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CO-OPERATION FOR FARMERS



CO-OPERATION FOR
FARMERS



BY

LIONEL SMITH-GORDON, M.A. (OxoN)

Assistant-Secretary I.A.O.S.. Secretary Co-operative Reference Library,

Author of
"Rural Reconstruction in Ireland," "International Co-operation" Etc.



LONDON

WILLIAMS AND NORGATE

14 HENRIETTA STREET, COVENT GARDEN, W.C.

1918



CONTENTS

PAGE

INTRODUCTION . . . . . . VU

CHAPTER

I. THE CO-OPERATIVE SYSTEM, DEFINITION AND

IDEALS . . . . .1

II. HISTORICAL DEVELOPMENT . . ,22

III. THE SYSTEM APPLIED TO AGRICULTURE . . 42

iv. TYPES OF CONSUMERS' CO-OPERATION . . 60

v. PRODUCERS' SOCIETIES . . . .80

VI. CREDIT SOCIETIES . . . . .98

VII. DENMARK . . . . . .121

VIII. GERMANY . . . . . .141

IX. IRELAND . 159

X. THE UNITED STATES . . . .182

XI. THE STATE AND AGRICULTURAL CO-OPERATION . 2O2

XII. THE FUTURE OF THE MOVEMENT . .219

BIBLIOGRAPHY ..... 235

INDEX ...... 241



404700



INTRODUCTION



I HAVE found by experience that any book
written on an economic subject at the present
time is likely to be regarded by the critics, and
perhaps by all readers, as an attempt to solve all
the problems of reconstruction. Let me say at
once that I feel no ambition and claim no compe-
tence for such a task. Judged by that standard
this book has no value. Let me disarm the critic
by saying with all the clearness I can command that
I do not regard co-operation as a panacea for all
ills ; I am not disposed to fear the dissolution of
the universe if the co-operative commonwealth
delays its coming a few more years, nor to expect
the millennium if the contrary take place. I seek
merely to contribute one small stone to the building
by setting before English readers what I have learned
in practice of the benefits of co-operation in agri-
culture and the means of increasing those benefits.
On no further point do I invite either blame .or
praise.

Even so, if this book is to have any practical
value, the lessons I have tried to record must be
accompanied by some definite information as to
how to make use of them. The question will be put :
If we are decided that we should start a co-operative

vii



INTRODUCTION

society in a given district, how do we go about it ?
This Introduction is a brief attempt to answer that
question. It is addressed only to those readers
in England and Scotland (for in Ireland the ground
is already well covered) whose knowledge of the
co-operative movement is confined to the reading
of books or the voice of rumour.

In the first place I would say that an abstract,
if earnest, desire to found a co-operative society
for the sake of being a co-operator is of little value.
It is necessary to be satisfied that a number of neigh-
bouring farmers are so situated that they would
benefit by doing a certain part or parts of their
business collectively. The existence of such a need
should be established before the demand for a co-
operative society is voiced. By this means it will be
easy for the investigator to determine what kind of
a society is required whether for the purchase of
agricultural requirements or domestic goods, or for
the sale of milk, the manufacture of butter or cheese,
or the provision of facilities for credit or insurance.
This question will naturally be settled in the first
place by the prevalent methods of farming and in
the second by the existing facilities, and the com-
parative efficiency and honesty with which they are
administered.

Once an object is decided upon the promoters
must discover by a survey of their neighbourhood
whether the number of farmers who would benefit
by the operations of the society is sufficient to give
that society a reasonable chance of success. For
this purpose they must make up their minds as
to what area will be covered by the society's opera-

viii



INTRODUCTION

tions, how 'much capital will be needed to set it
going and carry on business, and how much annual
turnover will be necessary to allow a sufficient
margin to meet the overhead expenses of the business.

If the question is favourably decided, the pro-
moters must then set about to convince their neigh-
bours of the advantages of joining the society.
Before they can do this they must be clear in their
own minds both as to the economic advantages
which they expect to gain and as to the legal and
structural form of a co-operative society and its
points of difference from a joint-stock company.

They will find it well to emphasize the following
points :

1. In a co-operative society every member
has one vote, and one only, irrespective of his
share holdings ;

2. No member may hold more than 200 of
shares ;

3. Interest on capital is limited to 5 per cent,
per annum ;

4. The remainder of the surplus is placed in
a collective reserve fund or divided among the
members in proportion, not to their capital,
but to the amount to which they have supported
the society by their trade ;

5. The society belongs to the members and
works for them. Thus it cannot make profit
out of them and they get the full value of any
so-called " profit " which results from their
dealing with it ;

ix



INTRODUCTION

6. The liability of the members is strictly
limited to the amount of their share capital.

If the knowledge and enthusiasm of the promoters
is sufficient and an adequate number of prospective
members is forthcoming, eight persons (of whom
one is to act as secretary) must constitute them-
selves " special members " of the society. These
" special members " must provide a code of rules
consistent with the Industrial and Provident Societies
Acts and setting forth the objects at which the
society aims. Two copies of these rules jnust be
printed and signed by the eight persons. They
must also obtain from the Registrar of Friendly
Societies, Dean Street, Westminster (or in Scotland
from the Assistant-Registrar, R. Addison Smith, 3A
Howe Street, Edinburgh) a form of application
which must be filled in from the rules and signed
by the same persons in the same order. The two
copies of the rules and the application form are
then forwarded with a fee of 5 to the Registrar,
who will scrutinize them. If there is nothing con-
trary to the Act he will issue a certificate of regis-
tration. The special members must then meet and
admit to membership all properly qualified persons
who make application for shares on the prescribed
forms. The next step is for the acting secretary
to summon all the persons so admitted to member-
ship to the first general meeting of the society. The
special members then cease to exist as such, and
a committee and officers are appointed by the general
body of the members. The committee so formed
will have general control of the affairs of the society.

x



INTRODUCTION

We need not follow the development of these affairs
further.

It will be apparent that not only a considerable
amount of enthusiasm and local knowledge, but
a great deal of detailed work and experience of
business and legal practices are involved in the
foundation of a society. No person, however, need
be deterred from making the attempt by this con-
sideration, for there exist, fortunately, in both
England and Scotland, bodies of an efficient and
well-established character, whose chief purpose is
to give assistance in this work.

Some account has been given in the body of this
book of the work and objects of the Irish Agricul-
tural Organization Society. This society has been
paid the great compliment of imitation on the other
side of the Channel and the (English) Agricultural
Organization Society (or A.O.S.) and the Scottish
body of similar name (the S.A.O.S.) perform the same
functions for agricultural co-operators in Great Britain.

The A.O.S. was founded in the year 1901, and
the societies now affiliated with it, which include
purchasing societies, creameries, egg and poultry
societies, marketing agencies, small-holding and
allotment societies and credit societies, number in
all over 550, with a turnover of more than 3,000,000.

The headquarters of the society are situated at
Queen Anne's Chambers, Tothill Street, Westminster,
where correspondence should be addressed to the
General Secretary. There are also branches with
organizing secretaries at York. Preston, Derby,
Tonbridge, Salisbury, and Plymouth in England,
and Bangor and Brecon in W 7 ales.

xi



INTRODUCTION
To quote the words of the Annual Report :

' The Agricultural Co-operative Societies formed
in different localities are entirely self-supporting
and self-governed. . . . They become affiliated to
the Agricultural Organization Society by applying
for membership and by the payment of a small
subscription, which entitles them to many benefits.
In this way the societies all over the country are
brought into contact with one another, and they
have the whole of the knowledge and experience
of the central society at their disposal ; they are
advised in matters of policy, are helped with their
books and assisted in negotiations with Government
Departments, Railway Companies, etc. The A.O.S.
has on its staff experts in various branches who
are placed at the disposal of affiliated societies with-
out charge, such as : dairying, eggs and poultry,
wool, rules, accounts, small holdings and allotments.

" It will be seen that the work of the society is
of a twofold character :

" (i) As a propagandist body, the A.O.S. seeks
to spread the co-operative principle and assists
in the formation of fresh societies.

" (2) As an organizing body, it is prepared to
advise and assist the societies already estab-
lished to develop their work and in any diffi-
culties with which they may from time to time
be faced.

" Where it is desired to form new societies, the
A.O.S. will furnish model rules, information, advice
and expert assistance.

xii



INTRODUCTION

" Arrangements can be made for a visit by an
A.O.S. Organizer, either to meet those interested and
talk things over or to speak at a meeting. No charge
is made for any of these services, and applications
should be addressed to the General Secretary, Agri-
cultural Organization Society, Queen Anne's
Chambers, Tothill Street, Westminster, London,
S.W., or to any of the society's country branches."

The organizers here referred to can carry out for
a new society practically all the details described
above. They can advise as to the area and the
scope of the proposed society, can supply model
rules, share forms, etc., and see that registration is
effected at a reduced fee and without delay or difrl-
culty. All they require to assist them is the hearty
co-operation of local persons with knowledge of
local conditions, combined with enthusiasm and the
power to inspire confidence.

The S.A.O.S., founded in 1905, works on the
same lines, though on a smaller scale, and its
Secretary and offices are at 5 St. Andrew Square,
Edinburgh.

All persons who are interested in the promotion
of agricultural co-operation should not fail to get
into touch with one or other of these bodies and
avail themselves of the help so freely offered. They
should beware of attempts, sometimes well meant,
sometimes treacherous, but almost always disastrous,
to organize societies without consulting the experi-
ence of those whose business it is to do these things.
No man thinks he can organize a factory without
experience ; he should be distrustful of those who

xiii



INTRODUCTION

suggest to him that a farmers' co-operative society
does not equally need specialized knowledge. But
once the society is established on the right lines,
if " faith, foresight, and intelligence " are there,
failure is all but unknown.



+> xiv



CO-OPERATION FOR
FARMERS



CHAPTER I

THE CO-OPERATIVE SYSTEM
DEFINITION AND IDEALS



THOSE who love argument for its own sake
have often been heard to say that no satis-
factory argument is possible until those taking
part in it have clearly defined the terms they propose
to use. Indeed laxity in this respect has been
responsible for many a misunderstanding, and perhaps
for much of the bloodshed in the world's history.
Now, since every apologist of the co-operative
system is, whether he will it or no, plunged into
argument with a majority of the orthodox, it
behoves us to pay attention to this maxim. We
are faced then from the outset with the necessity of
defining the sense in which we propose to use the
word co-operation. The task is by no means an
easy one, by reason of the confusion which has long
enshrouded the whole subject ; moreover, however
closely we seek to define the term, the reader must let

I B



CO - O P E K'A T.I O N FOR FARMERS"

his imagination- 'have some scope in the matter for
a proper appreciation of co-operation demands not
only a certain amount of material common sense,
but a reasonable sympathy with abstract ideals.

Co-operation is a word borrowed from a general
vocabulary of the utmost vagueness and pressed into
service by the exponents of a certain method of
association, to be used by them as a technical term.
This in itself is bound to lend confusion, for half
the English-speaking world will always naturally
continue to use the word in the broad sense in which
they first learned it.

And as part of the general vocabulary this word
co-operation may be made to mean a great number
of things. Like most important-sounding words
borrowed straight from the Latin, it is becoming
increasingly popular in trade circulars and similar
literature, for which we may largely thank American
influences. Your co-operation is invited many times
a day in such divers matters as helping to popularize
a certain brand of tobacco or giving school-children a
happy summer holiday. In fine, any two or more
persons who share, however remotely, a common
object may be said to be co-operating, and are so
said by the increasing number of persons who find
the old Saxon phrase " working together " too
clumsy or too humble for their use.

From this large sphere we must separate that
usage of the word which corresponds to our abso-
lutely limited purpose. There is little difficulty in
doing this so long as we have only to distinguish
between a purely vague meaning of " working
together " and a technical term. Unfortunately

2



DEFINITION AND IDEALS

there are borderline uses of the word which not
only make confusion but are actively injurious to
true co-operation by causing it to be misrepresented.
This is particularly the case in the American vocabu-
lary, where Government Departments and Agricul-
tural Colleges speak of co-operative work, when
all they mean is that they have given selected seeds
to a farmer who has promised to make experiments
with them. The unfortunate cataloguer in a library
or the unskilled inquirer who comes after him may
here be sadly misled and come away with a very
vague idea of what co-operation means. There is,
however, an even worse, because more specious,
danger. In English law, though there is a separate
Act governing the registration and conduct of what
are usually -called co-operative societies, there is
no prohibition against the use of the word " co-
operative " by any body of persons who feel that
they have any advantage to gain thereby. A good
example is ready to hand in the case of the Army
and Navy Co-operative Society in London. Founded
in all good faith with co-operative intentions, this
body has long since broken almost all the principles
which we shall shortly lay down as fundamental
to true co-operation. Yet it remains for many people
a typical instance of a successful co-operative society,
to the great detriment of the movement, the con-
fusion of the novice, and the annoyance of the disciple.
No such ambiguity attaches to the meaning of
the ponderous but accurate German term Genos-
senschaftswesen. In Germany co-operation is a
science, and every German economist and most
laymen understand exactly what a Genossenschaft or

3



CO-OPERATION FOR FARMERS

co-operative society is, just as most Englishmen
know a joint-stock company when they see one.
We have to produce the same appreciation of the
movement in the English-speaking- world, and for
this purpose we must use the word co-operation as
if it were an exact rendering of the word Genos-
sensckaftswesen, and refuse to think of it in any
other sense.

We have then to arrive at a definition of the word
co-operation used in this technical manner.

Primarily we may assume that co-operation repre-
sents a method of doing business in common with
other persons of similar interests. As such it can
only be a permanent factor in the life of any country
if it proves to be both a successful and a necessary
method. Now the form of association offered by
a joint-stock company with limited liability is already
familiar and successfully established in all civilized
countries. It represents apparently the form appro-
priate to modern conditions, and its success has
been so rapid and universal that it can scarcely be
challenged. The questions therefore arise Why
should a new form of association be introduced ?
Wliat distinctive feature does the new form offer
which was lacking in the old ? An answer can be
given in one sentence, which, though necessarily
incomplete, provides perhaps the best and shortest
definition that can be given of a co-operative society.
Such a society, we may say, represents a union of
persons, while a joint-stock company represents a
union of capital.

The co-operative society differs from the joint-
stock company in the fact that the management

4



DEFINITION* AND IDEALS

and the profits are in the hands of those who con-
tribute the raw material, the labour, and incidentally
the capital which go to make the society successful,
whereas in a joint-stock company the control and
profits remain in the hands of those who provide
only the capital and perhaps the skilled intelligence
necessary to the enterprise. These people will, as
a rule, have interests diametrically opposed to the
interests of the producers of the raw material, and
the providers of the labour. But in a co-operative
society if we except the employees, whose position,
it must be admitted, is somewhat incongruous to
the theory there is only one interest involved,
namely, that of the members. It is worth while
here to anticipate further description and quote
the example of a creamery to show what this argu-
ment means in a concrete case. Where a creamery
is organized as a joint-stock company the share-
holders will be those persons, not necessarily or
generally farmers, who see in the manufacture of
butter a profitable investment for their money.
Their number will be limited, their financial holdings
considerable. Their only object will be to obtain
a high rate of interest on the capital they have
invested. In order to do this it is their business
to see that the margin between the price at which
they buy milk from the producer and that at which
they sell butter to the consumer is as wide as possible,
since this margin will constitute their reward. Con-
sequently the^ have a direct incentive to keep
the price paid to the farmer as low as possible, and
in this process they will be checked only by compe-
tition or by fear of making the dairying industry

5



CO-OPERATION FOR FARMERS

so unprofitable that farmers will abandon it. In
a co-operative creamery, on the other hand, the
farmers themselves will be the owners, and so long
as the working expenses are paid and a reasonable
fixed return is granted to capital they have no
interest in increasing the margin between milk and
butter prices, for they are the owners of both
milk and butter, and any surplus accumulated will
go back into their pockets and constitute an ad-
ditional reward for the raw materials.

This account of the difference between a joint-
stock company and a co-operative society will at
once suggest that each has its own peculiar sphere.
In the case of large-scale manufacturing enterprises
or industrial undertakings, it may be many years
before the time comes when it will be practicable
to remove the control from the capitalist or the
skilled manager, for the reason that capitalism and
management play an overwhelming part in such
enterprises. But in the case of smaller undertakings,
where large amounts of capital are not required,
but the interests of small producers are vitally in-
volved, the co-operative system has obvious advan-
tages, of both a material and a social kind. As
will be seen in the following chapter, this argument
applies particularly to the case of the farmer who
is himself a manufacturer on a small scale.

We may now go a step further in our definition
of co-operation and lay down the general principles
which should determine whether or no a society is
technically entitled to call itself co-operative. These
principles one and all formed a part of the consti-
tution of the Equitable Pioneers of Rochdale, a

6



DEFINITION AND IDEALS

society founded in the year 1844 by twenty-eight
poor Lancashire cotton weavers with a capital of
as many pounds collected laboriously at the rate
of threepence a week, and a few groceries for their
stock in trade. Their example has been followed
both by agriculturists and by industrialists through-
out the world, and it is now pretty generally admitted
that their constitution, which remains practically
unmodified although the turnover of the society
runs at present to six figures a year, contains all
the fundamental requisites of co-operation. The
following are the six outstanding points :

1. Every member in good standing shall have
one vote and no more, irrespective of the number
of shares he holds in the society, and there
shall be no voting by proxy.

2. The amount of shares to be held by any
one member shall be limited. (The limit fixed
by the law of most European countries is about
200.)

3. Interest on share capital shall be limited
to an amount not to exceed the reasonable
rate of interest prevailing in the country. (In
England and Ireland this has almost invariably
been fixed at 5 per cent.)

4. The net profits, after allowing for depre-
ciation and placing not less than a certain
percentage to reserve fund, shall be distributed
among the members (either in cash or in pay-
ment of unpaid shares) in direct proportion to
the amount of trade which they have done
with the Society. In some cases a bonus is

7



CO-OPERATION FOR FARMERS

also paid to the employees at a proportionate
rate on their wages.

5. In the case of societies selling goods to '
their members such sale should take place at
the current market rates, and savings should
be effected not by attempting to undercut the
trade, but by returning profits in the form of
a bonus or dividend as described above.

6. Membership in the society should be
unrestricted in the area chosen for its operations
and no bona-fide applicant of good character
resident within this district should be refused
admission. (The capital of a co-operative
society, unlike that of a joint-stock company,
is not limited, so that shares are always pur-
chasable at their nominal value, a fact which
eliminates speculation in them on the market,
with its attendant fluctuations and dangers.)

A brief consideration of these principles will show
that the underlying effort has been twofold to
make domination of the association by an individual
practically impossible both by prohibition and by
the removal of all inducements and to ensure
that those who by their support make the pros-
perity of the society possible shall share in an equit-
able manner the full reward. The fourth clause,
which enunciates the principle of distributing the
surplus in proportion to the members' trade, con-
stitutes the great discovery of the Rochdale Pioneers.
Prior to that time co-operators had followed their
natural instinct to distribute goods at cost price
plus the bare working expenses. As a result no

8



DEFINITION AND IDEALS

reserves were possible and the least miscalculation
in the estimate of the expenses brought the society
to ruin. Moreover, such a method of selling inevit-
ably brought about violent trade wars founded on
a ruinous price-cutting in which the longer purse
was bound to win. Hence the pre-Rochdale societies
were mushroom growths which soon decayed, and
the success of modern co-operation as a method of
doing business on a large scale dates from the inven-
tion of the principle of bonus on trade.

It is safe to assume that any association which
genuinely adheres to the principles laid down above
is truly co-operative, for there is little inducement


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