do not understand the workings and philos- ophy of a cooperative as well as they should. The need for educational activities is recognized. A small library has been assembled. At the annual meeting in 1938 one of the members “reported on cooperative literature; urged members to read what books and pamphlets were avail- able; brought‘ out the point that a better and more conspicuous place for the cooperative library was needed.” An Educational Committee of two members has been created recently for the express purpose of pro- moting educational activities. In connection with the general plan of educational activities the an- nual meeting of 1942 took steps to select a group of five members to server on a committee which has been designated as the Apprentice Board. These members are expected to attend all the meetings of the board of directors. These members are not to participate in the delibera- tions of the board of directors but to observe the manner in which the board transacts its regular business; It is hoped that the members of the Apprentice Board will receive essential training which will enable them later to serve effectively upon the board of directors, or in other official capacities or posts of leadership. The comments of Peter Har- ton concerning the Apprentice Board should be of interest. “Apprentice Board: I think this name is not quite right, and in a letter to H. A. Hansen I had proposed: Assistants (to the B. of D'.). However, as I was prevented from being at the meeting, some one of our . . . members made a motion to call it Apprentice and with no opposition it carried and was entered in the minutes (I suppose). My special reasons; the term Committee or Board should not be used, as such body is (generally) On the first vote, .. ..___*_ _.._ .... .r..l'_.l;uml.l SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 55 ‘ven certain tasks and powers" and might lead to confusion in regard to e “full power and responsibility which ought to belong exclusively to we elected Board of Directors. Assistants do not imply any such power. '1 A. Hansen who was the originator of the proposal had thought to ll it Junior’ Board. ~The term Apprentice has a certain legal value, esupposes ‘Master,’ contract, etc.—I wish you could help to get rid of Spat term. Too pretentious. Our directors are not ‘Masters’ in CO-OD if siness.” _ '0 At the time a member joins the Danevang society, he pays a member- ip fee of $10. According to ‘the by-laws, the fee must be used for lucational purposes. As yet this fund has been used for the designated yrpose only to a minor extent. This fund has now grown to $2,000. proposal was made recently that‘ this fund be used in financing a uilding to serve as the meeting place for the board of directors" and Le members. In connection with this building, a library could be de- Sloped. The building could also serve as a recreational center for “the members. ' _ fFor years members of cooperative gin associations in Texas have ac- uiesced in using profits to pay for the gin plant. Thereafter, members ve been rather insistent that profits be used in paying cash patronage Isvidends. If it is legitimate and advisable to use profits in paying for 55- gin plant, may it not also be both legitimate and advisable to set "'de_ a small part of the profits to- finance activities and facilities which ay serve the entire membership especially in the educational and re- ational sphere? The Danevang cooperative is in a most‘ favorable ition to develop this‘ aspect of the cooperative movement. I?‘ unmarizing The Danevang settlement is more nearly a complete cooperative com- ionwealth than any other community in Texas. The working parts of ,e present cooperative machinery have been added little, by little over e years. Each new part has been carefully adapted to fit into the jeneral working machinery before becoming a permanent addition. §AA large volume of ginning, efficient operations, and good management _;ve resulted in unusually low costs of ginning. Over a 13-year period '0 cost has been lower by 46 cents a bale than the average standard t of the Gulf Coast Area. The average profit even though the gin come has been $1.16 a bale 'lower than the average of the Gulf Coast has" yielded an average annual return of 26 per cent on the invest- "nt in fixed assets of the gin plant. During the past ten years net profits of all the cooperative activities a the Danevang cooperative have averaged $15,400 annually; annual Q61lIlt8d for 34 per cent of these savings and the gin business for 66 per I t. Members have been receiving cash patronage dividends averag- ig $109 annually per member; average annual dividends ranged from 0 to $168. Thus the net profits have been widely distributed adding Vofits ranged from $7,300 to $29,100. The supply business has ac- . 56 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION to the purchasing power of a considerable number of families. This business could easily have been operated by an individual’ for private gain. Thus a handsome income would be concentrated in one pocket. Besides enjoying the profits of a lucrative business‘, the chances are that such a business man would “own and run” the community. Under the cooperative set-up the farmers own and manage their business. This is democracy in business. The members of the Danevang society are proving every day that the old adage “That which is everybody’s business is nobody’s business” is far from being true in this instance. In D‘ane- vang “everybodyis business” is quite as carefully and scrupulously hus- banded and managed as that of the individual sharing responsibility with no one except himself. _ Farmers Cooperative Association No. 1 of Tahoka The Farmers Cooperative Association No. 1 of Tahoka, was organized as a Society gin in 1930 during a period of rapid expansion of Society gins in West Texas. Lynn County has, at present, eight active coopera- tive gins‘. The territory in which the members of the Tahoka associa- tion are located is shared in whole, or in part, with a number of other cooperative gin associations. Hence the membership does not present a solid compact area as with the Uanevang Farmers’ Cooperative Society. As the members are restricted to- Lynn County they are not scattered over several counties as with the Childress Farmers" Cooperative Society. Figure 10. A member of the Farmers Cooperative Association of Tahoka on his way to the gin with nine bales of seed cotton, January 9, 1943. The minutes‘ of board and membership meetings of the Tahoka coop- erative display a keen sense of specific obligation in the cooperative movement, especially on the part of the board members and the man- ager. This accountability extends beyond the local membership to the outside cotton growers of the gin area and beyond the boundaries of the local association. This feeling of responsibility carries with it a posi- tive hopeful sense of the vast opportunities for furthering the coopera- tive movement over a wide area. i? E. i a 5. é 41- .-we,',v';;.a v “ E SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 57 Annual Membership Meetings The annual membership meeting in April has become a very important event with the Tahoka cooperative. There seems to have been nothing special about these meetings until that‘ of 1937. For instance, the meeting in 1935 was reported as having but 5O persons in attendance. Local business men, members of the local Rotary Club, and officials of nearby cooperative gin associations are usually specially invited to attend the all-day affair. The morning is usually given over to short talks by ,visitors. The climax is reached at noon when lunch is served. At the various meetings from 400 to 800 persons have been served. The min- utes after reporting sand storms year after year as causing incon- venience and annoyance at the annual meeting recorded cheerfully “a quiet summer day” for the meeting of 1939. ' At the meeting of 1938, the women and children in attendance were treated to an afternoon theatre party at the local movie house. The regular business session is held after lunch. In a number of instances the _minutes recorded the meeting as being thrown open to general discussion. In each case the discussion seemed to lag because of the reticence 0f the members to ask questions or to express them- selves. A general idea of the nature of these meetings may be gained from the minutes of the meeting of April 26, 1939. “Morning program of short‘ speeches. . . Lunch was served on paper plates, with a cup of slaw, two sandwiches (meat and ‘pimento cheese), potato -ChlpS, a roll and Orange Crush or coffee. (1800 sandwiches were prepared—800 bottles of pop on hand.) Estimated 800 were fed. Special guests were mem- bers of the Band. After a concert by the Tahoka School Band, meeting was called to order at 1:15 P. M. by the President. Manager briefly explained the basis of the dividend calculation and distributed mimeo- graphed statements with calculations for each member, which also con- tained financial report of the year and the past year’s business. At- tached to each was stock certificate, or the dividend checks, according to member’s equity. In open meeting the members seemed to be in favor of continuing annual affairs like the one just held. The‘ dividend being paid on this date was briefly outlined. Manager reported further discussion with the Auditor, Mr. Campbell, and suggestions that a larger and more substantial reserve be set upfor the gin each year, out of the profits. Suggestion was made that since such a reserve was not set aside out of the exceptionally large profits of 1937-38, but an Allocated Reserve or Contingency Reserve for the members’ accounts‘ was set up, that‘ 25% of this be put into the Gin Surplus or Reserve. Fifty per cent of this is being distributed to the members in stock at this time. This would leave from 20 to 25 per cent in the fund or around $1,800 besides putting into the Gin Surplus over $2,000. Motion to effect above plan passed.” L Called membership meetings are held infrequently when some special 58 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION issue arises requiring the decision of the members as the installing of a filling station and the purchasing of a second gin plant. The Tahoka association ginned 43,684 bales during the 12-year period 1930-31 to 1941-42. Savings on the ginning business totaled $101,292, or at the rate of $2.30 per bale ginned. Operations" the first four years were moderately succesful. By the end of the 1933-34 season the asso- ciation had a net worth of $9,949 created from profits left‘ in the busi- ness. This net worth represented 35 per cent of the value of the fixed assets. Finding itself in need of refinancing in 1_934, the association ap- plied for a loan from the newly organized Houston Bank for Coopera- tives. At the suggestion of the Bank, the cooperative was reorganized as a stock association and reincorporated under the Cooperative Market- ing Act. ' Cost of Ginning Service to Members First money costs and out-of-pocket costs to members over the 12- year period 1930-31 to 1941-42 are summarized in Table 22. Over the whole/period members paid an average gin toll of about 26 cents Der cwt. first Money Costs, Profits, and Out-of-Pocket Costs Table 22. of G-inning to Members Farmers Cooperative Association No. 1 of Tahoka (Per Bale) 1 First Money Cost Out-of-Pocket Costs Year Net -— Per Relative Profits Percentage Gin Pattern Total Average Net of First Toll B. & T. 100.0 Money Cost 1930 $7.60 $1.57 $9.17 146.3 $3.40 $5.77 62.9 1931 4.55 - 1.00 5.55 88.5 1.01 4.54 81.8 1932 4.90 1.00 5.90 94.1 1.71 4.19 71.0 1933 I 4.54 1.00 5.54 ‘ 88.4 2.55 2.99 54.0 1934 . 4.90 1.26 6.16 98.2 —2.0'9 8.25 133.9 1935 I 5.46 1.00 6.46 103.0 2.81 3.65 ‘ 56.5 1936 I 5.56 1.01 6.57 104.8 2.43 4.14 63.0 1937 4.58 1.48 6.06 96.7 3.48 2.58 } 42.6 1938 4.19 1.53 5.72 91.2 1.24 4.48 l 78.3 1939' 4.61 1.29 5.90 94.1 2.13 3.77 f 63.9 1940' 4.73 1.33 6.06 96.7 1.22 4.84 T 79.9 1941 6.12 1.76 7.88 125.7 3.12 4.76 Q 60.4 Average 4.94 1.3a 6.27 100.0 2.30 3.97 l 63.3 of seed cotton. For the four-year periods 1930-1933, 1934-1937, and 1938-1941, the first money costs" averaged $6.01, $6.23, and $6.41 per bale and the net out-of-pocket costs were 67, 54, and 69 cents out of each dollar of first money cost. During the 12-year period, the average net out-of-pocket cost was 63 cents out of each dollar of first money costs. The members’ first cost dollar was divided into 79 cents for gin toll and 21 cents for bagging and ties. Costs of ginning and bagging and ties per bale and profits on ginning, bagging and ties, and cottonseed per bale are summarized in Table 23. Over the 12-year period out of every dollar of net‘ cost of ginning service, members paid- 82 cents to cover the cost of operating the gin plant and 18 cents to cover the cost of bagging and ties. The sources of each dol- SUCUESSFUL CO-OPER-ATIVE COTTON GIN ASSOCIATIONS IN TEXAS 59 Table 23. Costs and. Profits of Operation (per Bale) Farmers Cooperative Association No. 1 s Costs Profits _ Bales g Ginnmg Ginned B. 3a T. Ginning B. & T. O/S Total Standardl Actual '- 1930 $7.00 $6.46 $0.96 $1.14 $0.61 $1.65 $3.40 g 1,017 ' 1931 3.79 3.68 0.77 0.87 0.23 —0.09 1.01 2,622 1932 3.75 3.73 0.66 1.17 0.34 0.20 1.71 2,685 1933 3.26 3.11 0.65 1.43 0.35 0.77 2.55 3,657 1934 9.20 8.65 0.79 —3.75 0.47 1.19 —2.09 735 1935 3.92 4.37 0.72 1.09 0.28 1.44 2.81 2,525 1936 3.81 4.43 0.78 1.13 0.23 1.07 2.43 2,753 1937 2.54 2.81 0.95 1.77 0.53 1.18 3.48 8,107 1938 3.88 4.14 0.86 0.05 0.67 0.52 1.24 5,503 1939 4.03 3.82 0.96 0.7L 0.33 1.01 2.13 5,443 1940 5.49 5.17 0.99 —0.44 0.34 1.32 1.22 3,227 1941 4.17 5.17 1.17 0.95 0.59 1.58 3:12 5,360 v Average $3.91 $4.08 $0 89 $0.86 $0.44 $1.00 $2.30 3,640 -’ 1Sing1e p1ant—aceording to equation for Diesel gins; double plant-according to equation for Large Gins, High and Low Plains Area. See Appendix B. viar of net profit were: 37 cents from ginning; 19 cents from bagging ‘and ties; and 44 cents from cottonseed. g 1A ginning cost of $2.81 per bale for the seas'on 1937-38 was the lowest for the whole period; the volume of ginning that season was 8,107 bales, fthe highest for the whole period. A ginning cost of $8.65 per bale for Jzhe season 1934-35 was the highest for the whole period; the volume of Ifginningthat season was 735 bales, the lowest for the whole period. Gin— firing 1osses——the cost of operating the gin plant being greater than the income from gin tolls-were suffered in two seasons, $3.75 per bale in 11934-35”, and $0.44 per bale in 1940-41. In only one season, however, was there a loss in net gin income, a less of $2.09 per bale in 1934-35. Since the Tahoka cooperative has been, and is being, financed from the rofits of the gin business, gin profits shown as returns on the invest- ment in fixed assets should have significance. Annual gin profits for the 12-year period expressed as returns on the investment are shown in "Table 24. The most profitable season was 1937-38 with a return of 73 Table 24. Returns on Capital Invested in Fixed Assets farmers Cooperative Association No. 1 Cost of Returns Investment Year Fixed Net Profits on Per Bale Assets Investment Ginned 1930 $30,000 $ 3,456 11.5% $ 29.50 1931 30,000 2,638 8.8 11.44 1932 30,000 4,587 15.3 11.17 1933 31,390 10,114 32.2 8.58 1934 31,191 -1,544 —5.0 42.44 1935 31,191 7,085 22.7 12.35 1936 32,697 6,720 20.6 11.88 1937 38,859 28,230 72.6 4.79 1938 63,053 6,874 10.9 , 11.46 19% 69,534 11,611 16.7 12.77 1940 68,092 9'25 5.8 20.78 1941 75,222 16,792 22.3 14.03 Average 44,269 8,372 18.9 12.16 60 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION per cent. The only season with a net loss was 1934-35 with a loss of 5 per cent on the investment. The sources of all funds acquired by the Tahoka organization and the disposition of such funds are summarized in Table 25. Of the total net Table 25. Analysis of Funds g Banners Cooperative Association No. 1 Seasons 1930-31 to 1941-42 Percentage Dollars of Total Sources of Funds: Net Profits after Depreciation _________________________________ __ 101,292 i 57.5 Provision for Depreciation (not involving cash) .... -_ 23,116 .‘ 13.1 Increase in Capital Stock _______________________________ _, ______________ __| 46,543 26.4 Correction to Surplus: correcting profits shown for prior periods F and excess of Depreciation Reserve on Assets sold ___________________ __, 1,590 0.9 Increase in Current Liabilities"- _____ __| 3,678 2.1 Total- ___________________________________________ -= ____________________ 176,219 l 100.0 i Disposition of Funds: | } Purchase of Investments ________________________________________________ __i 91,160 i 5.2 Additions to Permanent Assets- _______________________________________ __v 57,396 I 32.5 Additions to Current Assets -_ -___ ............ 22,190 i 12.6 Increase in Other Assets including Prepaid Expenses __________________ __, 1,682 i 1.0 Net Payments on Mortgages _.. ___ _______ u‘ 10,550 i 6.0 Totals Used in Operations ______________________________________________ “I 100,978 ' 57.3 Paid in Dividendsng ____ ______________________________________________ _- 75,241 I 42.7 Total __________________________________________________________________ __ 176,219 100.0 l profits earned, 43 per cent has been distributed to the members as cash dividends. By the end of the 1941-42 season, profits left in the busi- ness to finance the investment in fixed assets" have absorbed 10 cents of each dollar of first money cost. Acquiring a Second Gin Plant The average volume of ginning per season of the Tahoka association for the 6-year period 1930-31 to 1936-37 was 2,285 bales; the largest volume for any one of these seasons was 3,657 bales. The volume of ginning in 1937-38 was 8,107 bales, 122 per cent greater than the largest previous season and 255 per cent greater than the average volume of the preceding six seasons. Following the heavy volume of 1937-38, an agi- tation was started for increasing ginning facilities before the opening of the 1938-39 season. The first official mention of a second plant was made in the minutes of the board meeting of June 7, 1938. At this ses- sion a letter from Sterling Evans, President of the Houston Bank for Cooperatives, was read regarding the expansion of ginning facilities. He suggested either increasing the capacity of the cotton house or leasing a plant rather than the outright‘ purchase of an added plant. He made the point that the association needed to pay dividends one or two years more and get On a more substantial footing. After a discussion of the I e ll. A sea of seed cotton on the gin lot. A situation like this explains tllie reason members with a single plant sometimes clamor for a double Y? "titer, one of the directors made a motion to drop the whole matter of ying a second plant; his" motion died for want of a second. f At a board meeting three we-eks later one proposal discussed was the ding of a sixth gin stand; a second proposal discussed was the pur- ‘Uase of a gin plant on an adjoining lot. The question of a second plant as finally settled at a called membership meeting, July 12, 1938. After * explanation of the proposed purchase the motion was made and sec- u ded to empower the board of directors to purchase a second plant. All _,e discussion to the motion was in favor. A rising vote was called for. pearly all the members voted for the motion; no one voted against the “otion; so the vote Was declared unanimous in favor of the purchase. A..- ‘ The profits of the first seven seasons with a portion of the profits‘ of e eighth season were required to pay for the original plant. vMembers 3 re paid very small cash dividends in 1935-36 and 1936-37. Consider- g the long period of but scanty cash dividends together with the great phasis placed On cash patronage dividends, one wonders at the en- usiasm of the members of the Tahoka association to expand ginning cilities. Certainly any business providing itself with facilities to carry he occasional, peak load, burdens itself with expensive excess capacity. .;| the drives to_ increase the capacity of cooperative gins there seldom ,ms. to be any suggestion that the membership be increased in keep- g with the expanded capacity. Adding a second plant without increas- g the membership is in substance very much the same as if the single "lant be maintained and the membership be reduced to about one-half. ne Wonders what enthusiasm might be generated for a program of re- Qcing the membership of the single plant as the way out to maintain pacity for the peak load. _ The net effect of the added plant, membership remaining the same, n best be illustrated by comparing costs and profits at various volumes f ginning for the single plant at its investment as of 1937-38 with costs , of $3.25 for the double plant. The trend in returns on the investment‘ as " flAJ-dlnl 62 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION and profits at‘ the same volumes for the double, plant at its investment as of 1938-39. These comparisons nfay be made under the assumption that i costs for the two plants‘ be standard. Such comparisons are analyzed i in Table 26. The investment in the gin plant is a most important factor Table 26. Comparisons of Costs and Profits of Single Plant of 1937-38 With Those of Double Plant of 1938-391 Farmers Cooperative Association 2N0. 1 Fixed Costs i R/B Per Bale i Ginnied i i Single Double Single i Double Plant ; Plant i Plant i Plant Profits Total Returns on i Inv. Per Bale Per Bale Profits i Investment Ginnied i i Single ‘Double Single iDoublei Single .Double Plant i Plant Plant i Plant i Plant I Plant l ea |-—\ Q1 09 I m» a 1,000i i $0.33 i $11.71 I . 3 . -$i1,030 i-07,000 i -4.2% -11.0% i 038.80 i 303.00 000 i 3.10 i 0.80 i 1.54 i -1.15 2,080 -2,300 , 7.0 ~30 10.43 i 31.03 3,000 i 2.11 i 3.00 i 21.50 i 0.81 7,770 i 2,430 i 20.0 3.0 12.00 i 21.01 4,000 I 1.08 i 2.03 i 3.12 i 1.78 12,480 i 7,120 i 32.1 11.3 0.71 i 15.70 5,000 i 1.27 i 2.34 i 3.43 i 2.37 ,150 11,850 i 44.1 i 18.8 7.77 i 12.01 0,000 i 1.00 i 105i 3.05 j 2.70 21,000 10,500 i 50.4 i 20.3 0 47 i 10.31 7,000 i 0.00 i 1.07 i 3.80 i 3.04 20,000 21,280 i 08.0 33.7 5 50 i 9.01 8,000 i 0.70 i 1.40 i 3.01 31.25 31,200 20,000 i 80 41.2 4 80 7.88 i‘ i .0 i lGin Income Per Bale: $6.46. Investment: Single Plant, $38,859; Double Plant, $63,053. Fixed Cost: Single Plant, $6,325: Double Plant, $11,713. Variable Cost Per Bale: Single Plant, $1.76; Double Plant, $1.75. “Break Even” Volume: Single Plant, 1,243; D-oubl-e Plant, 2,400 Bales. in fixed costs. The fixed cost of the single plant was $6,325 and of the double plant, $11,713. The fixed cost per bale varies inversely with the volume of ginning. The fixed costs per bale decreased from $6.33 to $0.79 for the single plant and from $11.71 to $1.46 for the double plant as the volume increased from 1,000 to 8,000 bales. The relative disadvantage of the double plant is" much more pronounced in the lower volumes than in the higher volumes. With the low volume of 735 bales as of 1934-35, and with a gin income of $6.46 a bale, the losses for the single plant as of 1937-38 would havei totaled $2,871, or $3.91 per bale and losses for the double plant as of 1938-39 would have totaled $8,251, or $11.23 peir bale. In a territory like West Texas with violent swings in cotton production, members of a cooperative gin association in equip- ping themselves for the bumper crop seasons should also give some thought to the short crop seasons. Profits per bale are significant to members receiving cash patronage dividends; returns on the investment are significant during the period of paying for the gin plant out of the profits of the ginning business. According to Table 26 the trend of profits per bale as the volume in- creased from 1,000 to 8,000 bales was upward from a loss of $1.63 to a profit of $3.91 for the single plant and from a loss of $7.00 to a profit the volume increased from 1,000 to 8,000 bales was upward from a loss of 4 per cent to a profit of 81 per cent for the single plant and from a loss of 11 per cent to a profit of 41 per cent for the double plant. At a volume of 5,000 bales per season, slightly above the average ginned the past four years, the single plant could not quite pay out its invest- SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 63 from the profits of two seasons; the double plant would require profits of six seasons. At a. volume of 5,000 bales, the pro rata e of the investment of a 25-bale member would be'$194 in the single ~l and $315 in the double plant. other approach to the effect of the change in size of plant is to lrmine the increase of volume needed in the double plant to earn the i, l- profit per bale, on the one hand, and the same return on the invest- , on the other hand, as in the single plant with a given volume. increases are indicated in Figure 12. Any specific volume of the e plant requires an increase of about 85 per cent in the double plant 'I‘|‘|'l'l‘l'l'l‘l‘l'\'I‘I‘l'l'l'l'l'l‘l'l'l'l'l‘l‘l'l'l‘l‘l'l‘ 15151022242626303234-5636404244464650525456166062646660102141a”; - VOLUME or GINNING (o0 antes) w; INCREASE m votuue oouate PLANT-SAME morn’ (Loss) PER BALE A5 SINGLE may; _ INCREASE IN VOLUME IN DOUBLE PLANT SAME RETURN ONINVE5TMENT AS SINGLE PLANT VOLUME IN PER CENT “A lglllgllgllfill4l$lll§lllglll$w vowmz or GINNING (o0 BALES) _e“|b|l$Z‘0Z2242628303Z343638404Z4446lO5UfZ$l565660fi264G66O 727476 l l l1 IIIlIlIlIIILIIIl]:llllllllllllllIlllllll |IllllillJlIlI| '6 LLAII 1 Illl Il l "u 12. Percentage increases in volumes of double plant over specific volumes of single plant to yield the same profits per bale or the same per- centage returns on the investment in fixed assets. Farmers Cooper-a,- tive Association No. 1 of Tahoka. a eld the same results per bale—1osses in the low volumes and profits file higher volumes. The returns on the investment of the single at volumes of 1,000 and 8,000 bales require increases in volume 4 and 66 per cent to yield the same returns on the investment‘ in the‘ le plant. Volumes of 3,000, 4,000, and 5,000 bales yield returns of I32, and 44 per cent on the investment in the single plant. Increases i2, 70, and 6s per cent, or volumes of 5,160, 6,800, and 8,400 bales" returns of 20, 32, and 44 per cent‘ on the investment in the double t. ~ _ special type of problem facing a board of directors operating a two- gin is revealed in the minutes of the board meeting of November 64 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION 5, 1938—-“Operating policy of the two plants for end of season briefly discussed; it was concensus of the Board that when one gin could take care of the ginning, that one be closed down one week and the other operated, this to follow on alternate weeks. It was thought this would be fair to employees, the customers and each plant. The cotton houses t0 be open at all times, if a customer preferred to house rather than gin his cotton.” In fairness to the Tahoka cooperative attention should be called to the fact that the average volume of the four seasons of the double plant was 39 per cent larger than the average volume of the last four seasons of the single plant. Trend in the Size 0f Gins I In connection with this discussion of plant size of the Tahoka organi» zation, attention may be called to trends‘ in size of Texas gins. The Bureau of the Census made special surveys of ginning facilities in 1906, 1909, 1914, 1919, 1935, and 1940. The average size of gins in Texas increased, without a break, from 204 saws in 1906 to 337 saws in 1935. The average size of gins in 1940, however, was exactly the same as in 1935. This halt in the trend of increasing size may be significant. The number ofigins in 1940 was 10 per cent less than in 1935. The average size was maintained by a balance between the small gins and large gins abandoned. The number of gins of 1940 according to size and the de- crease in the number of gins between 1935 and 1940 according to size are indicated in Table 27. Table 27. Size of Texas Ginsl Number of Gins Size of J Relative NGinbs in f 1940 l Less in 1940 than 1935 Nuiéiber um er o , l of ins Stands l Percentage 1940 Actual Percentage z. Actual ' of Total of 1935 I § Reduction One ________ __ 14 0.4 _ 11 t 3.1 ' 56 ‘TWO _______ __ 92 2.9 44 12.3 , 68 Three ______ __ 313 9.8 50' 14.0 1 86 F0111’ ______ __ 1,396 43.5 19 5.3 i 99 Five _______ __ 1,167 36.4- 152 42.4 88 Six ________ __ 7s 2.4 29 l 8.1 , 7a Multibatte-ry 146 4.6 53 , 14.8 5 73 Total__-- 3,206 100.0 358 l 100.0 90 lDepartment of Commerce, Bureau of the Census: Cotton Ginning Machinery and Equipment u in the United States 1940. The four- and five-stand gins were predominant in 1935 and 1940 making up 40 and 37 and 44 and 36 per cent of the total number of gins. The three-stand gins were a poor third. As‘ between 1935 and 1940, the one-, two-, and three-stand gins decreased by 20 per cent, the five- and six-stand and multibattery gins decreased by 14 per cent, and the four-stand gins decreased by but 1 per cent. In absolute number SUOOESSFUL OO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 65 \ gins the heavy reduction was in the five-stand gins, 42 per cent of T total reduction. tead of giving all attention to increasing the size of the gin plant consider the advisability of decreasing capacity either through the ' lreduction in facilities or through a'relative reduction by increas- ,he membership. The possibilities of a three-stand or a four-stand g Z operated with a large cotton house of 1,000 bales capacity, or more, not yet been explored. In such a set-up in areas of relative heavy “Auction per grower, lots of five, 10, 15, or more bales of seed cot- of a patron could be assembled and ginned in a continuous run. A _ large part of the loss of time between bales could thus be avoided. M h of the loss of ginning time resulting from adverse‘ weather condi- might also be avoided. In connection with the cotton house the A ing equipment could be operated as could the cotton dryer if one 2e installed. A great saving in investment may be effected in chang- 7:. from a five-stand to a four-stand gin when the power unit needs to efreplaced. The cost of a unit of sufficient power to operate a four- d gin is decidedly less than the cost of a unit of sufficient power to late a five-stand gin. Considering the greater control which a coop- gtive exercises over its patrons than that of the private ginner and ‘dering further the direct gain to members from every measure which es costs of ginning, the cooperative gin association should be» in a ng position to give the small-gin-large-cotton-house combination a i '- trial. cational Activities he leaders in the Tahoka organization have given much thought to ' various aspects of a constructive educational program. In the educa- gal activities, the needs of the membership have been considered as f; as the possibilities of reaching the leaders of other cooperatives Win the county and in surrounding counties. At the board meeting [February 16, 1937, the “manager reported on the need for education long the members on the value of their cooperative organization and petins available.” At the following board meeting, “favorable com- "i was made on policy of mailing members an informational letter stated intervals, such having been done in December and February. next is to go out in April, advising members‘ of annual meeting, iiposes and such other necessary information as they are entitled to Te." This marked the beginning of the COOP-O-GRAM of which ume 7, Number 6, was issued in December, 1942 (See Appendix D). Ithis two-page mimeographed release matters of current interest and y information regarding the affairs of the association are called {the attention of the- members. khe Tahoka association has made notable Progress in’ the type of Dual report prepared for the members. The report for the season Q 9-40, for instance, contained 14 pages. The more important features a is matter of adjusting capacity to needs, cooperatives might profit- ning operations as to volume of ginning, net profits, stock dividends, 66 BULLETIN N6. 636, TEXAS AGRICULTURAL EXPERIMENT STATION of the report were: the president’s letter to the members (See Appen, dix D); a list of the active stockholders; a comparative statement o incomes and expenditures, and balance sheet for the seasons ending March, 31, 1939, and March 31, 1940; a summary of results by seasons of gin cash dividends, and of station operations as to volume in gallons, amoun of sales, and profits; a form for reporting to each member his cash and stock dividends for the season and his balance in the equity account a the beginning and end of the season; and a number of sections of a gen eral educational nature (See Appendix D). Several years ago provisions were made for a second membership meet-l ing for the Fall “to be on educational lines which would be in addition to the annual meeting in April as called for in the by-laws.” The first meeting of this type was held September 4, 1941. The minutes of the; board meeting of September 16, 1941 made reference to this meeting. “Members and friends began to gather after 6 p. m. with their basket lunches. The band played a concert and the children played in the park. It was estimated about 200 attended. Instead of moving to the Court room for the final partof the program, the crowd was held in the park and a short program given with Mr. Leonard Cowden of the CCA of Amarillo making the main talk. Watermelons were cut, and 100 Dixie ice cream cups were added as dessert. Many were very busy in the field poisoning or gathering which with the weather caused changes in some of the plans and cut the attendance very much.” At the board meeting of December 10, 1935, the “suggestion was made for a Rally of Cooperative Directors and Managers of the territory at some future date, to stimulate interest‘ in Cooperatives.” At the board meeting of March 13, 1940, “The County Council for Cooperatives sugy gested by this Association met with a favorable response and the Board voted to gall a general organization meeting for March 18, with Manager sending out immediate notices.” The South Plains Cooperative Council was organized May 16, 1940. About a dozen cooperative gins and sev- eral other types of cooperatives joined. A number of meetings were held and a program of activities was worked out. Whatever the reason, after: a few months, the council became inactive. ' The Tahoka association took active interest in promoting the School for Cooperators sponsored by the Texas Agricultural Extension Service and held at the Texas Technological College at Lubbock, June 24-26, 1940. The president reported on the school to the board meeting of July 9, 1940. The thought was expressed that the information given at the school was greatly needed by the members of cooperatives in general. Side Line Business At the board meeting of October 10, 1934, the question of leasing a filling station was discussed. ' The manager was instructed to investi-. gate. Two months later the board decided that a service station would be of more benefit to the members if located at the gin. The acquiring SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONé TN TEXAS 67 1500‘! a filling station was the special business of a called membership meet- “sing of December 20, 1934. The question was thoroughly discussed. When {put to a vote, the adding of a filling station won by a majority of 24 "ivotes. According to the original plans‘ the gin and the filling station pwere to have the same board of directors but each enterprise was to be ‘a separate corporation. In this way ii was hoped that the business of lithe two brancheswould not become confused. The plan was to sell stock jfto members of-the gin in amounts of from $5 to $40. Before the close the special meeting more than $200 in cash was collected for financ- "ing the new business. When the filling station was organized early in igl935, it was not set up as a separate enterprise but as a department of ‘the gin association. Figure 13. Outward symbols of a git-swing‘ business. Upper-Fi11ing static-n buiit in 1935. I-ower—I‘i11ing station and office built in ‘ 1939. Farmers Cacperative Asso- ciation of Tahoka. v The volume of business of the filling station has had a rapid and steady growth. The business in gasoline, tractor fuels and oils has in- greased from 57,000 gallons i-n 1935 to 427,000 gallons in 1942. Gross “Tles reached a total of $76,000 in 1942. For the four-year period 1938 1941, gross margins averaged 17.5 per cent and the net profit averaged ‘i8 per cent of gross sales. A patronage dividend of 5 per cent" on the pmembefs purchases has been paid quarterly thus far. 68 BULLETIN NO. 636, TEXAS ‘AGRICULTURAL EXPERIMENT STATION Special effort is made to gain the business for the station of the farm‘ ers moving into the territory about the first of the year. This has great; ly simplified the matter of securing the interest of these farmers in thef cooperative ginning business. Experience has demonstrated that thee filling station members make the best gin members. pi Rather recently, some attention has been given to broadening the} scope of the side line business. During the summer of 1939 much atg tention was given to the organizing of a cold storage locker plant. Mor than 100 members were gained for the proposed enterprise. Finally, however, the Plains Cooperative of Plainview installed a cold storagj locker plant in Tahoka. According to the minutes of the board meetin of August 13, 1940, “A suggestion that the Board be thinking of open‘, ing a Garage for repairs on cars and tractors was made and receive; favorably by the directors, this business to be strictly on cash basis an. at prevailing rates, with dividends quarterly as in the Station. The O’Donflj nell Cooperative has made the initial step in this direction and thei success is to be Watched.” At the board meeting of April 4, 1942, th’; “subject of entering the feed business“ was discussed, pro and con, but . no decision was reached; the President suggested that each membe 1 study the question for later action.” The filling station introduced the vexing question of what to do abou the persistent demand of members to be granted the privilege of buying; supplies on credit. At nearly one-half the board meetings from July 1938, to December, 1940, the matter of accounts receivable was disi cussed. As an indication of attempts made to solve this question, the minutesof a few of these discussions are given below: ET; “September 17, 1940-—Recommendation was made that the Directo s. consider putting the Station business on a cash basis beginning Januar: 1, 1941. Approval of such a plan was expressed by some while other withheld comment‘. '95 “October 8, 1940—-Cash basis for the operation of the Station was dis i cussed, rules and plans for operation of the same to be submitted to takf effect January 1st. “November 12, 1940-—Charge accounts" were discussed and the nee ‘I for a systematic manner of handling and opening as Well as collectin the same. It was suggested to train all the employees in the methodpof handling and as to whom is entitled to credit and whom to turn downi Certain rules to follow were suggested as" follows: a 1. Obtain local Retail Merchants Credit Bureau rating. 2. Must be active stockholder——can be waived. 3. A credit limit placed on each account and held to. (Credit Com; mittee to assist) _ 4. Accounts must be paid promptly or n0 more charges allowed. 5 Pay days 1st and 15th—employees to send notices. Manager instructed,to handle carefully and tactfully, with each case [Cl its own merits, and always leave the customer in good humor. p, “December 10, 1940—Brief discussion was had on charge accounts; the policy of a stricter system of allowing credit and collections and th‘ SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 09 l ropaganda now being spread by competition that our customers were _o be cut off on first of the year.” ' The attention given to accounts receivable by the board of directors nd the manager has been effective in maintaining control over this item. is shown in the balance sheet, the highest amount reached during the "first six seasons was $700, that of: the end of the 1935-36 season. The inext three seasons accounts receivable became progressively larger be- ng $1,100, $4,400, and $5,400. At the end of 1939-40, this item rropped slightly to $5,000. At the end of 1940-41, the season so much special consideration was given to accounts receivable, the item Cropped to $2,300. At the end of 1941-42, accounts receivable had in- 5 reased to $4,100. Figure 14. Oil trucks used in making deliveries of fuel oils to the farms of members. Farmers Cooperative Association of Tahoka. _ In the audit of 1941-42 a careful examination was made of accounts receivable of the seasons 1936-37 to 1941-42. All accounts charged off as worthless amounted to $253 for the station business and $713 for the [ginning business. The auditor made this comment inhis reports: “A re- gerve for Bad Notes and Accounts is carried in the amount of $800 ; . .,; the above amount (the $253 and $713 charged off) represents the record, considering the volume of turnover in Accounts Receivable.” otes receivable amounted to but $600 at the end of 1941-42. In the relight of the past experience, the reserve of $800 should be ample protec- tion against bad accounts and notes. lDividend Policy g Since reorganizing on the stock basis, the Tahoka association has not followed the plan of paying off all indebtedness before declaring cash ntire amount determined Worthless to this date. This is a remarkable a l 70 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION dividends. Instead the dividends voted have usually been divided if about 50 per cent cash and 50 per cent stock credits. ; For a number of years dividends of 8 per cent were voted on, the o; standing stock, either as cash or t0 be applied as stock credits. At‘ x board meeting of March 13, 1940, the dividend rate was lowered t, per cent. “The Board discussed the interest rate (dividend) to be v_ on stock and agreed that it was to the greatest good to pay as much‘ possible on the patronage basis, rather than a big cash dividend on g stock owned, the advancement and success of the Association depend on patronage, rather than stock outstanding.” ' The losses suffered in 1934-35 were originally set up as char” against the equity accounts of the members according to the patron‘ of that season. Charging losses as negative dividends is a rather 3' usual procedure. The minutes of the board meeting of March 9, 19 record the final action taken. “Manager reported that the loss" suffe; in the season 1934-35 had been charged to individual equity or st_ accounts of the members, but found that there was sufficient surplus} absorb this, without such charge and permission was given to revef these entries as of this date; . . . ” Dividend rates", both stock and cash, according to the stock held . the members and the patronage are summarized in Table 28 - Table 28. Dividend Rates-Farmers Cooperative Association Stock Dividends Cash Dividends Season . '_ ‘ , C/S l C/S l Station» Stock ; R/B l Per Cwt. Stock R/B Per Owt. l Purcha 4 T” l . - a 1930-19314 g $1.151 l l _ 1935 , 4% 0‘. ' l2".5¢ 4% i $0.50 12.5¢ ‘ 5% ' ; 1936 l 4 l 1.00 l 20.0 4 l 0.75 l 5 , 1937 l o l 1.00 5 0 l 5 £- 1938 1.00 l 5 “ 1939 l 3 l 0.25 2.5 3 l 0.30 2.’ ‘ 5 1940 l 4 l 0.25 7.5 l 5 1941 ,_ 1.50 15.0 4 5 lAverage stock dividend per running bale. The stock as actually issued was according to patronage dividend credits established season by season. The Tahoka association has made provisions for two reserves whi‘ have a bearing on dividend policy. A reserve designated as “Gin S v plus” was started in 1938. This reserve is to absorb losses suffered‘ short crop seasons. Ten per cent of the net profits are set aside for th: reserve. The maximum of the reserve has been fixed at $5,000. I’ stead of issuing stock to members at the end of the season to the amount of their stock credits, a considerable percentage, 25 or more, withheld in what is termed the “Contingency Reserve.” The pUYDOSG‘. this reserve is to maintain the value of the stock at par, or above, 1f making certain that‘ the stock outstanding will be less than the net won of the association. These two reserves are most desirable and shou‘ do much to give financial stability to the association. 3 SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 71 cing Program TheTahoka association purchased a secondhand gin plant in 1930 at cost of $30,000. No down payment was made. During the period of ation as a Society gin, all profits were applied against the indebted- These profits were computed as patronage dividends and an equity unt was opened for each member. In the reorganized stock asso- on, common and preferred stock were providedfor. The par value of common stock was fixed at $10 a share and of the preferred at $25 share. The common stock became the voting, or membership stock, share to the member. The remainder of a member’s equity was g enced in preferred stock. Members received their first stock in 36 based on the equities accumulated under the Society organization. _e amount issued at that time was $1,520 in common and $10,130 in erred, or a total of $11,650. p . he heavy turnover of members" has introduced a vexing problem in loping a policy in the refunding the stock holdings of the retiring hers. The nature of this problem may be indicated by quoting from - minutes" of the board meetings: March 10, 1936-—The Manager reported that some members wanted ispose of their stock because of removal from the territory. Motion ed that Manager be authorized to act for the Board in aiding mem- to dispose of their stock, thru sale or trading. Passed. Also to take er steps to protect the stock and not let it become worthless in the of stockholders or the public. w January 11, 1938—-President suggested and others agreed that Man- ment assist in all ways possible to aid members in selling stock, but lour present financial status, not feasible for Gin to take up stock as lar practice. ' November 14, 1939-~It was the sense of Board that not able to take gstock of anyfarmers now moving or show any favor over thosere- fining in this regard, but assist in disposition as" far as possible in find- ijbuyer and transferring. Board realized that not practical to retire )1 member’s stock upon hisvdemand, for any cause, but in matter of fie withdrawing would at once Work on plans to take up part of stock do all could in expediting revolving of stock for all. December 12, 1939—-Manager reported . . . that there were between ‘and 70 common stockholders who had moved away in last 5 years r. whose accounts were not active. "It was‘ the opinion of the Board "F. plan should be adopted to take up at least the member’s $10 com- stock immediately upon his removal and push -the retirement of ‘ipreferred as we were able. ,_ arch 13, 1940--The retirement of the membership stock of $10 of ‘i having moved away was discussed, but definite action delayed.” g the effort to solve the problem of refunding the stock of retiring gbers, several definite changes in the stock structure of the associa- developed. The plan of substituting preferred stock for the com- 72 BULLETIN. NO. 636, TEXAS AGRlCULTUR-AL EXPERIMENT S'1‘.~\'1“I0,\' mon stock necessitated lowering the par value of the preferred stock.~_% The membership meeting of April 21, 1938, changed the par value of pre-J,“ ferred stock from $25 to one dollar a share. In working out a. solution: for liquidating the preferred stock of the retired members, the plan‘: emerged of revolving the stock not only of the retired members but also? of the active members. The first official mention of revolving the stock- was contained in the minutes of the called membership meeting of July; 12, 1938. “Revolving Stock Dividend checks were then distributed and explanation made of this feature of our operations; 50% of the earnings: for 1930-31 were returned to the patrons and checks totaled over $1,500 at this time.” Official action on the transference of the common stock of retired. members to preferred stock was taken at the board meeting of April 12,0 1941. “The matter of taking up the common or voting stock of mem- bers who have moved away and issue therefor preferred stock was pre-‘f sented; explanation was made that it might affect our income tax ex-E. emption, on account of 50 or 60 voting members not being active, having i‘ moved away and it would make it possible to keep voting membership in current status. Also that it would be in favor of the stockholder, who would be entitled to interest in case of dissolution, his interest on pre- ferred stock. Motion made and carried that we take up the common stock and issue therefor preferred stock.” At the membership meeting of April 24, 1941, an amendment to the by-laws authorizing the revolving of the preferred stock was passed. “After anadequate amount of capital has been provided for the asso- ciation through amounts retained from net profits, as provided in Article V, Subsection 3 a, b, and c, an amount of the oldest outstanding prefer- red stock may, in the discretion of the Board of Directors, be redeemed or retired as provided in this article first mentioned above.” The revolving stock plan as adopted by the Tahoka association is based on profits as the source of the funds revolved. No definite pro- gram is followed ‘in revolving the stock other than on the direct action of the board of directors from time to time. The desirability of acquir- ing the funds revolved from a retain per bale and of revolving the equity over a definite period of time as outlined for the Childress Farmers’ Co- operative Society (Assigning of Equities) and the Danevang Farmers’ Cooperative Society (Substituting Certificates for “Gin Notes”) applies with equal force to the cooperative association of Tahoka. With the average volume of the past four seasons, 60 per cent of the investment in the gin plant could be revolved in seven years on a retain of about $1.25 per bale. The heavy turnover of members might make a shorter period more desirable. If a cycle of five years were adopted, a retain of about $1.80 per bale would be required. It might be worth the attention of the cooperative gin associations of Texas to give some thought to the possibilities of establishing an ex- change to act as a clearing house for transferring the equities of mem- bers moving from one cooperative gin area to another. Such an exchange SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 73 _uld be operated by the Texas Cooperative Ginners’ Federation, or by be various cooperative oil mills for their member gins, or by a service ‘anization like the Gin Service and Supply Company. The services g such an exchange would be greatly facilitated if steps were taken to tain greater standardization of the capital structure of the various perative gin associations. The opportunity of a member to transfer equities from one gin association to another should make member- pip in a cooperative gin much more attractive to tenant farmers. , “Assets expressed as percentages of the total under the classifications: ft ent; fixed; investments; and others, as of the end of the seasons 5590-91 to 1941-42 are indicated in Table 29. Current assets reflect the luence of the side line business. For the seasons 1930-31 to 1934-35, Table 29. Assets Farmers Cooperative Association N0. 1 l Total Percentages f‘ Year ‘ Assets . l Current Fixed 1 Investments l Other l l 1 1990 s91, 7.9 90.6 l __ 1.5 1991 27,246 2.0 97.5 l -- 0.5 1992 26,499 5.9 93.6 I __ l 3.; 1999 , 29, 91 6.0 9.9 __ . 19% l, 25,465 9.1 92.9 g 9.1 ' 1.5 1995 . 99,797 11.6 94.0 1 2.4 2.0 1996 97,279 1 20.7 75.9 2.1 1.9 1997 l 61,177 ‘ 97.2 51.6 10.6 0.6 199s » 79,107 . 19.1 72.5 ’ 9.2 1.2 1999 1 96,291 j 17.7 79.9 7.5 l 0.9 1940 _ 90,640 ' 11.9 77.5 9.6 l 1.0 1941 1 97,912 , 22.9 66.1 9.4 1.7 bore the side line business was added, current assets averaged $1,400’ i? season. Of this amount 64 per cent was in cash; 19 per cent in ac- flDtS and notes receivable; and 17 per cent in inventory. For the sea- ‘s 1935-36 to 1941-42, after the side line business was added, current averaged $13,700 per season. Of this amount 38 per cent Was in f» 27 per cent in accounts and notes receivable; and 35 per cent in ‘ientories. giiLiabilities expressed as percentages of the total under the classifica- qns: current; fixed; capital; and surplus‘, as of the end of the seasons 30-31 to 1941-42 are indicated in Table 30. Of special interest is the ‘tive status of net worth rising from 7 per cent at the end of 1930-31 i191 per cent 'at the end of 1937-38 when all fixed liabilities were re- With the purchase of the second gin plant on credit in 1938, the worth as of the end of 1938-39 season dropped to 66 per cent; by the .~ of 1941-42, net worth rose to 76 per cent while fixed liabilities at 20 per cent. As may be noted in the COOP-O-GRAM of Decem- . 1942, quoted in Appendix D, all outstanding fixed liabilities were paired out of profits of the 1942-43 season. 74 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION Table 30. Liabilities and Net Worth Farmers Cooperative Association Ho. 1 Percentages Total i Year Liabili- g Liabilities _ Net Worth - i ties . . l: Current Fixed Total Capital SUIpIUS ' Total I7 1930 $31,203 3.3 89.7 93.0 __ 7.0 7.0 j 1931 27,246 -_ 87.7 87.7 __ 12.3 12.3 i? 1932 26,483 __ 87.9 87.9 __ 12.1 12.1 1933 28,731 __ 65.4 65.4 __ 34.6 34.6 1 1934 25,465 1.2 67.8 69.0 __ 31.0 31.0 f 1935 33,737 1.4 37.7 39.1 35.2 25.7 60.9 " ms 37,279 1.9 24.5 26.4 41.4‘ 32.2 73.6 T 1937 61,177 9.1 __ 9.1 34.3 56.6 90.9 ‘ 1938 79,107 5.7 28.1 33.8 36.8 29.4 66.2 _ 1939 86,231 10.4- 23.1 33.5 41.5 25.0 66.5 1940 80,640 6.7 23.9 30.6 51.8 17.6 69.4 1941 97,312 ' 3.8 20.0 23.8 47.8 28.4 76.2 Summarizing The Farmers Cooperative Association of Tahoka is doing pioneerin; work in the educational field. The type of annual meeting held, the a ‘ nual report furnished the members, and the monthly house organ, th , COOP-O-GRAM are most effective in maintaining an informed member. ship. These constructive activities reflect intelligent and alert manag. ment and leadership. The association has demonstrated clearly how to handle the problem of a rapid turnove-r of members due to a high percentage of tenancy.‘ The side line business is proving most effective not only in reducing’ the cost of supplies but also as a means of acquiring members for the gin business. The substituting of preferred stock for the- common stock I i retiring members and the liquidating of the non-member equities through} a revolving stock plan should help materially in solving the vexing prOb-f‘ le-m of what to do about‘ the stock of retiring members. i? The Tahoka association -is one of the very few cooperative gin associa-A tions of Texas which have created a reserve against losses of short crop seasons. The association is also setting a good example in maintaining‘ a reserve to protect the value of the stock outstanding. f While the adding of a second plant in 1938 may have been unwise, the, fact that the average volume has since been increased by about 40per cent, has, in part, offset the disadvantages of the increased ginning fa- cilities. ‘ Farmers’ Cooperative Gin Association of Mabank The Farmers’ Cooperative Gin Association of Mabank was organized. in 1935. It is the only association of the four considered in detail in this Bulletin that was financed from the beginning by the Houston Bank fo 1 Cooperatives. g In the seven-year period, 1935-36 to 1941-42, the Mabank association, ginned a total of,19,437 bales, or an average of 2,777 bales per season. SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 75 profits on gin operations totaled $56,118, or a return of 49 per cent i?" average investment in fixed assets. Cotton trading and other s added an average of $1,378 per season, The total net profits on tivities of $67,496 yielded an average return of 59 per cent on" the tment. Successful operations like these are what popularize profit cing of cooperative gin associations. e Mabank association is in a territory of low production of cotton arm. This situation is reflected in the ginnings of the patrons. gpthe three-year period 1939-40 to 1941-42, the average volume les per patron for the various cooperatives was‘ as follows: Chil- , 19; Danevang, 28; Tahoka, 21; and Mabank, five. Ginnings of ns according to volume for the Childress, Tahoka, and Mabank iations are summarized in Table 31. Seventy per cent of the Mabank Table 31. Volume of G-inning‘ of Patrons Childress Farmers’ Cooperative Society Farmers Cooperative Association of Tahoka Farmers’ Cooperative Gin Association of ‘Mabank Percentages Patrons Volume of Ginning Childress Tahoka ' Mabank Childress Tahoka Mabank 28.0 26.3 70.2 4.3 3.2 36.0 19.4 14.4 19.6 8.1 5.4 29.5 12.2 11.3 5.9 8.3 7.0 14.5 9.5 10.5 2.2 8.9 9.0 7.8 7.5 6.5 0.8 9.1 7.0 3.4 5.1 8.4 0.4- 7.6 11.0 2.3 3.4 5.6 0.2 5.8 8.7 1.1 3.6 4.1 0.2 7.2 7.3 1.8 2.2 2.7 0.2 5.0 5.5 1.5 1.5 2.3 0.1 3.7 5.1 0.6 2.9 3.0 0.1 8.5 7.7 0.7 1.4 1.5 0.1 4.5 4.6 0.8 0.8 1.2 3.1 4.3 0.9 0.9 4.1 3.6 0.3 0.3 1.7 1.4 1.3 1.0 10.1 9.2 v 100.0 100.0 4 100.0 100.0 100.0 100.0 ns furnishing 36 per cent of the total volume delivered five bales, ss. Twenty-eight and 26 per ce-nt of the patrons of Childress and f= furnishing 4 and 3 per cent of the total volumes delivered five ‘- or less. While 30 per cent of the patrons of Mabank delivered _ es, or more, 31 per cent of the patrons of Childress delivered 21 . or more, and 31 per cent of the patrons of Tahoka delivered 26 ‘p, or more. - _ - association having members with a low average cotton production es a. large membership to attain an economic volume of ginning, ge membership complicates the problems of a cooperative. This is ially the case in an area like that of Mabank with a high percent- f tenants. About two-thirdsmf the members of the Mabank asso- n are tenants. .Thus a large membership necessitates a heavy turn- 76 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION over of members each season. In no section of Texas is the gin income per bale as 10W and in no section is the relative over-capacity of gin plants so pronounced. These factors would seem to indicate that the general situation surrounding the Mabank cooperative is most adverse to a suc- cessful association. These unfavorable conditions, however, have all been surmounted. The high volume of ginning secured, the high gin income per bale maintained, and the unusually profitable operations at- tained, all attest to the extraordinary success of the Mabank coopera- tive. During the three-year period 1939-40 to 1941-42, 43 per cent of the patrons of the Mabank association was non-members. These non-mem- bers delivered 30 per cent of the total volume of ginning. During the period annual profits on gin operations averaged $8,017. At a volume 30 per cent less, assuming the same relative efficiency and gin income per bale, the average net profit would have dropped by 42 per cent to $4,643. The average volume per patron was 3.5 bales for non-members and 6.2 bales for the members. Dlaintaining Gin Charges First Season The Mabank association had an experience of far-reaching consequences the first season. For a number of years growers in this territory had been paying a gin toll of 35 cents per cwt. of seed cotton. Before the opening of the 1935 season, the cooperative and the private competitors seemed agreed to maintain the 35-cent rate. Very shortly after the open- ing of the season, the competitors dropped to 30 cents; the cooperative followed suit; the competitors then dropped to 20 cents. To the great credit of the members, they seemed to realize exactly what was happen- ing. The cooperative decided to maintain the 30-cent rate and not more than about a half dozen members deserted to obtain the immediate bene- fit of the 20-cent rate. . As the volume was maintained and gratifying profits earned, the management decided that all patrons should be paid a cash dividend of one dollar a bale at the end of the season. This was in conflict" with a ' rather strict ruling of the Houston Bank for Cooperatives that no cash dividends be distributed until the first mortgage‘ is paid off. As profits were sufficient to take care of both the 1935 and the 1936 installments‘ to the Bank, with sufficient profit left‘ over to pay the one dollar dividend with still a surplus to be used for operations the coming season, the Bank finally agreed to the cash dividend. This cash dividend paid in 1935 spoke so eloquently of the success of the cooperative gin, that many new members were gained the following and succeeding seasons. Even a number of the members who deserted their cooperative in 1935, paid up the installment on their notes and acknowledged that they had made a mistake in not ginning with their association. * V Pi i. SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 77 v 9 Cost of Ginning Service t0 Members , First money costs, profits, and out-of-pocket costs of ginning service to a members are summarized in Table 3,2. The average first money cost Table 32. First Money Costs, Profits, and Out-of-Pocket Costs of G-inning to Members (Per Bale) Farmers’ Cooperative Gin Association of Mabank 1 First Money Cost i Out-of-Pock-et Costs 7631' i Net -——-—' —*——'——"———- t i i Per i Relative - Profit i i Percentage 1 Gin ‘ Pattern Total i Average I Net of First i Toll B. a T‘. i 100.0 i Money Cost i i? __ i i i ' 1935 $4.59 $1.02 $5.01 i '93.9 $2.39 i $2.72 43.5 1936 4.68 1.00 5.68 i 100.0 2.58 3.10 54.6 193T 4.40 1.25 5.65 I 100.0 3.13 2.52 44.6 1938 4.31 1.50 5.81 i 102.5 2.42 3.39 ' 58.3 1939 4.44 1.25 5.69 i 100.3 2.87 2.8-2‘ i 49.6 1940 4.24 1.25 i 5.49 i 90.3 3.41 2.03 1 37.9 1941 4.43 1.50 i 5.93 104.6 21.36 i 3.57’ i 60.2 - i ‘ -— i i— I Average 4.42 1 25 5.67 100.0 2.39 i 2.73 5 49.0 j per bale for the seven-year period Was‘ $5.67 per bale. Out of every dol- lar members paid for ginning service, 78 cents Was for ginning tolls and 22 cents for bagging and ties. On an average for the seven-year period, , the out-of-pocket cost was but 49 per cent of the first money cost. i Costs and profits per bale are summarized in Table 3-3. Out of every dollar members paid for ginning service at cost‘, 80 cents was" for the cost Table 33. Costs and. Profits of Operations (Per Bale) Farmers’ Cooperative Gin Association of Mabanki i Costs Profits i Bales Year Ginning i i * . Ginned B. & T‘. Ginning B. &. T. i C/S Total Standard_#Actua1 i i i i . 1935 $3.54 $3.02 i $0.07 $1.57 i $0.35 $0.97 i $2.39 1,925 1935 3.29 i 3.05 i 0.74 1.03 i 0.23 1.29 i 2.513 2,307 1937 2.93 i 2.97 i 0.30 1.43 i 0.45 1.25 i 3.13 3,503 1933 3.13 i 3.37 0.32 0.44 = 0.63 1.30 i 2.42 2,732 1939 2.95 i 3.07 i 0.35 1.37 i 0.40 1.10 1 2 37 3,477 1940 i i 2.37 i 2.33 i 0.91 1.41 i 0.34 1.35 i 3.41 3.352 a 1941 . 4.03 i 5.03 i 1.11 -0.00 i 0.39 2.57 i 2.30 1,570 i: Average i $3.15 i $3.34 $0.34 $1.03 i $0.41 i $1 40 i $2.39 2,777 lAccording to equation for Electric Gins. Blackland Area. See Appendix B. 1120f operating the gin plant and 20 cents for the cost of bagging and ties. Out of every dollar of net profit earned from gin operations, 37 cents was ‘i? derived from profits on ginning; 14 cents from profits on bagging and ties; and 49 cents from profits on cottonseed. Considering all sources of profit. the components of the profit dollar were: ginning, 32 cents‘; bagging and ties, 12 cents; cottonseed, 41 cents; cotton trading, 5 cents; and other activities, 10 cents. 78 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION Interest Adding Second Gin /P1'ant ' An average of 2,777 bales for a 4/70 gin plant is a volume quite other - than ordinary. Certain members of the Mabank association have been clamoring for a second plant. It is quite evident that these advocates of increased ginning capacity have not given considered thought to conse- tquences of such expansion. To permit an analysis of what the results of a double plant might have been, let it be assumed that a double electric plant had been acquired in 1935 and that the investment in fixed assets from year t'o year would have been 80 per cent greater than that of the single plant. Let it be further assumed that the actual costs of opera- tion of the double plant would have been of the same relative efficiency from year to year as for the single plant. In a situation of this nature, estimated standard costs of the double plant with a given investment and volume of ginning may be approximated by assuming a single plant of one-half the given investment and volume. Costs per bale thus esti- mated would apply to the double plant with the given investment and volume of ginning. Assuming the same relative efficiency, the actual cost of the double plant at a volume of 2,777 bales would have been $4.43 a bale. Thus the average net profit with a gin income of $6.23 a bale would have been $4,999. While the total net profits of the double plant‘ would have been but 62 per cent as great as those of the single plant, the investment of the double plant would have been greater by 80 per cent than that of the single plant. Thus the net returns of 49 per cent‘ on the invest- ment in the single plant would have dropped to 17 per cent on the invest- ment in the double plant. The average profit of two seasons have been sufficient to pay out the investment in the single plant; the average profit of six seasons would be required to pay out the investment in the double plant". _ To earn a net profit of $2.89 per bale, the same as that of the single plant at a volume of 2,777 bales, the double plant would have needed a volume of about 4,594 bales, an increase of 65 per cent. To earn a re- turn of 49 per cent on the investment‘, the double plant would have needed a volume of about 4,870 bales, an increase of 75 per cent. Returns on the Investment Annual net profits on ginning operations expressed as returns on the ‘investment in fixed.assets are reported in Table 34. The average return was 49 per cent; the lowest return, 20 per cent, was realized in 1941-42; the highest return, 73 per cent, was realized in 1940-41. On an average, the investment per bale of annual ginnings ‘Was $5.90. Thus the Dro rata share of a 5-bale member was but $30, an exceedingly low invest- ment. g The sources of all funds acquired by~the Mabank cooperative and the disposition made of those funds are summarized in Table 35. Eighty- suoonssrur. CO-OPERATIVE oorrros em ASSOCIATIONS m uucxns 19 Table 34. Returns on the Capital Invested in Fixed Asset Farmers’ Cooperative Gin Association of ‘Mabank ' Cost of ’ Returns Investment Year Fixed Net Profits on Per Bale ’ Assets Investment Ginned 1935 $13,090 s 5,504 742.5% $ 6.20“ _ 1936 14,175 6,101 43.0 43.99 a 1937 16,742 10,971 66.5 4.77 Z 1938 16,742 6,617 59.5 6.13 I939 17,476 10,007 57.3 5.03 1940 17,895 13,199 73.4 4.65 t. 1941 18,662 3,719 19.9 11.84 verage $16,397 ' $8,017 48.9% $5.90 Table 35. Analysis of Funds Farmers’ Cooperative Gin Association of Mabank Percentage Dollars of Total p‘ of Funds: fits after Depreciation ....... -: _________________________________ _- 65,767 80.6 isions for Depreciation (not involving cash) _____________________ _- 10,532 12.9 ~=--= Correction _______________________________________________________ __ 30 0.0 use in Investments _________ __: __________________ -.__ ________________ _- 130 0.2 ,e ions of Stock Notes--- . _ . . . _ _ _ _ .. __-- 2,799 3.4 ' e in Invested Capital ___________ _.- _______________________________ __, 2,351 2.9 tal- ................................................................. _- 81,009 100.0 tion of Funds: ,5 crease Working Oapital___-'_ _______________________________________ __ 15,609 19.1 crease Permanent Assets ___________________________________ __ 6,053 7.4 u on Mortgage ________________________________________________ __ -__ 13,220 16.2 ~ id Insurance___--_. _________________________________________________ __ 30!? 0.4 Z Used in Operations ______ __,\ _____________________________________ __ 35,189 43.1 ‘in Dividends: ' # id on Stock ______________________________________________ __$ 4,749 aid on Patronage_ _______________________________________ _- 41,671 46,420 56.9 ‘i=1 ------------------------------------------------------------------ -- 81.6w 100-0 cent of all funds has originated in the profits of the business. nts on stock notes and investment in stock other than from profits, ted for 6 per cent of all fundsiacquired. Forty-three per cent of Jnds has been left in t_he business~—19 per cent to increase Working I and 24 per cent to increase fixed capital. Of all funds acquired, "- cent has been paid as dividends on stock and patronage. Of all p ofits earned, 71 per cent has been paid as dividends. Total net i): earned have averaged $3.28 per bale ginned and patronage divi- paid members have averaged $2.14 per bale. Profits left in the _ = to furnish operating and fixed capital have absorbed nine cents = each dollar of first money cost. ' ing Policy financing program followed by the Mabank association is" unique e respects. It is a combination of stock purchase and profit financ- _ S-O BULLETIN NO. G36, TEXAS AGRICULTU RAL EXPERIMENT STATION ing. Each member in subscribing for stock, if not paid for in cash, signs a note providing for ten equal annual installments. Regardless of profits or losses" of a season, the current" installment on the note is due at the end of the season. In instances when patronage dividends were paid, a member who had paid up his installment in full, received his pro rata share of the dividends in cash; in case he had not paid up, the install- ment on the note had the first claim on his dividend. In addition to equities in stock accumulated by members, the associa- tion has enhanced its net Worth throughprofits left in the surplus ac- count. As of February 28, 1942, the surplus account was $19,377. This was 172 per cent of the stock outstanding. Of this surplus, $10,531 was represented by the depreciation reserve. Thus the Mabank association is one of the very few cooperative gin associations which maintain their depreciation reserve intact. Only one type of stock, common, is issued. With the heavy turnover of stockholders this is somewhat objectionable. The cooperative has had a total of 558 stockholders as of'the end of the 1941-42 season. The stock of 165, or 3O per cent of the total, has been canceled. The rea- _ sons for retiring the stock of members are not always given in the rec- ords. The stock of 42, or 26 per cent" of the members retired, was can- celed because of nonpatronage. The association has a rule that a member failing to patronize his" gin for two consecutive seasons is automatically discharged. Members moving away accounted for 37, or 23 per cent of the total. No reasons were given for 86 members who retired but most of them moved away. . Of the 393 stockholders listed in good standing as of Februaiyv 26, 1942, 134 were inactive, or one-third of the total. Under the non- patronage rule many of these stockholders will soon have their stock canceled. The liability of a stock cooperative to refund the common stock of a retired member not later than one year after withdrawal may prove burdensome especially when experiencing a heavy turnover of ' members". If the Mabank cooperative would use common stock of a nominal par value as the voting stock, only one share to the member and issue preferred stock revolved according to a definite schedule to represent the main part of the members’ equity, the matter of handling retiring members would be greatly simplified. The low investment in the gin plant, the high volume of ginning, and - the rapid turnover in members of the Mabank association emphasize the desirability of shortening the period in revolving the stock. Sixty Der cent of the present investment in fixed assets is about $12,000. On the basis of the average volume of ginning the past.seven years, this amount of stock could be turned in about four years on a retain of one dollar a bale. The member moving away could have his share of com- mon stock repaid at the time of retirement and his preferred stock _re- paid in the regular cycle of four years. The member failing to patronize his cooperative but‘ who made no declaration as to his intentions could have his common stock retired at the end of‘ two years and his pre- / SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 81 ;terred stock over the following four ‘years. In such instances, six years {would be required to complete the process of retiring a member. gffiununarizing _ The success of the Farmers’ Cooperative Gin Association of Mabank ishould be of special concern to cotton growers in East Texas and in the "southeastern part of the Cotton Belt. The Mabank association is dem- flonstrating that an economic volume of ginning may be gained and {imaintained in a territory of small production per grower and with an vivfover-capacity of gin plants. This association is proving that an ade- Qquate gin income may be maintained in spite of price-cutting competition- ‘The success of the Mabank cooperative has been attained through a iloyal membership and strong and vigorous management. In some re- ilspects, at least, the Mabank association is the outstanding success jamong cooperative gin associations in Texas. FACTORS OF SUCCESS OR FAILURE _,_ Less than 20 per cent of the gin associations of Texas are as success- Qful as the four associations discussed above. The greater part of the gin associations are moderately successful; a considerable number are experiencing difficulties of various kinds; a few are on the very brink bankruptcy both in financial affairs and in membership relations". The éifailure of a large percentage of gin associations to attain a degree of success desirable presents an opportunity for constructive action aimed {at general and extensive improvement. This situation emphasizes the ;significance of an analysis of successful gins. To the extent that the “Iess successful associations may profit from the experiences of the more uccessful associations, the cooperative gin movement may be strength- Lened. As has been pointed out in the historical section of this Bulletin, failures of cooperative gins in Texas have been many. Improper organi- nation and lack of experience with the cooperative type of enterprise were the principal causes for ill fortune among the Farmers’ Alliance Farmers’ Union gins. Improvements in organization and a back- 3; ound of experience, however, have not eliminated reverses. Two gins put of every five established under the society act have failed; one gin ut of every ten organized since 1934 has failed. l General Reasons for Failure Many gin associations have started in Texas as a direct result of the uccess of nearby cooperatives. In many instances scant attention has een given to an analysis of the factors underlying the success of the vsociations emulated. Too often, the high hopes aroused during the lganizational campaign have failed to materialize. The experiences it the successful associations should serve as a trustworthy guide to group chancing the adventure of a new cooperative. But most im- 82 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT S'I“ATIO'N portant, the details of the pattern of success must be adapted to fit the “i exacting and peculiar situation of the organizing group. A few gin associations have failed because too high a price has been paid for the gin plant. The price paid is not only a matter of agree- ment with the appraised value but also a matter of the» volume attained. E If the volume of ginning of the members be exceedingly small, even a 10w price may be too high. Members are most likely to pay too high a price in consumating a “gin sale.” The owner in promoting a cooperative a association to buy his plant naturally attempts to get the highest price possible. Particularly is this the case if the owner be heavily in debt. as then his only possible chance of maintaining an equity for himself is through a high price. Frequently as one of the stipulations of the “gin sale” the seller becomes the manager of the association until all indebtedness to him has been liquidated. Under such circumstances the manager, particularly if the salary agreed upon be favorable to him,'_ may find his interest enhanced by a long period of liquidation. A low- ering of gin charges or the paying of cash dividends lengthens the pay- ing out period. Some of the gin associations have not been seriously ‘ handicapped in paying a price somewhat above a fair appraised value or in accepting the seller as the manager. In such instances, a large volume _ of ginning with an adequate gin income per bale has resulted in favor- able profits. The appraising service of the Houston Bank for Coopera- tives furnished to its clients and potential borrowers has greatly helped the gin associations in determining a fair value of the plants purchased. A few associations in Texas have suffered as a result of having been i‘ organized by professional promoters. In the main, handicaps of two kinds have resulted. The organizational set-up was faulty; the fees paid the organizers were too high in light of the type of service offered." _ By and large, the cooperative gin movement in Texas has been quite free of the professional promoter. Competition among cooperative gins, in a few instances, has led to difficulties and even to failures. The rival associations may be located at the same gin point or at neighboring points. The symbol of compe- tition seems to be crystallized in the patronage dividend. At times various forms of manipulation have been resorted to as the means of g a increasing the dividend above that of the rival. For instance, one asso- ciation shortweighted its members on the cottonseed purchased. Thus having more pounds to sell than purchased, large profits were realized on the cottonseed handled. This was reflected in the high patronage dividends paid the members at the end of the season. The association which may be slow in paying off its indebtedness and hence tardy in paying cash dividends may find its" members deserting to the cooperative which is paid out and in position to pay cash dividends. Especially unhappy is the lot of a weak cooperative gin association which may find itself located between two strong dividend paying associations. SUCCESSFUL OO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 83 Management as a Factor 0f Success or Failure jtliompetent management" is the mainspring of a successful cooperative ciation. One of the most important contributions of an able man- is that of creating and maintaining of membership interest in the rs of the association. A successful association requires Qomplete harmonious cooperation between management and members. A sound cial policy involves not only expertness on the part of the manage- t but also a recognition on the part of the members that they must t the financial needs of their association either through cash invest- ts or through profits" left in the business. A large percentage of the cooperative gins in Texas could profit greatly n increased volume of ginning. The manager and leaders have I an opportunity and a responsibility in promoting greater support eir cooperative. The magic of increasing volume operates in two tions: increasing volume decreases the cost per bale thereby in- ing the profit per bale; increasing volume decreases the investment A ‘bale in the gin plant. Thus in terms of profit financing, with increas- Oolume: the member has an increasing profit with which to pay his _re of the investment; the member has a decreasing pro rata share e investment. l rong and competent management is essential to the success of any all cooperative gin associations. But the manager ‘must operate truly democratic fashion. Some managers, who judged by the nce sheet and operating statement may be highly successful, seem to me that so long as they produce results the members are to ask no tions. Some managers even go so far as to take the stand that the _ they tell the members about the affairs" of their association the bet- i1 'A sound cooperative cannot be developed On such a philosophy. In ‘livery nature of a cooperative organization, the final responsibility rest on the individual members. The principles of self-help and ule cannot be abrogated. Teamwork is required among members, oard of directors, and the manager. 1 Over Expenses jmbers quite generally demand services that only efiicient gin asso- “ns can furnish. If the manager is lax and careless in the control enses he may not only be unable to give the- service members de- l» but also be in danger of jeopardizing the profits of the season. st members are proud and appreciative of an efficient organization. O e end of the season they should be interested in the total profit, :~ to the association as well as in their own pro rata share of the it, or loss. The management should furnish the members with a de- W analysis of the business for the season which explains the profit, or oss. If expenses are exorbitant the morale of the members may be ened and the members may lose interest. To keep the‘ cooperative a of the association may be placed in jeopardy. BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION highly successful, operations must be successful; to keep operations sue-i cessful the manager must be ever alert to keep expenses under control, Control Over Gin Charges Many gins have failed because of an inadequate gin income per bale; This may result either from an insistence on the part of the members '5 on a low first money cost or from competition with other gins for patrony age. In too many instances, members focus their attention on the charge,‘ and give little or no thought to the actual cost of ginning. If the gin”. income per bale sinks too low, net profits may become most disappointing.“ even with a large volume of ginning. With a large volume of ginningi and low costs, the profit may still be too 10W to pay out the gin plant within a reasonable time if profit financing be followed. Thus the life f If a cooperative does not drop its charge in conformity with competi-x tion, the grave danger arises of desertion by members to take advantage p? of the first money cost exacted by the competing gins. The immediate savings may seem too alluring to many members to be resisted. Thea first deserting member may set the style for others‘ to follow. The. volume ‘lost because of non-delivery may become so large as to cause failure. a The gin income per bale may suffer because the cotton is bought from‘ the patrons at a price above the market. Cooperatives overpay for cotton either to increase the volume above normal or to maintain the volume atl normaLlfi Estimates of increases in volume are usually too optimistic. In most instances the cooperative overpaying for cotton has competitors following the sa.me practice. The net result is a relative position as be- 1 fore as to patronage appeal but with depleted profits" for all gins. The‘ manager of a cooperative gin has a heavy responsibility in convincing v his members of the folly of reducing charges‘ to too low levels or of; overpaying for cotton purchased from patrons. ' Personal Relations of Gin Manager Of greatest importance, perhaps, the manager must attract patronage. This means that he must capture and hold secure the confidence and_ good-will of the members. Unless the member ‘can be shown 11's patron- a age is sought he can usually find some reason for taking his cotton else- where. The manager must be courteous and fair in his treatment of all members. Favoritism to individual members or groups of members usu-Y ally destroys membership morale. The manager should have a pleasing personal relationship with mem- l bers of the board of directors. In some instances the manager has shown? favoritism to some of the more influential members of the board. This A may take the form of a premium price paid for the cotton of the favored 15 Bulletin 606, Texas Agricultural Experiment Station. pp. 52-55, saw SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 85 {members In such cases as these, the members not favored may feel Yresentful causing a drift towards a. factional split in the board. p‘ Occasionally managers of Texas cooperative gins have been chosen Ylargely because of being related to many members of the association. The assumption seems to be that‘ such a choice insures a large volume [of l’ ginning. As a rule a manager with a large relationship as‘ his chief (qualification has not proved very satisfactory. Manager Supervising Good Records In a cooperative the keeping of good records is a prime necessity. ‘AThe records must be detailed so as to show contributions to the business imade ‘by each member and non-member such as" bales ginned, cotton- seed left with the gin, cottonvbought, and equities owned in the gin. A). Records of expenses should be itemized in detail and prorated precisely eiTto the various departments so as to facilitate the computation of costs “and profits by departments with reasonable accuracy. An equitable dis- Eshow the contributions made by the members to the various depart- jvments of the business. The gin manager must not only make certain that the books are kept 7currently in proper form but he must also make certain that all perti- ianent information reaches the bookkeeper. A filing space should be pro- divided in which to keep all canceled and returned checks, duplicate de- Liposit slips, all invoices and all statements made by creditors. In most Qinstances cooperative associations use practicing public accountants in making financial statements at the close of the ginning season. Unless fithe books have been properly kept and all records systematically filed, lthe duties of the auditor may be changed from that of verifying records Lei-to that of preparing records. If the auditor must also prepare the Tirecords, the cost of the auditing service may be greatly increased because lfof the greater length-of time needed in making the audit. {Adequate Control on Credit _ Many cooperative gin associations have taken on side line business. ‘In selling supplies to members the demand for the privilege of buying on credit becomes almost irresistible. The minutes of many of the gin associations reveal that the boards of directors have gone on record with Qstriking regularity to the effect that only cash sales be permitted. The u iifact that such resolutions are repeated is positive proof of the difficulties l-‘encountered in attempts to enforce strict cash sales. An association, Spin permitting credit business, places great responsibility upon the man- ager in that wise control becomes essential; The manager who fixes his attention on large sales may accumulate accounts receivable to dis"- iatrous proportions. One» of the Society gins in the Low Plains Area fatter operating for 15 years was thrown into bankruptcy by over-exten- Jpsion of credit in its filling station and farm machinery sales. Ztribution of patronage dividends to the members requires records" to’ O 86 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION The Danevang Farmers’ Cooperative Society permits credit sales with these restrictions: credit is granted for a maximum period of 30 days; credit is grante-d not to exceed $100. If the credit sales to a member does not reach $100 within the time limit, the 30-day rule is applied; if the credit sales to a member amounts‘ to $100 before the time limit has been reached, the $100 rule is applied. Profits" before being assigned to definite purposes scarcely ever are represented by cash alone. In many instances profits are tied up in inventories and receivables. If these receivables are allowed to become delinquent and carried over from year to year they eventually become worthless and thus profits are wasted. At present‘ no gin allowing profits to be wasted can maintain a place among the successful coopera- tive associations. Business Requisites of Success The three oustanding requisites involved in operating a cooperative gin as a successful business are: an economic volume of ginning; opera- tions at a reasonable efficiency; and an adequate gin income per bale. Strictly from the business standpoint, the essential interest of a mem- ber in his association is in low cost ginning. If cooperative associations do not reduce costs below those of the general run of competing gins through a larger than average Volume, no sound argument can be ad- vanced for organizing cooperatives. j Economic Volume of Ginning In more recent years the Houston Bank for Cooperatives in emphasiz- ing the necessity of large volume for its gin borrowers" has exercised a significant influence in raising the general level of successful opera- tions. Even with this emphasis a considerable number of gins financed by the Houston Bank has failed to attain a desirable volume. Great g care needs to be taken by the organizing committee in estimating the potential volume of the members. The volume ofa single year is not of utmost importance. It is the average volume over a period of years that counts. t Organizers tend to be too optimistic as to yields. An ex- amination of the records of the organizational period of a considerable number of gin associations shows that rather frequently the position is taken that the yield data for the county of the Agricultural Adjust- ment Administration are too low for the particular sections included in the membership. Most associations place too little emphasis on increas- ing their volume through. adding new members from year to year. Special care» needs to be taken in organizing an association in an area of low production. Whether a gin in such an area be isolated or subject to competition from ‘neighboring gins is also an important con- sideration. In either event members should make every effort to obtain a small gin plant with a low investment. This would insure a low fiXed cost which is so essential in keeping costs under control with a small volume. SUClCESSFULOO-OPERATTVE COTTON GIN ASSOCIATIONS’ IN. TEXAS 87 rop failures the first season or two of the new association are most “urbing. This is especially so if profit financing is followed. The ton Bank for Cooperative-s, however, has exercised Wise discretion in ng allowancesfor crop failures that come with considerable regu- ty especially in the Plains Area of the State. actically, the absolute minimum on which a cooperative gin asso- on could operate would be _its “break even” volume. But with a k even” volume the gin income per bale is most significant. For g nce, a steam gin of average efliciency and an investment of $15,000 the Blackland Area hasa “break even” volume of 1,408 bales at a pmcome of $4.00 a bale and a “break even” volume of 741 bales at income of $6.00 a bale. In the former case, a 10-bale member ' d have a first money cost and a net out-of-pocket cost of $40; and in atter case, of $60. Furthermore, at the “break even” volume no v financing would be possible. At the larger volume a 10-bale mem- gfwould have a pro rata share of $107 in financing the gin investment Y at the lower volume of $202. ency 0f Operations l »_ e cost of ginning per bale.has no definite meaning unless related i; standard as the average cost. That is, a cost of $10 a bale may e “high” in a given circumstance while a cost of $4.00 a bale may high” in another. For instance, a $15,000 steam gin of average p ency in the Blackland Area would have a cost of $12 a bale at a me of 306 bales a_nd a cost of $3 a bale at a volume of 2,561 bales. ch a gin had an actual cost of $10 a bale at a volume of 306 bales, _, fliciency would be 20 per cent greater than the average; if such a had an actual cost of $4 a bale at a volume of 2,561 bales, its 'ency would be 33 per cent below the average. gin with a cost greater than the average needs added volume to n the profit of a gin of average efficiency. For instance, a gin of “age efficiency and a gin income of $6 a bale realizes a profit" of $4,543 ‘j, volume of 1,817 bales. If this gin should have a cost 10 per cent than the average and a gin income of $6 a bale, a volume of L45 bales, or an increase of 9 per cent, would be required to realize same profit. But this added volume is not an entirely satisfactory titute for efficiency. If this gin at’ the larger volume operated at ge efficiency its net profit would be $5,209, an increase of 15 per t. » 1» uate Gin Income Per Bale e prevalence of profit financing among cooperative gin associations exas places great‘ emphasis on the gin income per bale. Obviously, ‘n income must be greater than the cost if profits are to be avail- for financingvthe gin plant. Only as the members pay a first money for ginning service above the cost of operating ‘the gin plant and 88 i BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION the cost" of bagging and ties can there be profits in these departments of- the business". These profits are in the nature of over-advances 0n the part of the members. Only as the gin association pays its members lessi than the oil mill price for their cottonseed can there be profits in this: department of the business. These profits are in the nature of a retain. Theoretically the charge made for ginning service could be main- tained at the cost level of the service. Fluctuations in costs because of unpredictable variations both in the volume of ginning and in the rela- tive efficiency of operation preclude a preseasonal estimate of costs ap- proaching actual costs. To delay collecting gin charges until the end off the season when costs can be determinedwould be most undesirable. Under such program the gin association would have the problem of fi-I nancing current expenses. The collection of gin charges from the pa-p trons at the end of the season would introduce many difficulties. The easiest time to collect the charges from members is when they obtain the service. The better system is to charge the going rate throughout the season as members obtain the service. In charging the going rate the cooperative takes its place in the competitive field with the least dis- turbance to itself and its private competitors. The members obtain ginning service at actual cost. The excess of the gin income over the‘ cost of the service accumulates to the credit of the members and may be finally realized either in the form of increased equities in the associa- tion or as cash dividends. Every successful cooperative gin in Texas has had, without exception, a large volume of ginning. Efficiency greater than average and gin income greater than average as the- means of compensating for the paralyzing effects of low volume of ginning fail as alternatives for large volume. There is no substitutefor large volume. Leaders of the successful cooperative gin association in Texas carry a heavy load of responsibility to their own members. But these leaders also carry a heavy load of responsibility to the cooperative gin move-: ment in general. Each successful gin association should realize that other groups will view its type of organization and program of opera- tion as models to be followed. If such an association has certain features in its program that apply only to very specific circumstances and that Would not apply rather universally, such association loses} greatly in prestige as an example to be emulated. Each strong coopera; tive gin association in Texas should feel that a Worthwhile contribution“ may be made by so shaping its form of organization and its financial‘ and operating programs that other cooperative groups may copy to their. own gain and advantage. i SUMMARY The successful cooperative gins_ of Texas todavare based on the ex-I. periences gained from thirty to forty years of experimentation withi farmers’ gins. ' —- ---w»~.-v—-v--=q-,-_ k " profits of such gins according t0 capital invested and not according t0 ' SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS S9 The Farmers’ Alliance and Farmers’ Union gins failed largely because of being organized on the farmer stock plan. Farmers shared in the the patronage furnished. Of the six Farmers’ Union gins still active, four were organized originally as cooperatives, or with distinct coopera- tive features. The Society gins organized in 1920, and later, ushered in the coopera- tive gin as a successful going concern in Texas. These gins succeeded because members benefited from their patronage relations and not from L, their investment relations to the association. Thus individuals with money invqwpv ~ members. a equities are neither salable nor transferable. to invest never had the opportunity of gaining control and then convert- ing the business into one distributing profits on the investment basis. Of 133 Society gins organized in Texas, 40 per cent have failedj 44 per cent continue as originally organized; and 16 per cent have been re- organized under the Cooperative Marketing Act. Since the organization of the Houston Bank for Cooperatives in 1934, the number of active cooperative gins in Texas has increased five-fold. The cooperative bank has made credit available at a reasonable cost and under terms suited to the needs of farmer associations. The bank has helped place cooperative gins on a sound operating basis by insisting on i a substantial volume of ginning and on theadoption of acceptable busi- ness practices. From about 78 cooperative gins in 1933, the number had grown to about 375 in 1942. The Childress Farmers’ Cooperative Society ginned 123,000 bales dur- ing the twenty-year period 1922-23 to 1941-42. Net profits of $420,000 were realized and patronage dividends of $372,000 were distributed to Of each dollar members paid for ginning service, the cost of operating the gin plant absorbed but 49 cents; seven cents of the dollar - financed the gin plant with an investment reaching $97,000 in 1942. Thus of each dollar members paid for ginning service, 44 cents was * returned as patronage dividends. For the 15-year period 1927-28 to 1941-42, the average cost of gin- ning of the Childress association was $3.93 a bale. Costs were about 6 per cent higher than the average standard cost of multi-battery gins in the Plains Area. All the capital of the Childress cooperative was obtained from profits left in the business. As profits were appropriated to pay for the orig- inal plant and later additions no patronage equities were established for the members. Equities of members are equal but unassigned. Thus Active membership de- pends upon the payment of the annual membership fee of one dollar. Membership may be gained too easily in the Childress society. If equities were assigned on ginnings of the past seven seasons and then rotated about every seven years on a retain per bale ginned, the new members would be required to carry their share of the financial load, Patronage in theChildress cooperative over a period of seasons‘ has tended to increase relatively during years of heavy production and to 90 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION decrease relatively during years of short production. _A reserve to ab- sorb losses of the short crop seasons should be effective in righting this tendency. With such a reserve even in the loss years profits on bagging and ties and cottonseed would be available for dividend payments. This assurance of cash dividends should be attractive to the patrons. The Danevang Farmers’ Cooperative Society operates in a territory settled by a group of Danes bent upon developing a community to serve their needs. The hardships encountered in the early years of the settle- ment had much to do with the fostering and acceptance of the cooperative philosophy.- The Danevang group had considerable experience in various types of cooperative effort in the mutual insurance company organized in 1897, _ the telephone company organized in 1913, and the supply business of the Danevang association organized in 1920 before building a. gin in 1927. Many cooperative gin associations in Texas are also in the supply business. The usual procedure is‘ to begin with the gin and later to add the side line business. In Danevang the supply business was developed first and the gin added later. \ Over the 15-year period 1927-28 to 1941-42, the Danevang society ginned 54,000 bales of cotton. Net profits of $155,000 were realized in the ginning business and patronage dividends of $141,000 were dis- tributed to members. Of each dollar members paid for ginning service, the cost of operating the gin plant absorbed 46 cents; 5 cents ‘of the dollar financed the gin plant. Thus of each dollar members paid for ginning service, 49 cents was returned as patronage dividends. The average cost of the 13-year period 1929-30 to 1941-42 was $2.49 a bale. The average standard cost was $2.95 a bale. Thus the Dane- vang society had a relative cost of but 84 per cent of the standard and a per bale cost of 46 cents less than the standard. ‘During the past five years supply purchases averaged $559 per mem- ber annually. Cash dividends averaged $43 per member. Savings on the purchase price below retail averaged $13 per member. The average savings to members were $56. Thus members of the Danevang coopera- tive increased the purchasing power of the dollar by 10 cents through theirssupply business. ‘ The investment in the gin plant of the Danevang cooperative was financed almost "in full from gin profits left in the business. At the time the gin plant was built, the association borrowed $20,400 from its members. These loans averaged $314 for 38 members and $530 for 16 members. All these loans were repaid by the end of‘ the first two gin- ning seasons. In no other cooperative gin association in Texas are membership meet- ings held so frequently as in the Danevang cooperative. A wide range of business matters that are taken care of by the boards of directors of other associations are passed upon by the members in Danevang. During the past 10 years annual profits of the Danevang association averaged $15,400. An average annual dividend of $109 was paid the SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 91 ’ members. Thus the savings of the cooperative business was distributed to a relatively large group adding to the purchasing power of many farm families. . The members of the Farmers Cooperative Association No. 1 of Tahoka are confined to Lynn County. Thus the members are not scattered over several counties as with the Childress‘ society. Lynn County has eight active cooperative gin associations at present. The territory of the mem- bers of the Tahoka association is shared in whole, or in part, by members of several other cooperative gins. Thus the members do not form a compact area as with the Danevang cooperative. The Tahoka group is placing great stress on its annual meeting in April. The morning meeting is usually devoted to short speeches by visitors. Lunch is served at noon and asC many as 800 members and visitors have been served. The afternoon meeting is given over to the business matters‘ ofthe association. During the 12-year period 1930-31 to 1941-42, the Tahoka associa- tion ginned 44,000 bales of cotton. Net profits of $101,000 were earned. Cash patronage dividends distributed to members totaled $75,000. Of each dollar members paid for ginning service, the cost of operating the gin plant absorbed 63 cents. The financing of the gin plant required 10 cents out of the dollar. Of each dollar the members paid for gin- ning service, 27 cents was" returned in the form of cash dividends. The Tahoka organization has made notable progress in its educational S. activities. A small mimeographed house organ, the COOP-O-GRAM is issued monthly. The annual report prepared for the members is a fund of information concerning the many activities of the association. The side line business of the Tahoka cooperative has become a very significant part of business activities. Gross sales reached a total of $76,000 in 1941. The past four years gross margins averaged 17.5 per cent and net margins 5.8 per cent. Cash dividends of 5 per cent’ on members" purchases are paid quarterly. ' A stock cooperative with a heavy turnover of members may have a vexing problem in taking up the stock of the retired members. The Tahoka association has made much progress in solving this problem. The 10 dollar share of voting, or membership stock, is taken up and preferred stock issued instead. All the preferred stock is revolved which _ means that in due time the equities of the retiring members will be liquidated. During the seven-year period 1935-36 to 1941-42, The Farmers’ Co- operative Gin Association of Mabank ginned an average volume of 2,777 bales. This is a remarkable record for a cooperative with a 4/70 gin plant in an area of very low production per grower, a high percentage of tenancy, a decided over-capacity of ginning facilities, and a low gin income per bale. The ability of the Mabank association to maintain deliverygof its members‘ almost intact the first season even though charging 30 cents per cwt. of seed cotton for ginning service while competing gins were 92 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION charging 20 cents was largely responsible for the success of this associa- ‘ tion the first season and following seasons. On the total volume of 19,000 bales, gin profits" of $56,000 were earned. The dollar members spent for ginning service was divided as follows: cost of operating the gin, 49 cents; financing of the gin plant, nine cents; and cash dividends distributed to members, 42 cents. During the three seasons 1939 to 1941, 30 per cent of the volume of ginning of the Mabank cooperative was delivered by non-member patrons. If the volume of those seasons had been 30 per cent less, assuming the same relative efficiency, average annual net profits would have dropped from $8,017 to $4,643. The Mabank association issues but one type of stock, common. As this association loses many members each year, the problem of how to deal with the stock of the retiring members arises. If the association would change its stock structure so that one share of common of nominal value would be sold to each member and the rest of the equity evidenced in preferred stock revolved according to a definite schedule, the matter of what to do with the stock of the retiring member would be largely solved. Less than 20 per cent of the gin associations of Texas are as success- ful as the four associations discussed in this Bulletin. The failure of a large percentage of gin associations to attain a degree of success desirable presents an opportunity for constructive action aimed at gen- eral and extensive improvement. Competition among cooperative gins, in a few instances, has led to difficulties and even to failure. The relative success of the rival asso- ciations is usually measured in terms of patronage dividends paid. Strong and competent management is essential to the success of any and all cooperative gin associations. But‘ the manager must operate in a truly democratic fashion. In the very nature of a cooperative organi- zation, the final responsibility must rest on the individual members. The principles of self-help and self-rule cannot be abrogated. Teamwork is required among members, the board of directors, and the manager. If expenses are exorbitant the morale of the members may be weakened and the members may lose interest. To keep the cooperative highly successful, operations must be successful; to keep operations successful the manager must be ever alert to keep expenses under control. The manager must attract patronage. This means that he must cap- ture and hold secure the confidence and good-will of the members. The manager must be courteous and fair in his treatment of all members. In a cooperative the keeping of good records is a prime necessity. ‘The records must be detailed so as to show contributions to the busi- ness made by each member and non-member. An equitable distribution of patronage dividends to the members requires records to show the contributions made by the members to the various departments of the business. ' SUCCESSFUI;CO=OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 93 y upon the manager in that Wise control ‘becomes essential, Profits cash alone. In many instances pTOfitS are tied up in inventories and eivables. If these receivables are allowed to become worthless, profits e wasted. At present‘ no gin allowing profits to be Wasted can main- in a place among the successful cooperative associations. The three outstanding requisites involved in operating a cooperative n as a successful business are: an economic volume of ginning; opera< lons at a reasonable efficiency; and an adequate gin income’ per bale. Every successful cooperative gin in Texas has had, without exception, “flarge volume of ginning. Efficiency greater than average and gin ‘come greater than average as the means of compensating for the par- : ing effects ‘of low volume of ginning fail as alternatives for large ~ ume. There is no substitute for large volume. ‘ gThe leaders of successful cooperative gin association in Texas carry heavy load of responsibility both to their members and to the co- rative gins in general. The “successful gins should strive to organize eir financial structure and their operating procedure in such fashion v t other cooperatives in following their example could do so to their I profit and advantage. An association, in permitting credit business, places great responsibil- _ . ore being assigned to definite purposes scarcely ever are represented ‘ 94 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION APPENDIX A Articles of Incorporation and By-I-aws of Early Farmers’ Gins DEXTER GIN AND MII-I- COOPERATIVE ASSN. Oct. 7, 1889. Plan of Dexter Gin 8t Mill Cooperative Association lst. We recommend that the Alliance of Dexter establish a cooperative gin 8s mill cooperative association with a capital stock of not less than three thon- sand dollars ($3,000) to be raised by shares of twenty-five dollars ($25.00) each to be taken by members of the Farmers Alliance. 2nd. Said gin 8t mill shall be located in the town of Dexter, Cooke County, Texas. 3rd. The business of said gin 8a mill cooperative association shall be t0 operate a general gin and milling business. 4th. It shall be conducted by a member of the Farmers Alliance to be elected by the Board of Directors said Board to be share holders. 5th. That there be elected by the share holders a Board of Directors con- sisting of five active business members of the Alliance, whose duty it shall be to examine the books relating to gin 8o mill and make a. report to the share- holders semi-annually in March and September or at any called meeting that the business may demand. 6th. This cooperative Association shall exist for a term of fifty years. 7th. The superintendent shall have power with the advice of the Board of Directors to employ a sufficient number of hands to do the work. of the asso- ciation but the superintendent shall have power to discharge employees at his discretion. 8th. No person shall be connected in any way with said gin 8a mill who i not a member of the Farmers Alliance in good standing. 9th. The superintendent and board of directors shall have power to make arrangements for defraying all incidental expenses connected with said 8111 10th. At the close of each year if a profit has accrued it shall be divided among the stockholders according to the share of each, llth. No persons interest in said gin 8r. mill shall exceed two hundred dollars ($200) and no person shall be allowed to withdraw his stock before the expira- tion of five years after which time he may withdraw his stock provided he gives ninety days notice. _ 12th. The superintendent shall be required to execute a bond to the board of directors and their successors in office for double the amount liable to pass through his hands annually. 13th. Each shareholder shall have one vote on all questions coming before the association regardless of stock taken. . . . Buda Milling and G-inning Association of the Farmers Alliance, Feb. 6.1392- Article I The name of this corporation shall be the IBuda Milling and Gdnniug Asso- ciatlon of the Farzner’s Alliance. Article II This corporation is formed and created for the purpose of owning and man- aging a milling and ginning establishment upon a cooperative plan, of buying and selling such real estate and other property as may be necessary to promote the object of its creation and of transacting any and all kinds of business incl- dent or appertaining thereto for the mutual profit and benefit of the stock- holders and patrons who are members of the order of the Farmer’s Alliance. Article ‘VI The capital stock of this corporation shall be twenty thousand dollars divided into shares of five dollars each which shall be transferable but cannot be withdrawn. Farmers Union G-in Co. of Chillicothe, July 2, 1906. Art. l. The name of this corporation shall be “The Farmers Union Gin Company.” _ Art. 2. This corporation is formed for the purpose of constructing purchas- ing, operating and maintaining, and doing a general gin, mill. grain elevator and warehouse business, and for the purpose of buying, selling and storing grain and other products and commodities by grain elevators and public ware- house companies. Art. 3. The principal office and place of business of this corporation shall Abe at Chillicothe, I-Iardeman County, Texas. SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 95 ‘M-‘q- ‘FW Art. 4. Said Corporation shall exist for a term of twenty years. Art. 5. The number of the Directors of this corporation shall be fi_ve_: and . those appointed for the first year are as follows, towit: W. W‘. Cole, Chillicotho, Texas; J‘. S. Haynes, Chillicothe, Texas; J. L. Potts, Chillicothe. Texas; J w- Austing, Chillicothe, Texas; and S. E. Swim, Jr.., Chillicothe, Texas. Art. 6. The Capital Stock of this corporation shall be twelve thousand d01- lars to be divided into twelve hundred shares of ten dollars each. Certificate of Dissolution, June 26, 1909 carried 61 names. CONSTITUTION AND BY LAWS FARMERS DISTRICT UNION GIN ASSOCIATION RULE, HASKEIIII COUNTY, TEXAS Article 1: DECLARATION OF PURPOSE The purpose of this association shall be the ginning‘ 0f QOWOII; the buying‘ and selling of cotton; the buying and selling of cotton seed for the benefit of the stockholders of the association. Article 2: NAME OF ASSOCIATION The name of this association shall be the “FARMERS DISTRICT UNION GIN ASSOCIATION.” Article 3: PLACE OP BUSINESS _ The principal place of business of this association shall be at Rule in Haskell Q County, Texas. Article 4: CAPITAL STOCK ' The capital stock of this association shall be fifteen thousand dollars ,_ ($l5,000.'.)0) divided into six hundred shares, (600), o-f the par value of twenty- ; five dollars ($25) each. Article 5: MEMBERSHIP . Any cotton farmer may become a member of this association to the amount of one share of its capital stock . . . " When the books of the association show a cotton farmer has patronized the gin to the amount of Twenty-five dollars, ($25.00) he shall be issued one paid up share of the capital stock of the ‘Tarmers’ District Union Gin Association” which shall entitle him to full membership in the association. . Article 6: BOARD OP DIRECTORS The business of this association shall be conducted bv a Board of Directors consisting of five members: The ofiicers of this association shall be a President, Vice-President, and, a Secretary-Treasurer. , All the officers of this association shall be elected by ballot of the stock- a holders at their annual meeting, which shall be held on the first Saturday in April, of every year. Article 7: DUTIES AND POWERS OF OFFICERS The PRESIDENT shall preside at all regular and call meetings of the As- sociation. The PRESIDENT shall explain,‘or cause to be explained, the Object of such meetings; supervise all elections and declare the results; order all tlections when so instructed by a majority of the BOARD OF DIRECTORS, or Ten per cent, (10%) of the Stockholders. ' _ The PRESIDENT shall approve or veto all sales, purchases, contracts, or 1_ other business entered into by the BOARD OF DIRECTORS whereby the asso- ciation is made a party to such sale, purchase, contract, or other business transaction. ~ In the event any measure is vetoed by the PRESIDENT by a written peti- .-_ tion, signed by three (3) of the ‘directors, the PRESIDENT shall call a meeting _ of the stockholders, to whom such vetoed measure shall-be referred. a The action of the stockholder, when taken by a ballot, shall be final from which there is no appeal. The PRESIDENT shall act as an ex-oificio director, having the right to sit with and advice the BOARD OF DIRECTORS but shall not be allowed to vote ., on any measure being discussed or acted upon by that body. __ The VICE-PRESIDENT shall preside in the absence of the PRESIDENT and . perform all duties incumbent upon the PRESIDENT. 1 The SECRETARY-TREASURER shall keep a record of the minutes of the _* . meetings of the BOARD OP DIRECTORS; keep a record of all business trans- acted at all regular and call meetings; keep a correct file of all reports, State- ments or other documents turned over to the BOARD OP DIRECTORS by the “‘ bookkeeper of the Association. 96 BULLETIN 636, TEXAS AGRICULTURAL EXPERIMENT STATION Article 8: VOTING All elections of ofiicers and other matters requiring an expression of the stockholders shall be determined by ballot. Every member of the association shall be entitled to, but one vote on any measure before the stockholders. A member may vote by proxy when such proxy presents to the PRESIDENT or the presiding officer, a written authority for so doing‘. Article 9: ANNUAL MEETING-Si The annual meetings of the stockholders of the “FARMERS DISTRICT UNION GIN ASSOCIATION” shall be held at Rule, in Haskell County, Texas, on the Pirst Saturday in April, of every year. At the annual meeting of the stockholders a report will be made to them of the _season’s operations, which shall show the income and expenses of the asso- ciation; the financial status of the association; and the dividend, per bale of cotton ginned, which the BOARD OI‘ DIRECTORS have declared. Article l0: DIVIDENDS AND PROFITS The B_OARD OP DIRECTORS shall declare no dividend until all debts 0f the association have been fully paid from the funds of the association. When it is shown by the profit and loss statement that a net profit has resulted from the Qperatlons of the gin, and all debts of the association have been paid or provided for, the BOARD OI‘ DIRECTOR'S shall, before declaring any divi- dend, reserve ten percent (10%) of the net profits for the making necessary repairs to the machinery and buildings, prior to the beginning of the next season’s operations. The dividend shall be paid the stockholders on the basis of the number of gglsei: of cotton ginned by the stockholders of the association and on no other All the profits of this association, excepting the ten per cent (10%) men- tioned above, shall belong to the stockholders of this association who ginned their cotton at this gin, and shall be paid to them on the basis of the number of bales of cotton ginned by each, from the funds on deposit to the credit of the association. Adopted April 2s, 191s. APPENDIX B Equations for Estimating Total Costs of Ginning (1) Average Cost Blackland Area $1,730 + $009301 + $1.7sv k2) 2,193 + 0.08871 + 137v 2,089 J; 0.05921 + 2.0sv High and I-ow Plains Area Steam Power Diesel Power Electric Power H ll ll Steam Power z $3,392 + $005921 + $2.251? Diesel Power : 1,973 ~1- 0.ll2OI + 1.7617 Electric Power = 1,528 -L 0.11221 + 2.42v Large G-ins : 5.080 + 0.10521 + 1.75v Gulf Coast Area Diesel Power : $1,711 + $009571 + $1.991! Electric Power I 938 + 0.09531 + 2.591!’ All Texas Average Cost : $2.035 -}- $008791 + $1.911! (1) Cost and profit of Ginning Cotton in Texas. Bulletin 606, P- 9_9- (2) I—Investment in gin plant in dollars; V—1Tolume ofginning" in balel “W”. r F. SUCCESSFUL CO-OPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 9'7 APPENDIX C Proposed Methods of Assigning Equities to Members of the Childress Farmers’ cooperative Society by T. L. McFarland, Former Office Manager, Childress Farmers’ Cooperative Society First Choice Approximate Bales Rate Equity‘ Year of Series Year Ginned Per Bale Assigned Retirement (1) 1 1922 1300 $2.70 $ 3510 1943 2 1923 2300 , 2.70 6210 1943 8t 1944 3 1924 6737 2.70 18190 1944, 1945 8n 1946 4 1930 1198 2.70 3335 1946 5 1932 10547 .10 1055 1946 6 1933 10871 .25 2718 1946 8n 1947 7 1934 1278 2.70 3451 1947 8 1935 8965 1 00 8965 1947 8a 1948 9 1936 2458 2.70 6637 1948 8t 1949 10 1939 2461 2.70 6645 1949 8t 1950 Y (1) Revolving the equities over a period of about seven years based on an annual volume of 6600‘ bales at $1.25 a bale; each year that the volume is »g'reater than 6600 bales, the time of retirement will be hastened; each year i that the volume is less than 6600 bales, the time of retirement will be retarded. If complete records are not available for any of the first years, the number p of‘ bales ginned by patrons could be reasonably ascertained by sworn statements " from said patrons. i The years 1932, 1933, and 1935, assign equities according to amounts paid t0 k “Replacement Reserve Fund” those years. True, the plant was paid for during the 1924 season, but without the Patron- jage furnished in 1922 and 1923, the plant would very likely not have been in reparation in 1924. And too, the years 1930, 1936, and 1939, being short years, many patrons deserted the association which caused loyal members to carry lthe burden of expenses during those years. Therefore it seems equitable that ‘the loyal patrons should be rewarded for earnings denied them due largely to fthe non-support of a large number of farmers. m‘ ‘Second Choice s?» a Approximate s Bales Rate Equity Year of Series Year G-inned Fer Bale Assigned Retirement (1) 5. F 1 1930 119a $1.50 s 1797 194a 2 1932 10547 .10 1055 1943 3 1938 10871 .25 2718 1943 4 1934 1278 1.50 1917 1943 5 1935 8965 1.00 8965 1943 8t 1944 6 1936 2458 1.50 3687 1944 8t 1945 7 1939 2461 1.50 3692 1945 8 1940 5023 1.50 75-35 1945 8a 1946 9 1941 9722 1.50 14583 1946, 1947 8t 1948 10 1942 8000 1.50 12000 1948, 1949 8t 1950 w at (1) See footnote under First Choice above. 98 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION i APPENDIX D COOP-O-GEAM Parmers Cooperative Association No. 1 __ ' Tahoka, Texas December 1942 Vol. 7, No. 6 »; emu: TIDING-S This Season of the year should be a happy and joyous one for people eve ' _ where. But Dictators with unholy ambitions have thrown the entire woe into war, with misery and suffering for many. We are more fortunate in Am <1 ica than in many places, tho our sons and fathers are dying in all lands no Those at home must put up a strong fight, working and praying for the end wars. So don’t lose hope that the Prince of Peace will again reign with 1 ~ '1’ tidings: “Peace on Earth, Good will towards men." CONGJZATUIIATIONS be made and reported in April. i. The Directors also voted to pay a Station Dividend in January for purclia over the past 3 quarters—in cash too. So get all accounts current, in ord' that all may receive one of these checks. It will be the 10th or 15th of Jé‘ month, before they will be made out. g _ N_'ow about Accounts! We are not going on a 100% cash basis, but we n1 insist that all accounts be taken care of promptly during 1943, as we have -» abide by the Regulations W of the Government, p1eese aenw; make the accoun embarrassing‘ 1'01‘ 115, 01' yourself. I-et’s talk. it over, if you need help. = These Gin Plants, Gin Building and Lots, as well as the Station and Ofllcg‘ and Trucks are yours—paid for—free of debt, from profits of the business? ._______._____ A BRIEF REPORT We have ginned 6,481 bales o_f cotton up to this time and expect to reacp} 7,000. Under OPA regulations gins were allowed to increase their charges 5%f was 30 cents here. A11 repair items and labor were higher, yet the ginning‘ operations will show profit, on account of the nice volume we received. .; Cottonseed have been graded-for the first time and OPA allowed a. 1V] margin to gins. However many of the early seed that cost us $50.00, did H bring much over $1.50 to $2.00 profit. Gins in the south part of the county h i; a higher grade of seed and therefore able to pay more for them; we tried j stay close to their prices and therefore had a smaller margin. But the ave ‘ rage of the season will balance up the net profit, we hope, and show this departé ment w_ith a good report. Speculation or storage of seed is not allowed 11nd,.‘ regulations and many mills were not able to bid for our seed on account of, this condition. 3i Bagging and ties have cost from $1.41 to $1.51, so with sale prices of only‘- \- $l.8O you will know there is not much profit here. Most of the cotton ha; gone into the loan. But we have some on hand now that buyers at Lubboc, will not take, saying they are out of the market. i; The Station has shown an increase in sale over last year, with better pro i. But under rationing we may have a lower volume. Storage barrels can har _ be found, so if you can use an underground tank, better install it now. S68 us about these. We have Inspectors to check your tires—have that done We also have a stock of war tires and farmers are eligigle for these. i a COTTONSEI-JD f‘ As in the past, we have tried to save back some good planting seed for those customers who lost theirs, or failed to make a good crop. Some 11370‘ already bought these seed, and taken them home, As the supply is limitodg; we urge that others who are going to need cottonseed, come at an early date; for theirs; we want them off the ground and be able to clean up our seed piles. j SUCCESSFUL COOPERATIVE COTTON GIN ASSOCIATIONS IN TEXAS 99 p d and Western Prolific are on hand now and we expect some Macha’s ,» Proof soon. -.-- r load of Summerouvs Iii-Bred will arrive anytime now. Over one-third Y car is booked, so if you want some of these, get your order in now. sect to sell these as soon as possible, giving our customers first chance. < ere is over $5,000.00 in a car of these seed, so we will want to get our ~. out of them as soon as possible. Nearby Coops willtake them if we ‘all to them. Act now. _ also have sacks of new Western Prolific seed bought; this is a. little staple cotton and stays in the bur better. As the Government is urging staple for next year, farmers should improve as much as possible, Acala, _, and" Stoneville are approved varieties for Texas. ' , we urge you to make arrangements for your cottonseed in next 15 STATION Station has a small stock of ‘War Tires for sale: nearly all farmers are =- = for this tire, as the need arises. If your present tires cannot be 1'6- ; or repaired, then you should apply for one of these tires. Consult one , _ Inspectors, when in trouble. And do not wait until the last days of q; to have inspection made on your tires, as called for in your applica- gfor A Ration book. =- oils and greases are coming in larger containers: it is necessary for us ' we a barrel to replace any sold with oil. As for storage on your fuels, j is a tougher problem all the time. Parmers are eligible to buy under- tanks and right now we know where we can find them for you. With rotary pump over such a tank you would have a nice piece of equili- f ‘and save money too. Let us hear at once if interested. Save your grease Q s and return them here. You may have to bring them in for re-fills out ll pound drums’ if the war lasts a long time. Batteries and spark plugs .7 » available—-car jacks, grease guns and many items are hard to find. We i bought binder twine for next year. Anti-freeze has been a problem, but ‘ are using our Bond without complaint. Others have had trouble and damage. The Distributor and Manufacturer both claim this anti-freeze not damage machinery in any way. We have endeavored to make FY0119? A ment with those who have purchased and had trouble. ' 1943! COOP ALI- TEE WAY Tahoka, Texas. Apr. 24., 1940. ‘~ Priends and Members, rs Cooperative Association No. 1, , Texas. _ I is with pleasure I have prepared a brief report on the activity and ad- p. ent of the Association since our meeting in April, 1939. It gives us all ..to know that we are members of an organization that is making progress giving service in what it attempts to do. The new accounts and business has come to the association the past year shows the confidence the People in us. And the profits we have made and the increase in our Net ‘Worth y . the usefulness of the association. » .~- Gin Plants, the New Office and Station are owned by the members less held by the Houston Bank. for Cooperatives. Your financial in- is evidenced by the stock you hold; the profits made by the organization , right at home and aid you in providing better living conditions in Your p home. As the Association pays out of debt, you will receive greater ben- for the older stock will begin rotating and you will be receiving two 10s of dividends: namely, Patronage and Revolving Stock. i-ly in May the Board closed the deal on the Automatic Sprinkler System e No. 2 Plant, thereby reducing the insurance rates, with a saving of _, $725.00 per year. This represents the annual payment to the Sprinkler pany, the balance now being $4,350.00. After this amount is Pa-ld, that --; will go into our profits each year. _ _ ’ on will remember that we completed our new office and Station_ in #11111 »opened for business at the new location on May 1st. Plver since that " our station business has been on the increase and: it will show a 35% - this year. Gasoline and other fuels are _now selling cheaper than any y since we entered the business, but we continue to pay you a 5% dividend your Station purchases. However, if prices should 8'61? 1100 ¢1°s$ We 399W ’ will not expect a continuation of the dividend. Some new equlpment “(as = lit for the Station and new furniture placed in the office. The old office 100 BULLETIN NO. 636, TEXAS AGRICULTURAL EXPERIMENT STATION building was moved to one of our vacant lots and improved for a reside in which one of the men lives. . The Board and Management strives to cut overhead and operating expe _ as much as possible. We have found that we can haul our own cottons the cotton we gin, the dirt and trash from the gins, our meal, our gasoline - other fuels and do miscellaneous hauling, cheaper than we can hire it do Besides being cheaper, it is more satisfactory in other ways. The reports " show the savings made and they have been paid to you in dividends. . Some comments or propaganda reached the Board that some folks tho ~ the Directors were being shown favors above others. In order to ‘meet It loose talk, they adopted a resolution that the Manager shall not employ < of his relatives or anyone close akin to Board members. The Directors ; liberally of their time to the work of the Association. For regularly mon meetings, they receive $2.00 for their time and travel expense, many spe » short calls are made, for which they receive no compensation. I know appreciate their work; tell them so. ' The Board has found that a well informed membership is one of the grea assets we can have, so has encouraged he publication of our “Coop-O-G '- to give you the facts about our organiza ion. Your suggestion as to what ~ would like for it to contain will be appreciated. This Association is n sponsoring a Cooperative Council for the gins of this area and will hold’ second meeting here on April 29th. We are all working with the Coop ~_ and other leaders for the Cooperative School to be held on June 24, 25, p. 26th at Texas Tech. You will be welcome to enroll. q There are many items that the Board has acted upon, which I do not space to mention, but they are reflected in the operations of the Associae ‘We have given time and thought to this_, OUR_ BUSINESS. Your suggesti are always welcome and we trust you will be interested enough to help ~~ i. you can. You will find much to study over, in the pages that follow and. hope you will inform yourself. The benefits you have received are 5110 herein. But Cooperation means_ more than cash and stock dividends, I1; working with others, sharing with others and being unselfish. ' Your past loyalty is appreciated and I urge that you continue to be a. Coo erator. p Sincerely submitted, (Signed) B. J‘. Emanuel, President. Prom Annual Report, April 24, 1940 COOPERATIVE YARDSTICK You think of a yardstick as a unit_ of measurement. I-Iow do you mo; your Cooperative or what do you think of it? Here is something to s - about. a. The price of ginning your cotton was 40 and 50 cents Only a few years ago; now it is 25 or 30. ' b. The profit on handling your cotton was $5.00 per bale or more; it is now 50 cents and $1.00 or at a loss sometimes. c. The margin in cottonseed was $4.00 to $7.00 per ton; it is now $1.00 to $3.00. Also the price stays near the §allas market, whereas formerly it was always under it. d. The class of ginning and the service rendered has greatly improved: Coop G-ins are the best customers for new, modern machinery. e. Margins in Station supplies have been greatly reduced and. quality improved since the Cooperative entered the business. “More Dividends from larger volume flow, Better Service from Cooperatives as they grow.” 'snaava ‘$931100 u e y