allele): 732 ' of Local Cooperative Anoeiationx ' of T exas, Season 1949-50 june I95 TEXAS AGRICULTURAL EXPERIMENT STATION R. D. LEWIS. DIRECTOR, COLLEGE STATION, TEXAS DIGEST Agriculture is one 0f the few industries in which the business units are predominantly s Farmers organize marketing agencies to gain some of the advantages of large-scale business. main interest of farmers in their marketing agencies is that 0f sellers of commodities and buye farm supplies and equipment. Such concern is essentially that of patronage. The cooperative of agency fits the needs of farmers since it is organized and operated according to the patro 7 principle. The financial status of the 577 local associations was very satisfactory at the end of the w 1949-50, as shown in the consolidated balance sheet. The current ratio (current assets divided by g rent liabilities) was 2.8 to 1. On an average, the associations had $1.42 in cash for each dollar of rent liabilities. For every dollar of assets, members had an equity of 73 cents clear of all indebted Average sales during 1949-50 were $357,020 per association and $1,420 per patron. Se A charges accounted for 56 percent of total gross margins. The trading margin and service income " 17.3 percent of sales. Expense deductions were 11.8 percent and net margins 5.8 percent of sales. margins were equivalent to 26.4 percent return on the cost of depreciable fixed assets. ‘ Sixty-five percent of all local associations were engaged in the supply business. For the 180. sociations with supply sales of 5.1 percent or more of total sales, the average sales per associa were $143,060. The supply functioning of local cooperatives was the main enterprise qualifying ' merchandising business. While the supply business accounted for 13.5 percent of all sales, the ». ing and closing inventories of the supply business represented 82.6 and 79.9 percent of total inven ies. ~ m m-H-M‘? :",-,',"QH:."~£- The payroll of the 577 locals in 1949-50 was: managers’ salaries, $1,690,544; office workers’ aries, $897,056; and laborers’ wages, $6,909,279, or a total payroll of $9,496,879. The average pa V per association was $16,460. These locals gave an equivalent year-round employment of 556 manag 692 office workers and 2,764 laborers, or a total of 4,012 employees. The average investment in buildings, machinery and equipment was $16,017 per laborer. ~e_._..J-o-|-o=.-v-mvr-4 r-é-no r:- Average cost of fixed assets ranged from a low of $10,913 for the period 1913-19 to a high- $35,765 for 1945-49. The cash paid-in by members at the time of organization to cover the cost, fixed assets ranged from a low of 12.2 percent for 1930-34 to a high of 47.2 percent for 1945-49. A age costs of fixed assets as of 1949-50 ranged from a low of $63,300 for associations organized du t 1945-49 to a high to $133,270 for those organized during 1920-24. The total depreciation reserve ra ed from a low of 12.6 percent for 1945-49 to a high of 39.1 percent for 1925-29. The average for associations was 28.7 percent. One hundred and twenty-three one-function gin associations were chosen for special analy One hundred and five of these associations started with second-hand plants and 18 with new plat The average original cost of the second-hand plants was $23,360 and the average of the new pla $55,480. The average costs of fixed assets as of 1949-50 of the 105 associations was $56,270 and‘ the 18 associations, $78,200. A full depreciation reserve for the 105 associations would cover 60 r 52 percent of replacement costs of $94,600 and $107,300 per battery; a full depreciation reserve of é- 18 associations would cover 83 and 73 percent of replacement costs. .._._A__|vn4r\—>.—~% Many cooperative gin associations in Texas will be confronted with serious financing probl when steps are taken to install new machinery and equipment. This stems from the fact that g erally the depreclation reserves will fall far short in covering costs of replacements. 5 Thirty-four local associations, or 5.9 percent of all local cooperatives, made no charge-off for - preciation. This is contrary to good business practice. ’ ll]. of pe ERS ORGANIZE AND CONTINUE TO PATRONIZE i3 atives for the specific purpose of increasing élfarm income. Agriculture is one of the very dustries in which the business units are pre- ntly small. The farmer as a business man erally beset by numerous problems in sell- g products and in buying farm supplies and M61113 because of his small-scale operations. been said that the unorganized farmer sells oducts at wholesale and buys his production ‘es at retail. h ver since agriculture became commercial- ‘farmers have been aware of the need for or- tion, more especially during periods of fall- a p] low prices. This is a recognition of the ‘ple that the farmer can strengthen his po- I i by extending his economic activities into ' arket place beyond the fences of his own i Experience is demonstrating that effec- ction in the market place is dependent on activity of a large group of producers and ipon isolated activity of an individual. variably the first attempts of farmers at ization took the form of the stock corpora- Qwith the profits of the business accruing to ’ ockholder according to the number of shares The measures of success of the business ] high returns and high capitalization of the A The more successful a farmer stock cor- ’f ion proved, the more certain its stock began "ft into the hands of retired farmers and 1i business men. Many of these organizations f» lost all semblance of being farmer mar- 1g agencies. Almost universally the farmer l. corporations failed, whether they were er gins in the South or farmer elevators or i». eries in the Middle West. Farmers do not organize marketing agencies I he purpose of investing surplus ‘funds prof- y; they are organized for the purpose of =11 hening their bargaining position as sellers i: commodities and as buyers of farm sup- and equipment. An awakening realization ~ i; farmer’s peculiar interest in the patronage ‘ t of the marketing agency led to a slow but A acceptance of the cooperative form of organ- ‘on. In the cooperative, the emphasis is on member as a patron of the business and not 4n investor in its assets. The possibilities of Business and Financial Analysis of Local Cooperative he Associations of Texas; Season 1949-50 W. E. PAULsoN, Professor Department of Agricultural Economics and Sociology the cooperative business organization were fully established by such pioneers in the movement as the California Fruit Growers Exchange, the So- ciety gins of Texas and the cooperative creamer- ies, cheese factories, elevators and livestock ship- ping associations of the Middle West. The success of the cooperative and the failure of the stock corporation in implementing farm- ers’ efforts at joint action in itself neither ap- proves nor disapproves the one type of organiza- tion as against the other. The significant issue is that farmers are interested as patrons in as- suming marketing responsibilities from the stand- point of buyers and sellers. The cooperative type of business firm is ideally fitted to promote, pro- tect and further a business built around the pat- ronage principle. CONTENTS Page Digest ______________________________________________________________________ __ 2 Introduction _____________________________________________________________ __ 3 Integration of Farm Business _________________________ 4 I Field Schedules and Audits __________________________________ __ 4 Operating Statement _____________________________________________ __ 5 Service Revenues ____________________________________________________ __ 5 Trading Operations of the Ginning Business... 5 Volume of Ginning ................................................ __ 5 Trading Operations of Elevator Business ........ .. 6 Trading Operations of Supply Associations .... .. 6 Trading Operations of Other Types of Business 7 Distribution of Net Margins ________________________________ __ 7 Employment Offered by Local Associations .... .. 7 Taxes Paid _______________________________________________________________ __ 8 Investments in Fixed Assets ............................... ._ 8 Investments and Depreciation Reserves of One-function Gin Associations ........................ __ 9 Increases in Present Over Original Investments 9 Original Plants, Secondhand or New _________________ __ 10 Present Investment ................................................. __ 11 Increases in Costs of Present Fixed Assets Over Original Costs .......................................... .. 11 No Depreciation Charge-off ................................ __ 11 Summary and Conclusions ................................... .. 12 Acknowledgments ................................................... _. 14 INTEGRATION OF FARM BUSINESS Farmers are offered opportunities of moving’ from their isolated, individual positions to a rela- tively large-scale operation through the integra- tion of their farm businesses in the cooperative association. In the local association, members in- tegrate their farm businesses horizontally pri- marily to assure an economic volume of business, enough cotton, for instance, to operate a gin effi- ciently and at low costs. For the past 50 years, the Texas ginning business has been operating consistently at a break-even volume. Signifi- cantly the Texas cooperative gins the past 35 years have been operating with a volume more than twice that of the break-even. Local associations may federate into regional organizations. Business integration in such in- stances may be both horizontal and vertical. A cooperative gin cannot operate an oil mill on its ‘small volume of cotton seed. Twenty or more co- operative gins may join forces with sufficient cot- ton seetlto operate an oil mill successfully. This is another instance of horizontal integration but covering more territory and including more pa- trons than is‘the case with the local association. Through vertical integration in the regional as- sociation, farmers are enabled to assume market- t“ ingresponsrbilities reaching beyond the local mar- ket ~into central and consuming markets. The lTexsunflitrus Exchange is a case in point. With its -sales representatives in the leading central markets, fresh fruit and processed products, eco- nomically speaking, are carried close to the con- sumer both as to time and place. Forty percent of the farmers and ranchmen of Texas have memberships in local marketing, processing and supply associations. Forty-six percent of them patronize local cooperatives, 32 percent as member-patrons and 14 percent as non- member-patrons. The large membership, exten- sive patronage and large volume of business trans- acted indicate a significance of local cooperatives which warrants a detailed analysis of this type of marketing agency. FIELD SCHEDULES AND AUDITS This report is based on information gained from field schedules and audits. Field schedules were obtained from 552 locals and audits from 378 locals, or 96 and 66 percent, respectively, of the 577 active local associations during the sea- son 1949-50. The purposes for which the audits were collected could be realized only after con- siderable editing in two areas: 1. a multiplicity of terms applying to like items had to be reduced to standard terminology; and 2. misplaced items had to be moved to the proper categories in the audit. The business functions of all local associa- tions became known through the field schedules. Field schedules were sorted into two groups: as- 4 sociations with audits available, and associ with audits not available. The total num associations of a given function was divid’ the total number of associations of that fu "I with audits. The resulting quotient was us u. a multiplier applied to all the audit data v, °" In this manner the transition was made fro u, sample associations with audits to the entire ber of associations. » The consolidated balance sheet for the local cooperatives as of the close of the bus year 1949-50 is shown in Table 1. A satisfactory balance sheet reflects p ‘ able business operations and competent fin management. The consolidated balance sh the 577 local associations at the end of the 50 season reveals a highly satisfactory fina" status. A current ratio, current assets divid current liabilities, of 2 to 1 is considered quate. The current ratio of the locals ..:; to 1. For every dollar of current liabilities i associations had $1.42 in cash. But all the , was not available for purposes of meeting term indebtedness, as is indicated in the d' sion on the distribution of net margins. _ dollar of current liabilities was covered by ' in members’ and patrons’ equities; each doll, long term indebtedness was supported by $5. -; equities; and each dollar of total indebte was matched by $2.73 in members’ and pa equities. Members owned 73 cents clear o debtedness of each dollar of assets. *‘ As a means of picturing the consolidated: V ance sheet in terms of averages for the 577 n ciations, a short form is given in Table 2. Table 1. Consolidated balance sheet. 577 local associ’ close of business year. 1949-50 ASSETS Current. P W‘ Cash $10.068.63l , Accounts receivable 5.222.468 i, Wt Inventories 3.732.497 - Miscellaneous 981.331 Q g1] Total current $20.004.927 . (IQ Fixed ‘i " Land 1.044.668 Buildings and machinery cost 344270.692 3 re Depreciation reserve 12.687.357 31.583335 Total fixed 32,620,003 I 3T Other ’ tQ Receivables 278.447 Deposits 68.737 to Prepaid 3.724 Miscellaneous 219.480 Investments 10.639.l20 Total other 11,209,508 TO Total assets _ LIABILITIES — Current _ Sei Payables $ 5.800.715 1'“ Notes and loans 1.096.491 1 5 Reserves 203.907 ( Total current $ 7.101.113 Long term Mortgages __8_.95§.40_5 Other — G‘, All deferred credits __1.03'/.28l I, G Total liabilities $17.093.799 i 5,: Members’ and patrons’ equities ‘Ne Capital stock. certificates. etc. 42.949.777 " N‘, Reserves _3.798.862 1 1 Total members’ and patrons’ equities _46.748.639 Total liabilities and members’ and patrons’ equities $63. Ne i Consolidated balance sheet, averages per associa- ' tion, close o1 business year, 1949-50 Table 4. Service revenues 577 local cooperatives oi Texas, season 1949-50 a ASSETS $34,670 t ets, net 56.548 g~ sets 19.427 ~ ets $110,645 1 LIABILITIES $12,307 ‘ ~ rm indebtedness 15.520 _ credits 1.798 ; t- liabilities $29,625 ' equities 81,020 $110,645 f liabilities and equities {Assets averaged $441 per member; net fixed { ~ averaged $225. On an average, each mem- wed $118 in indebtedness and had an equity 23. OPERATING STATEMENT The main divisions of the operating state- 18. ‘i are the revenue and the expense sections. f}? revenue section has two principal classes of ‘Ft service income collected on such operations ‘_ nning, cotton seed sterilization, hauling and L" ing, storage, cleaning, inspecting and weigh- ‘8 zand the trading income derived from sales, ‘f lof purchases and opening and closing inven- n j The consolidated operating statement of s . 77 local associations for the business year A 50 is given in Table 3. v4 u The average sales per association were $357,- nd the average per patron was $1,420. The Age net margin per association was $20,730 he average per member was $83. As a source _ oss margins, services performed by the local ratives were more important than trading h 3- service charges accounted for 56 percent of "tal. The margin on trading was 7.7 percent les; the trading margin and service income p 17.3 percent of sales. Expense deductions f 11.8 percent of sales. Net operating mar- were 5.5 of sales and net margins, 5.8 per- iNet operating margins were equivalent to a , n of 24.9 percent on the cost of fixed assets ;net margins to a return of 26.4 percent. The ' net margin of the 57 7 associations was equal II percent of the total indebtedness. _ 3. Consolidated operating statement, 577 local co- operatives ot Texas, season 1949-50 _" revenue $19,860,712 ~- revenue v - $206,002,956 T ot sales inventories S 2.111.559 chases 190,304,217 g - 'g inventories 2.246.718 190,169,058 ' " 1 trading margin 15,833,898 ' operating margin 35,694,610 ~ - deductions 24,396,907 rating margin_ 11,297,703 rating revenue 1.180.770 operating expense 516.397 . t non-operating margin 664.373 a . gins $11,952,071; Ginning business Gin tolls $15,265,922 Other 826,979 $16,092,901 Elevator business 1.707.450 Supply business 103,684 Locker plant operations 764.107 Rice marketing 1.155.331 Animal and animal products marketing 37,239 Total $19,860,712 SERVICE REVENUES Service revenues according to type of busi- ness are shown in Table 4. The service revenue of the ginning business was by far the most im- portant, accounting for 81 percent of the total; the elevator business was next in order with 9 percent, followed by rice marketing with 6 per- cent. TRADING OPERATIONS OF THE GINNING BUSINESS Trading operations of the ginning business for the season 1949-50 are given in Table 5. Sales of lint cotton represented 55.8 percent of total sales and margins on cotton sales account- ed for 7.7 percent of the trading margins. Sales of bagging and ties were a mere 5.7 percent of total sales but margins constituted 26.0 percent of the total trading margins. Sales of cotton seed amounted to 29.3 percent of total sales and mar- gins soared to 65.0 percent of the total trading margins. Sales of bagging and ties and cotton seed represented 35.0 percent of total sales and their trading margins were 91.0 percent of the total trading margins. Trading margins in terms of sales, were 24.3 percent for bagging and ties; 11.9 percent for cotton seed; 0.7 percent for lint cotton; 0.3 percent for remnants and 0.8 percent for cotton planting seed. The trading margin on all sales was 5.4 percent. The ginning business is predominantly ser- vice rather than trading. This is attested to by the fact that service revenues in 1949-50 were 75 percent of gross margins. Even the trading ac- count indicates that ginning is not a merchandis- ing business. Turnovers during days, weeks and months of the active ginning season undoubtedly were much lower and more realistic than those in- dicated in the audit at the end of the fiscal year when the ginning business was inactive. VOLUME OF GINNING During the 1949-50 season, the 318 active cooperative gins in Texas had a total volume of 1,651,846 bales, or an average of 5,194 bales. This Table 5. Trading operations of cooperative gins of Texas. season 1949-50 Opening Cost ot Closing Trading Item Sales inventory purchases inventory margin Bagging & ties $ 5,872,184 $ 8.270 $ 4.449.550 $ 14.997 $1,429,361 Cotton seed 29,985,301 58.143 26,412,724 55,129 3.569.563 Lint cotton 57,107,970 17,120 56,683,317 13,807 421.340 Remnants 1.721.744 1.372 1,718,280 2,373 4,465 Planting seed 7,662,976 32,691 7,607,820 41.120 63,585 Total $102,350,175 $117,596 $96,871,691 $127,426 $5,488,314 5 Table 6. Average revenue per bale, 1949-50 Per Percent Item bale of total Service revenue Gin tolls $9.24 70.7 Other .50 3.8 Gross margins Bagging and ties .87 6.7 Cotton seed 2.16 16.5 Cotton marketing .26 2.0 Cotton planting seed .04 0.3 Total $13.07 100.0 volume reflected the exceptionally high volume of cotton production that season. Mainly as a convenience or service, these gins purchased 436,- 809 bales of regular cotton from their members and an additional 22,957 bales of remnants. The cotton purchased was 27.8 percent of total gin- nings. The gross margin per bale on the regular cotton purchased was 96 cents, and on all pur- chases was 93 cents. The gross margin on all cotton purchased from members was 25.8 cents per bale ginned. The total farm value of the cotton ginned by the cooperatives, but not purchased, was $155,- 853,000. The grower received an average of $129.- 96 per bale for the lint; after deductions of $9.24 for gin tolls and $3.55 for bagging and ties, re- turns to the member were $117.17 a bale. The cooperative gins purchased a total of 615,323 tons of cotton seed from their patrons, or an average of 745 pounds per bale. Growers were paid an average of $18.15 per bale for their cotton seed. Thus, of a total return of $135.32 a bale, the lint yielded 86.6 percent and the cotton seed 13.4 per- cent. Table 6 shows the average service revenues and gross margins on trading per bale. The average gin income of $13.07 a bale for 1949-50 was 220 percent of the average gin in- come of $5.95 a bale during the period 1931-38. Gin tolls accounted for 70.7 percent of the gin in- come of 1949-50 and trading margins on cotton seed for 16.5 percent. TRADING OPERATIONS OF ELEVATOR BUSINESS Trading operations of the cooperative eleva- tor business are shown in Table 7. Service revenue of the cooperative elevators accounted for 54.6 percent of the gross margins. The trading margin for all grains was 5.1 percent of sales; for wheat, 4.9 percent; for grain sor- ghum, 6.4 percent, and for feed grains, 7.5 per- cent of sales. Turnover, as reflected by the closing inven- tory, was very high, being 115 for all grains, and Table 7. Trading revenue oi grain business of cooperative elevators of Texas. season 1949-50 Opening Cost of Closing Trading Item Sales inventory purchases inventory margins Wheat $24,732,641 S 78,565 $23,632,844 $184,736 $1,205,968 Gram sorghum 2,432,666 44,641 2,263,434 30,141 154,732 Feed grains 758,440 17,607 711,696 27,951 57,088 Total $27,923,440 $140,813 $26,607,974 $242,828 $1,417,788 ranged from a low of 27 for the feed grai high of 134 for wheat. Wheat sales a ' for 88.6 percent of all sales. Grain sales a sociation for the 95 cooperatives operati vators were $293,900. The average gros gin was $32,900. TRADING OPERATIONS OF SUPPLY ASSOCIATIONS Table 8 gives the trading operations: supply business of local cooperatives. The supply business was the most fl type of activity from the standpoint of th ber of associations engaged, a total of 375. E seven supply associations qualified as sing q tion. The most popular combination was supply and ginning, a total of 225 ass0c' Average sales of supplies were $74,240. B associations ‘had supply sales of 5 percent g of total sales. Eliminating the sales of ti associations, the average sales of the re ’ 180 associations were $143,060. Service income of the supply business l mere 3.0 percent of gross margins. The z, fuel oils was the most important item, a 1 ing for 33.1 percent of all sales; the sale r was second in importance with 28.3 per total sales. With these two items, the .. auto accessories, seed, fertilizers, applianc hardware, represented 89.2 percent of total The trading margin on sales of all s was 11.9 percent. Trading margins ranged. ‘a low of 3.1 percent on miscellaneous supp a high of 27.2 percent on grease and lubri oil. Turnovers for the various items in th ply business were computed in terms of av of the opening and closing inventories. The_ over of all supplies was 15.7. Thus, on ani age, all supplies were completely turned eve , days. Turnovers ranged from a low of 4. automobile accessories to .-a high of 51.7 for cellaneous supplies. Fuel oils had a gross I of 15.7 percent, ranking fifth from the hi and a turnover of 42.7, ranking third fro highest. The stock of fuel oils. on an avl was completely turned every 8.5 days. The supply functioning of local coope f was the main enterprise qualifying as a me i Table 8. Trading revenue on supply business oi operatives of Texas, season 19491-50 I Opening Cost of Closing Item Sales inventory purchases inventory A1110 l‘. accessories S 1,798,801 $ 406,250 $ 1,470,806 S 414,460 S Fuel oils 9,208,120 241254 7,709,545 190,351 ‘ Grease <5 oil 906,362 293,559 630,250 263,623 Feed 7,867,578 302,153 7,135,855 222,201 Seed 1,899,266 30,651 1,817,822 54.510 Salt G minerals 66,645 5,380 61,140 6,939 Fertilizers 2,150,675 45,160 2,163,747 149.842 Insecticides 347,362 12,349 312,062 9,115 Appli. 6- hardware 1,913,234 366,135 '1,718,676 408,135 Farm machinery 637,488 23,260 554,348 44,977 Coal & wood 68.233 4,759 53,036 2,643 . Miscellaneous 976,431 13,607 957,228 24,189 ’ Total $27,840,195 $1,744,517 $24,584,515 $1,790,985 ~ , Trading operations of other types of business. l season 1949-50 Opening Cost of Closing Trading Sales inventory_gpurchases inventory margins . $30,516,438 $ $30,269,415 $ $ 247,023 fproducts 4,812,185 25,924 4,585,702 12,494 213,053 _ vegetables 11,256,241 34,379 , , , , l-‘plants 642,103 43,029 537,256 35,269 97,087 oous 661,872 5,301 628,504 5,448 33,515 $47,888,839 $108,633 $42,240,039 $85,479 $5,625,646 ‘g business. Supply sales accounted for 13.5 E- of all sales of the 577 locals. The open- ventory of the supply business, however, sented 82.6 percent of all opening inventor- and the closing inventory represented 79.9 Int of all closing inventories. For every $1,- ‘f sales, the supplybusiness had an opening tory of $62.66 and a closing inventory of i ;for every $1,000 of sales for all business l, than supply, the opening inventory was y, and the closing inventory $2.56. TRADING OPERATIONS OF OTHER TYPES OF BUSINESS iTrading operations of local cooperatives per- ing other types of business than those dis- previously are shown in Table 9. {Service income constituted 82.4 percent of l: margins for rice marketing, 14.9 percent for gals and animal products and 88.7 percent for ocker plants. The main services of the lock- ‘ants are slaughtering, curing and smoking, _ng and packaging and locker storage. gTrading margins of sales ranged from a low .8 percent for rice to a high of 44.7 percent ruits and vegetables. The exceptionally high 'ng margins for fruits and vegetables are re- fd because of high packing charges of the p: product and the high canning and juicing jof processed citrus products. DISTRIBUTION OF NET MARGINS '5 As shown in Table 9, the total net margins he 577 local associations for the 1949-50 sea- t-was $11,962,000. Table 10 shows how these margins were distributed, as given in the ‘ts. _ Cash dividends on stock and cash patronage _nds constituted 83.6 percent of the $4,760,- _of net margins distributed by the auditors. onage refunds accounted for 88.8 cents and _ 10. Distribution of net margins of 577 local cooper- l atives oi Texas, season 1949-50 not margins $11,962,076 . ribution ' i Cash dividends on stock $ 445,622 Cash patronage refunds 3,536,089 r Reserves 469,432 i Gains in equity _ 266,732 Miscellaneous 38,622 Y Federal income tax 3,969 v Total distribution 4,760,466 "buted margins $ 7,201,610 stock dividends for 11.2 cents of each dollar re- turned to members in cash. Of the total net margin, 60.2 percent was left undistributed and carried to the equity ac- count as such. It is not inferred, however, that this assignment was final. It means, mainly, that the auditors in most cases were not given the re- sponsibility of prorating nets to the patrons either as cash refunds or as equivalents of stock or members’ certificates covering cash retirement of indebtedness. A large percentage of these funds were used within a few months following the com- pletion of the audits to make cash refunds or to retire debts. In either event, on an average, cash on hand was more than ample for total distribu- tion. If such total distribution had been made, the current ratio of 2.8 to 1 would have been lowered to 1.8 to 1. In a considerable number of audits, the audi- tor made distribution not only in the total but also to the individual member or patron. Proper distribution of net margins in a cooperative is most important in effecting full compliance with regulations governing federal income tax exempt- ions. Proper distribution of nets is essential in assuring equitable treatment of all patrons. Thus, an increasing use of auditors in making complete distribution of net revenues-of cooperatives is de- sirable. EMPLOYMENT OFFERED BY LOCAL ASSOCIATIONS Cooperatives usually are viewed from the standpoint of contributions to their members and patrons. Too little attention has been given to what the cooperative means to the local economy. In many of the small agricultural communities of Texas, the farmers’ cooperative is among the most important business firms. Cooperatives offer em- ployment to managers, office workers and labor- ers. Their payrolls turn loose purchasing power of much significance to all types of business in the community. Cooperatives help support local and state institutions through the payment of axes. In the state-wide study of Texas agricultural cooperatives, special emphasis was given to the payroll and employment. For instance, the sal- aries and the months of employment of the man- agers and office workers of the cooperative gins were obtained. The typical gin crew was listed together with daily wages of each member of the crew. The total days of employment were de- Table 11. Payroll of local cooperatives of Texas, season 1949-50 Number Total salaries and wages Func- Office All tions Assns. Manage rs workers Laborers employees 1 221 $ 607,601 $340,035 $2,032,937 $2,980,573 2 202 621,810 299,581 2,566,643 3,488,034 3 130 384,111 196,239 1,859,220 2,439,570 4 24 77,022 61,201 450,479 588,702 Total 577 $1,690,544 $897,056 $6,909,279 $9,496,879 Table 12. Average annual salaries and wages oi employees oi Texas local cooperatives, season 1949-50 Number Average annual salaries and wages Func- i ‘ Office All tions Assns. Managers workers Laborers employees 1 221 $2.954 $1.239 $2.342 $2.211 2 202 3 139 1.235 2 513 2 386 3 130 2 989 1.396 2 741 2 575 4 24 3.209 1.764 2.295 2.309 Total 577 $3.039 $1.296 $2.500 $2.367 termined by dividing total Wages for the season by the total daily Wages of the gin crew. Total salaries and wages paid by the 57 7 locals for the 1949-50 season are shown in Table 11. Managers received 17.8 percent of the total payroll, office workers, 9.4 percent and laborers, 72.8 percent. For each dollar of operating expense incurred by the local cooperatives during 1949-50, the payroll absorbed 38.9 cents; managers receiv- ed 6.9 cents, office workers, 3.7 cents and laborers, 28.3 cents. Average salaries and Wages for equivalent year-round employment are shown in Table 12. The average monthly salaries of managers and office workers were $253 and $108, respectively; the average monthly wage of laborers was $208 and the average monthly stipend of all employees was $197. The average monthly employment for the various types of employees is listed in Table 13. In terms of man-year equivalents, the 577 local cooperatives employed 556 managers, 692 office workers’ and 2,764 laborers, or a total of 4,012 employees. Managers represented 13.9 per- cent of total employment; office Workers, 17.2 percent; and laborers, 68.9 percent. For each manager, on an average, 1.2 office workers and 5.0 laborers were employed. In an era of advancing mechanization the re- lationship between investment and employment is important. The 577 local cooperative associa- tions in 1949-50 had a total investment of $44,- 270,700 in buildings, machinery and euipment. On the basis of the 4,012 man-year equivalent of em- Table 13. Employment offered by local cooperatives of Texas. season 1949-50. averages per association Table 14. Taxes paid by 577 local cooperatives - business year 1949-50 mid?! tax I School City County State Water-drainage Other Federal income Total ployment, the investment per employee was 035; on the basis of the 2,764 man-year eq lent of laborers employed, the average inves 1 per laborer was $16,017. - TAXES PAID Total taxes paid by local cooperatives in i 50 are shown in Table 14. The average ta association was $842. Of this total, $198 j local school tax and $194 were city tax. The; tion of the tax going to the county and the ' was $199. The more important items in “p taxes” were social security and gasoline taxj INVESTMENTS IN FIXED ASSETS The financing of the cost of the require ed assets constitutes one of the most serious , lems facing a group of farmers in organizi cooperative. As the percentage of cash pa, at the time of organization increases, the", lem of financing decreases. The percenta cash paid-in is governed, in some measure, by cost of the fixed assets, the number of mem and the general financial status of the mem, Information was collected on date of orga tion of each association, the original invest I in fixed assets and the amount of cash ' in at the time of organization. The presen vestments in fixed assets and the depreciatio serves were obtained from the audits. Tabl was completed from these data. a The range in average original investment f from a low of $10,910 for the period 1913-1 a high of $35,770 for the period 1945-49. main factors account for differences in ori _ F u investment: 1. the type of business ent N Work iorce of local cooperatives u . . . . . umber 242,255.21 1,, mqn-mgnlh gquivqlgnts 31:;- Which governs the kind of buildings, machi ‘r1212- I A ‘M 014122 L All em- 1 equiva- and equipment required; 2. the degree of mec “l” ‘"119?’ W121?" “:_;"1°" P22?“ “s”: ization; for instance, to the relatively simple, 2 202 11:3 1414 60;, 86g, yjz plant of the earlier periods have been added f 2 122 131:3 133g pensive cleaning and drying equipment to . r2121 511 11.2 14.4 51.5 22.5 1.0 gins of the later periods; 3. the prevalence of it Table 15. Fixed assets of 577 local marketing. processing and supply associations P _ d N b | FirQsTiixed assets I i‘ Present fixed assets _i__. 055mb u?! er Average Cash paid-in Cost _ Depreciation h“ 43-4- “ Aveffge *'1?.'.°.°2i.‘:‘ 2:21:22: 1912-19 2 210.912 s 5 094 2121.144 1110 525.992 29.1 -' 1920-24 19 21.124 s 200 122.212 491 42.112 22.1 _>__ 1925-29 24 25.221 1 219 22.425 222 22.202 29.1. 1920-24 a4 19.222 2 292 101.002 515 22.212 220+ 1925-29 122 21.229 2 22.424 212 22.522 22.9 " 1940-44 110 25.229 2 152 29.944 210 12.225 222 ; 1245-49 120 25.125 12 222 22.201 111 2.002 12.2 . r2121 511 225.219 s 1 442 22.11 $ 76.726 296 821.988 Table 16. Size oi plant. secondhand or new plants. and type of power oi one-function cooperative gins Number | Number of batteries Plant at time of organization Type oi power of l _ assns. i Single Double 5232:! New Steam cggtgfiggin Electric 19 15 4 15 4 2 7 10 16 12 4 12 4 4 7 5 54 50 4 51 3 6 40 8 22 20 2 21 1 13 9 12 12 6 6 9 3 123 109 14 105 18 12 76 35 1nd or new plants and machinery in the orig- jlfacilities; for instance, during 1930-39, 90 nt of the original cooperative gins were sec- w and during the period 1945-49, 50 per- g were secondhand; and 4. the general price , which for 1913-49 ranged from a lOW of 107 i e period 1930-34 to a high of 201 for the l» 1945-49, according to the BLS Wholesale .» lThe highest percentage of cash paid-in oc- f» during the period 1945-49 when 47.2 per- _+of the original investment was covered by land the lowest was during 1930-34 when but Qpercent was covered by cash. For each $100 _ ed in original fixed assets in 1945-49, $30.51 invested in 1913-19 and $54.87 in 1930-34. §each $100.00 subscribed in cash in 1945-49, 0 were subscribed in 1913-19 and $14.19 in f 4. ZTI-‘he depreciation reserve is significant in that vides the funds for making replacements of f , machinery and equipment. The extent to ' the reserve covers the cost of "the replace- is most significant financially. In gen- the depreciation reserve reflects the number tars current fixed assets have been in use. depreciation reserve of the 577 locals at the ' of the season 1949-50 was 28.7 percent of int investments in depreciable fixed assets. ears that these fixed assets, on an average, .een in use a little under 5 years. The aver- "depreciation reserve of cooperatives organ- during 1945-49 was 12.6 percent of depreci- f fixed asset costs. This indicates a use of j12 years. The average age of the coopera- V in this group was 2.9 as of the end of 1949- jHowever, original investments of the period increased by 177 percent as of the end of the in Much of the added investment appears to '\ ’ been made toward the close of the period. g TMENTS AND DEPRECIATION RESERVES QOF ONE-FUNCTION GIN ASSOCIATIONS v One-function gin associations offer a sim- ty of investments in buildings and machinery 17. Original and present costs oi fixed assets of 123 one-function cooperative ' crease in present costs over original costs, averages per association that facilitates an analysis of investments and depreciation reserves. A selection was made of 123 one-function gins for this purpose. Table 16 was compiled to gain a clearer view of these glns. One hundred and nine of the gin plants, or 88.6 percent of the total, were single battery. Secondhand plants were purchased initially by 105 associations, or 85.4 percent of the total. The cost of secondhand plants is usually considerably less than that of new plants and their financing is less burdensome. But the secondhand plants require earlier replacement than new plants. lf the usual rates of depreciation is charged, the secondhand plants yield a lower depreciation re- serve to be applied against replacement than new plants. INCREASES IN PRESENT OVER ORIGINAL INVESTMENTS The gin plants were sorted on the percentage increase of present investments in buildings, ma- chinery and equipment over original investments. Groupings were made for increases of 100-199 percent, 200-299 percent, 300-399 percent and 400 percent, or more. Averages of investments and depreciation reserves for the associations, based on these groupings, are reported in Table 17. Current investments in fixed assets increas- ed consistently with increases in present invest- ments over original investments; original invest- ments decreased consistently with increases in present investments over original investments. Proceeding from the highest percentage increase group to the lowest, relative current and original investment were: present investment, $100, $70, $56 and $47; original investment, $100, $122, $133 and $213. , If the gin associations charge off deprecia- tion at consistent rates from year to year, the total depreciation reserve divided by the reserve for the current year would give the number of years the present plant and equipment have been in use. Thus, the gin plants of the 123 associa- gin associations grouped according to in- ,_ Fixed assets Depreciation _ 491mb“ . Present cost Average reserve Percentages present costs , o! First cost —~ 13.1w p“ assm Average Percent oi Total Current _'._l;_'otal Current _ per assn. first per assn year reserve year 637.962 S 49.898 131 $16 427 $3.352 32.9 6.7 23.720 59.764 252 21.827 3.565 36.5 6.0 21.762 74.520 342 20.271 4.848 27.2 6.5 17.859 106.959 599 24.780 6.714 23.2 6.3 628.060 S 65.883 235 619.733 $4.206 30.0 6.4 Table 18. Original and present costs of fixed assets oi one-tunction cooperative gin associations grouped according to s hand or new plants at time oi organization, averages per association .- i t" _ Number Fixed assets Depreciation P°"°d First Present cost Average reserve | Percentages present °?g““' t A P t 1 '1' t 1 c 1 '1' 1 1 c < fled A S B n . s cos verage ercen o o a urren oa ~, 55“ ' 9 e5” per assn. per assn. first per assn. year reserve y -' » Origina- plant secondhand ' g i‘ 1925-29 15 19 $19,579 $56,867 290 $22,478 3,697 39.5 6, '- ‘W 1939-34 12 18 22,573 48,982 298 14,287 3,943 30.4 8.5 , 1935-39 51 55 21,818 58,819 289 18,191 3,473 31.9 5. ¢ . 1949-44 21 25 23,243 55,459 239 11,538 3,855 29.8 8 __ 1945-49 8 8 34,889 42,298 121 5,529 4,894 13.1 11.1 -,. l Total or av. 195 119 $22,885 $58,289 248 $18,817 $3,899 29.5 8, '3 Original plant new _ _ 1925-29 4 4 $39,550 $75,746 192 $29,506 $3,298 39.0 4,4 31 1939-34 4 4 33,192 72,899 220 41,783 4,843 57.4 8.7. 1 1935-39 3 3 38,191 81,139 189 19,988 3,848 31.2 8.3- ‘ 1949-44 1 1 89,999 82,119 104 19,452 5,951 31,3 8.1 ;: Q 1945-49 8 8 89,919 94,842 195 14,882 8,489 15.5 8.8 i ~ Total or av. 18 18 $55,489 $78,198 141 $24,987 $4,884 32.9 8.2‘ fl . . . . . T =5 tions have averaged 4.7 years 0f use. A depre- prec1at1on 1s assessed against fixed assets 2:" ’ ciation rate of 6.4 percent indicates a use life of about 16 years. ORIGINAL PLANTS, SECONDHAND OR NEW Gin plants were grouped accordingly to whether the original plants were secondhand or new. Averages of investments and depreciation reserves of such grouping are shown in Table 18. Average costs and depreciation reserves are by number of batteries rather than by number of gin associations. Costs of new batteries were greater than those of secondhand batteries from a low of 147 percent for 1930-34 to a high of 258 percent for 1940-49. Costs of both secondhand and new plants were sharply higher during 1945-49 than during earlier periods. For the whole period, new plants cost more by 242 percent than secondhand plants; for the period 1913-44, new plants cost more by 172 percent than secondhand plants. For the whole period, the relative investment of associations starting with new plants was great- er by 139 percent than that of associations start- ing with secondhand plants; for the period 1913- 44, the investment of association starting with new plants was greater by 129 percent than that of associations starting with secondhand plants. The relation of the depreciation reserve to replacement costs is significant. Presumably de- Table 19. Original and present costs of fixed assets oi one-function cooperative gin associations grouped accor t present costs, averages per association means of charging off the cost of such assets‘. their normal life. The assumption canny made, however, that the full depreciation i’ can always cover the full cost of the replace On an average, the full depreciation rese '8 present investments in associations with origi secondhand plants would be $56,300 and for p originally new, $78,200. The average cost of ' plants during 1945-49 was $94,600; the hi cost was $107,300. In terms of these two { the depreciation reserve of associations with = inally secondhand plants would cover 60 a i, percent of new replacements; the depreciatiorj serve of associations with originally new p would cover 83 and 73 percent of the cost of?’ replacements. The lowest investment in fixi sets of plants in operation during 1949-50 ,~ $18,200. The depreciation reserve of this ass’ tion would cover only 19 and 17 percentof. replacements. ‘- It is evident that a large percentage 0 i cooperative gin associations of Texas will be f fronted with serious financing problems 2 steps are taken to install new machinery equipment. Many of these associations will‘; it necessary to raise far greater funds than t required at the time they were organized. I’ face of this situation, the continuing control as to how depreciation rates should be estarq ed loses significance. " _ N b Fixed assets Depreciation _ 5195a‘: um er First Present cost Average reserve | Percentages present f izged A B . cost Average Percent oi Total Current Total Cu_ 1 ssns" “tlenes per assn. per assn. first per__assn. year reserve y Q, Present investment $49,999 or less per battery ‘_ 1925-29 5 5 $24,599 $39,682 161 $15,027 $2,009 37.9 5,1‘ 1930-34 9 12 19,972 35,062 175 15,158 1,720 43.2 4.9‘ 1935-39 21 23 20,126 31,433 156 14,474 1,912 46.0 8,1; 1940-44 9 9 25,889 44.291 171 13,315 2,968 30.1 6.7 1945-49 5 5 33,832 35,456 105 5,035 4,590 14.2 12.9.; Total or av. 49 54 $23,011 $35,519 154 $13,610 $2,303 38.3 8.51 Present investment $59,000 or more per battery " 1925-29 14 18 $29,085 $65,837 226 $26,110 $4,076 39 .7 6.2 i‘ 1930-34 7 8 31,933 77,771 244 26,678 5,929 34.3 7.6} 1935-39 33 37 24,199 72,541 300 19,591 4,286 27.0 5,3. 1940-44 13 13 24,239 80,767 333 14,468 5,362 17.9 8.8» 1945-49 7 7 82,780 92,051 111 13,703 6,282 14.9 6.8 Total or av. 74 83 $31,404 $74,526 237 $20,389 $4,735 27.4 8,4 10 PRESENT INVESTMENTS . he gin associations were grouped accord- .‘ to whether present investments in fixed as- ;were $49,999 or less per battery and $50,000 ore per battery. Average investments and y iation reserves for such groupings are re- ,1 and machinery of the higher cost group were jpercent greater than those of the lower cost p. Many of the plants in the higher cost _p have been modernized. The present cost ants of the higher cost group was 237 percent ter than the original cost; the present cost } ant of the lower cost group was 154 percent ,1 ter than the original cost. The average use life of the plants of the high- tst group as of the close of 1949-50 had run 5.4.3 years, whereas the use life of the lower group had run for 5.9 years. In terms of re- _ment costs of $94,600 and $107,300, full de- iation for the lower cost group would cover nd 33 percent of replacements and for the er cost group, 79 and 69 percent. it CREASES IN cosrs 01-" PRESENT FIXED ASSETS OVER ORIGINAL cosrs As a final step in the analysis of costs of fix- fsets and depreciation reserves, the gins were I 'ped by period of organization and each group i, sorted according to percentage increases in lent costs of fixed assets over original costs. ‘rages for such groupings are listed in Table ._ Average percentage increases in costs of fix- ,ssets did not vary markedly among the dif- _ fnt periods. The lowest increase, 259 percent, Irred for the period 1930-34, and the highest ase, 279 percent, was in the period 1935-39. he various sub-groups, the lowest increase oc- ted with three gins organized during 1930-34 l. a step-up of average costs from an original 23,960 to a present cost of $32,480, or an in- e of 136 percent; the highest increase oc- ed with 5 gins organized during 1940-44, with age costs increasing from an original cost of in Table 19. The present costs of build- _ $17,000 to a present cost of $110,800, or an in- crease of 652 percent. The average cost of original investments ranged from a low of $22,620 for gins organized during 1935-39 to a high of $62,390 for gins or- ganized during 1945-49. The average present cost of fixed assets ranged from a low of $63,090 for gins organized during 1935-39 to a high of $72,- 810 for gins organized during 1925-29. In the sub-groups, three gins organized during 1940-44 had the lowest average original cost of $17,000, and nine gins organized during the same period had the highest average original cost of $34,000. The gins with the lowest average present cost were three gins organized during 1930-34 with a cost of $32,480; the gins with the highest pres- ent average cost were nine gins organized during 1925-29 with an average cost of $123,100. Three gins organized during 1930-34 had the highest percentage of total depreciation reserve a with 69.0. One of these plants was fully depreci- ated. This was the only case of its kind among the 123 gin associations studied. This situation strongly suggests that gin associations should make replacements before complete depreciation occurs. Complete depreciation of the three gins in the highest depreciation group would cover 34 and 30 percent of replacement costs of $94600 and $107,300. The group with the second high- est percentage of total depreciation reserve had eight gins organized during 1925-29 with an aver- age reserve of 48.6 percent. Total depreciation in this instance would cover 55 and 49 percent of replacement costs of $94,600 and $107,300. NO DEPRECIATION CHARGE-OFF Thirty-four local associations, or 5.9 percent of the total, charge-off no depreciation. This is contrary to good business practice. With no de- preciation reserve, replacements must be com- pletely financed at the time they are made. The problem of financing the replacements may be- come as burdensome as was that of financing the original fixed assets. le 20. Original and present costs of fixed assets of one-function cooperative gin association, averages per association e , Fixed assets Depredgljion é. Period Number of . Present cost _Bverage reserve Percentages ILGSGIH cost §°uF9¢nii°d “ssns- Flxst cost I Average Percent of Total Current Total Current . per assn’ per assn. ' per assn. year reserve year 8 $33,625 $ 52.313 156 $25,404 $2,685 48.6 5.1 ' 5 24.940 70.818 284 20,252 3,833 28.6 5.4 I 1925-29 3 24 000 80,521 336 36.678 4,825 45.6 5.9 I 3 21 500 123,102 573 43.525 9,437 35.4 7.7 19 $27 905 $ 72,814 261 $28,690 $4_.3_91 39._4 6.0 ’ 3 $23,955 " $ 32.478 136 $22,423 $ 982 69.0 3.0 V» 1930-34 7 30.076 72.100 240 31,127 4.306 43.2 6.0 ' 6 21,584 73,464 340 20.575 5,828 28.0 7.9 16 $25,205 $ 65,182 259 $24,708 $4,254 37,9 6.5 17 $27 332 $ 40,121 147 $17,081 $2.413 42.6 6.0 __ 16 ’ 31 53.922 248 20,227 3,247 37.5 6.0 1 1935-39 10 21 902 75,338 344 18,027 4,257 23.9 5.7 r 11 17 257 100,798 584 23,952 6.094 23.8 6.0 54 $22 615 $ 63,092 279 $19,588 $3.751 31.0 5.9 . 9 $34,000 $ 47,263 139 $13,664 $3,542 28.9 7.5 ” 4 19,026 47,711 251 13,919 3,208 29.2 6.7 _ 1940-44 4 20 000 69,557 348 13,122 4,870 18.9 7.0 ‘ 5 17 000 110 829 652 15,354 6.444 13.9 5.8 22 $24 914 $ 65,845 264 $13,996 $4,383 21.3 6._7 * ‘ 1945-49 12 $62 385 $ 68 470 110 $10,091 $5.577 14.7 8.1 11 A failure to charge off depreciation violates the principle of equitable treatment in a coopera- tive. Over the past 25 years, more than 70 per- cent of the original cost of gin plants has been financed with net margins left in the business. Suppose in a given case 5 years were required to complete payments. The patrons of that 5-year" period thus paid more than 70 percent of the orig- inal cost. Turnover of membership in most local cooperatives of Texas is relatively high. Many of the members during the 5-year period patron- ized the cooperative less than 5 years. The fewer the years of patronage the lighter the load as- sumed in paying for the plant. Suppose the ma- chinery was replaced at the end of the fifteenth year. All patrons who began their patronage the sixth year, or later, but ended their patronage by the end of the fifteenth year, escaped in sharing the cost of wearing out of nearly 50 percent of the cost of the plant. In a cooperative, members share in net mar- gins according to patronage. This principle has been recognized from the earliest day of the co- operative type of business firm. In a coopera- tive, too, it should be recognized that the burden of financing needed plants and equipment should also follow the patronage principle. This is rec- ognized in the revolving fund plant of financing. SUMMARY AND CONCLUSIONS Farm business is typically small-scale. To gain the advantages of large-scale business, farm- ers have been organizing marketing agencies ever since agriculture became commercialized. The first type of organization usually was the stock corporation. The farmer stock corporations failed because they did not fit the needs of farmers. Stock cor- porations are organized by investors with surplus funds. The aim of such investors is to realize profits on their investments. Farmers, as a rule, are not interested in making investments other than in their own farm business. The farmer is interested in selling his products and in buying farm supplies. His concern is that of a patron. An awakening realization that the cooperative business operates according to patronage inter- ests and principles led to a slow but sure adopt- ion of the cooperative form of marketing agency. In the cooperative, small-scale farm business is integrated into large-scale business both hori- zontally and vertically. Many farmers join a co- operative gin association with a combined volume of ginning assuring efficient and low cost ginning service. Many local cooperative gin associations have sufficient volume of cotton seed to operate a cooperative oil mill. These are cases of hori- zontal integration. A group of cooperative gin associations organize a cotton marketing agency for the purpose of merchandising their cotton di- rect to mill centers or to central market mer- chants. This is a case of vertical integration. 12 The consolidated balance sheet of the, Texas local associations as of the end of the 1 50 season revealed a highly satisfactory fina status. The current ratio was 2.8 to 1. For dollar of current liabilities the associations $1.42 in cash. Members owned 73 cents cle‘ indebtedness of each dollar of assets. mg '0 a The average sales per association were $ 020 and the average per patron were $1,420; a source of gross margins, services performe the local cooperatives were more important trading since service charges accounted f0 percent of the total. The margin on trading _ 7.7 percent of sales. The trading margin and I vice income were 17.3 percent of sales. Ex deductions were 11.8 percent of sales. Net A gins were 5.8 percent of sales. Net margins equivalent to a return of 26.4 percent on the of fixed assets. This indicates a highlysati tory use of productive resources on the pa the local associations. Ivorian-aw: “sac-u The ginning business is predominantly I vice rather than trading since 75 percent of I margins in 1949-50 was derived from se __ charges. Bagging and ties and cotton seed ’ resented 35 percent of total sales of the gi . business and accounted for 91 percent of tra margins. *1“: 1'2 19122 a Service revenue of the cooperative eleva accounted for 54.6 percent of total gross mar The trading margin for all grains was 5.1 pe ~; of sales; for wheat 4.9 percent; for grain __ ghum 6.4 percent and for feed grains 7.5 pe g of sales. The supply business was the most pop type of activity from the standpoint of the . ber of associations engaged, a total of 375. S" seven supply associations qualified as single-f tion. The most popular combination of func was that of supply and ginning, a total of 22 sociations. Average sales of supplies were ‘r 240. The average sales of the 180 associa whose supply sales accounted for 5.1 perce g more of total sales were $143,060. The trading margin on sales of all sup was 11.9 percent. Trading margins ranged , a low of 3.1 percent on miscellaneous suppli a high of 27.2 percent on grease and lubrica oil. The turnover of all supplies was 15.7. ‘ on an average, all supplies were completelyt every 23.2 days. The turnoverlof fuel oils a 42.7, which meant that the stock of fuel oils j turned every 8.5 days. The supply functioning of local coopera was the main enterprise qualifying as a L chandising business. Supply sales accounted‘ 13.5 percent of all sales of the 577 local ass‘ tions. The opening inventory of the supply l» ness, however, represented 82.6 percent of opening inventories; the closing inventory, Q t of all closing inventories. For every "I of sales, the supply business had an open- ventory of $62.66 and a closing inventory 3.33; for every $1,000 of sales for all busi- {other than supply, the opening inventory was ,_ and the closing inventory $2.56. ~s he audits showed a cash distribution to "bers of $3,981,700, of which 88.8 percent was ‘tronage refunds and 11.2 percent in dividends (ck. Sixty percent of the net margins was Vstributed by the auditors. The associations, ver, have a period of 90 days in which to distribution after the close of the business , Undoubtedly most of this net was distrib- ;-_within the prescribed time. The associations sufficient cash to make total distribution - as cash payments to members or as cash ents on indebtedness with $2,867,000 in cash ver. ;' he payroll of. the 577 locals in 1949-50 was: gers’ salaries, $1,690,544; office workers’ ies, $897,056; and laborers’ Wages, $6,909,- or a total payroll of $9,496,879. These as- f ions gave an equivalent year-round employ- I to 556 managers, 692 office workers and v laborers, or a total of 4,012 employees. Man- ' received an average monthly salary of $253, ffice workers of $108. The average monthly . of laborers was $208. The average monthly p_ d of all employees was $197. j he average investment in building, machin- nd equipment was $16,017 per laborer. f‘? he 577 associations paid an average tax of ‘in 1949-50. The average school tax was $198 he average city tax was $194. The average y and state tax was $199. "verage original costs of fixed assets rang- p; a low of $10,913 for the period 1913-19 zhigh of $35,765 for 1945--49. The cash paid- the time of organization to cover the cost ed assets ranged from a low of 12.2 percent ‘930-34 to a high of 47.2 percent for 1945-49. age present costs of fixed assets ranged from v of $63,000 for 1945-49 to a high of $133,- lfor 1920-24. The total depreciation reserve -- from a 10W of 12.6 percent for 1945-49 to t of 39.1 percent for 1925-29. The average associations was 28.7 percent. ne hundred and twenty-three one-function sociations were selected for analysis as to and present costs of fixed assets and depre- n reserves. Gins were grouped for increases 0-199 percent, 200-299 percent, 300-399 per- and 400 percent or more of present over orig- costs. Current investments in fixed assets sed consistently with increases in present 0f original costs from an average of $49,- v or the lowest increase group to $106,960 for I the highest. Average original costs decreased consistently with increases in present costs over original costs with an average of $37,960 for the lowest increase group to $17,860 for the highest. One hundred and five ‘associations started with second-hand plants and 18 with new. The average cost of the second-hand plants was $23,- 360 and of the new, $55,480. The average cost of present fixed assets per battery of the 105 asso- ciations was $56,269, an increase of 241 percent over original costs; the average cost of present fixed assets per battery of the 18 associations was $78,200, an increase of 141 percent over original costs. The average depreciation of the costs of pres- ent fixed assets was 29.5 percent for associations starting with secondhand plants and 32.0 percent for associations starting with new plants. The average cost of new gin plants for the period 1945-49 was $94,600 and that of the highest cost plant was $107,300. In terms of these costs of replacement, the full depreciation reserve of the 105 associations would cover 60 and 52 percent of replacements and of the 18 associations, 83 and 73 percent. Forty nine of the gin associations. had pres- ent plants which cost less than $50,000 per bat- tery; 74 associations had present plants which cost more than $50,000 per battery. The average cost per battery of the former group was $35,520 and of the latter group $74,530. It is evident that the latter group has gone much farther in modernizing its plants. From the standpoint of replacement, the full depreciation reserve of the low-cost group would cover 38 and 33 percent of the total and of the high-cost group, 79 and 69 percent of total replacement cost. Many of the cooperative gin associations of Texas will be confronted with serious financing problems when steps are taken to install new ma- chinery and equipment. Many of these associa- tions will find it necessary to raise far greater funds than those required at the time they were organized. Thirty-four local associations, or 5.9 percent. of all local cooperatives, made no charge-off for depreciation. This is contrary to good business practice. With no depreciation reserve, replace- ments must be financed at the time replacements are made. A failure to charge-off depreciation violates the principle of equitable treatment of patrons in a cooperative. In a cooperative mem- bers share in net margins according to patronage. In a cooperative, too, it should be recognized that the burden of financing needed plants and equip- ment also should follow the patronage principle. This is recognized in the revolving fund plan of financing. l3 ACKNQWIEDGIVIENTS This study was made possible through the active cooperation of the managers of the local associations in responding to the field schedules and in furnishing audits. The regional coopera- tives of Texas were responsible for the taking of field schedules and the collection of audits from two-thirds of the local associations through their own personnel acting as schedule takers. The value of this service to the Texas Agricultural Experiment Station exceeded $12,000. In addi- tion cooperative associations contributed $1,500 in cash as grants in aid to finance the project. Warren LeBourveau, a former member of the staff, was in active charge of the cooperative study and offered invaluable service in the collec- 14 tion of field schedules and audits and in thef aration of data for analysis. » The processing of the field schedules r audits Was greatly facilitated by the servi the Statistical Laboratory of the Texas tural Experiment ‘Station. The Texas Federation of Cooperatives, t i its former executive-secretary George Blair. ed an important part in facilitating the col of field schedules and audits by the regio it operatives. f" The active interest of the personnel Houston Bank for Cooperatives did much to’ ulate the prosecution of the study.