the operation of an association are pooled and are then divided among the members on an equitable basis. Many cooperative marketing associations pool the products received from their members; that is, they mingle those products which are of the same grade and quality so that the identity of any particular lot is lost. On the sale of the products in a particular pool, the association renders a final account to each member, based upon the quantity he contributed to the pool. Some associations pool returns without pooling products; that is, the returns from products of the same grade and quality which are sold during a given period, usually at varying prices, are combined and are then divided among the members on a unit basis.

Some associations, as cooperative livestock commission concerns, act simply as agents for members in the sale of their products; other associations take title to the products received from their members, but otherwise function and account to members as an agent. Nearly all marketing associations enter into contracts with members which require them for specified periods to deliver their products to the association for marketing. These contracts usually are comprehensive and state the undertakings of the association and the member with regard to the delivery and marketing of the products covered. All States have statutes peculiarly adapted to the incorporation of cooperative marketing associations. Such associations, in many respects, function along lines similar to those followed by commercial corporations; that is, each of them has a board of directors, officers, and employees through whom the affairs of the association are conducted.

Informed and intelligent management is as necessary for success in a cooperative association as in any other corporation. Management has been called the vital factor in the success of any cooperative association. "Cooperative marketing of farm products appears to be a necessity. Its success, however, depends upon the business sagacity and honesty of those in charge." 16

While this bulletin is primarily concerned with agricultural cooperatives, it should be observed that cooperation is not confined to agriculture. It exists in every field of business endeavor. The Associated Press "is a cooperative organization, incorporated under the membership corporations law of the State of New York, its members being individuals who are either proprietors or representatives of about 950 daily newspapers published in all parts of the United States." 17 Many of our

"Dark Tobacco Growers' Co-op Ass'n v. Robertson, 84 Ind. App. 51, 150 N. E. 106, 113.

17 International News Service v. The Associated Press, 248 U. S. 215, 39 S. Ct. 68, 63 L. Ed. 211, 2 A. L. R. 293.

largest life insurance companies are mutual organizations. Independent retail merchants frequently unite in cooperative associations for buying, advertising, and other purposes.1

18

Sometimes corporations attempt to masquerade as cooperative organizations; but the courts are quick to deny this status if, because of control or other facts, a corporation is not entitled to be so classified.19

It should not be assumed that a cooperative is not amenable to a statute simply because it is a cooperative. Associations generally, if they come within the scope of a particular statute and are not specifically excluded, are subject thereto. In Oregon, a statute was enacted "to encourage and reward the production of the highest quality of cream and milk, thereby effecting the improvement of one of the State's principal industries." This statute was upheld 20 against the contention of a cooperative (which "paid" its members and patrons for their cream without regard to its grade) that it impaired the obliations of its contracts with its members and patrons because it required those subject thereto to "maintain to the producer a price differential between each grade of not less than one cent (1¢) per pound of butterfat content."

A Georgia statute which permitted mutual insurance companies to have salaried agents but which forbade other insurance companies to act through salaried agents, was held to be unduly discriminatory and violative of the equal-protection clause of the fourteenth amendment.21

A provision in the Fair Trade Act of Wisconsin was held unconstitutional by the supreme court of that State because it exempted

18

Packel, Israel. THE LAW OF THE ORGANIZATION AND OPERATION OF COOPERA307 pp. Albany, N. Y. 1940.

TIVES.

See p. 9.

19 Cunliffe v. Consumers' Association, 280 Pa. 263, 124 A. 501, 32 A. L. R. 1348; People ex rel. Hughes v. Universal Service Association, 365 Ill. 542, 7 N. E. 2d 310; Chickasha Cotton Oil Co. v. Cotton County Gin Co., 40 F. 2d 846; Affiliated Service Corporation v. Public Utilities Commission of Ohio, 127 Ohio St. 47, 186 N. E. 703, 103 A. L. R. 264; Driscoll v. Washington County Fire Insurance Co., 110 F. 2d 485; Western Canal Co. v. Railroad Com., 216 Cal. 639, 15 P. 2d 853. See also Keystone Automobile Club Cas. Co. v. Commissioner of Internal Revenue, 122 F. 2d 886.

20

State ex rel. Van Winkle v. Farmers Union Cooperative Creamery, 160 Ore. 205, 84 P. 2d 471. See also New York State Guernsey Breeders' Cooperative, Inc., V. Noyes, 260 App. Div. 139, 21 N. Y. S. 2d 347; Nebbia v. New York, 291 U. S. 502, 54 S. Ct. 505, 78 L. Ed. 940, 89 A. L. R. 1469; United States v. Rock Royal Cooperative, Inc., 307 U. S. 533, 59 S. Ct. 993, 83 L. Ed. 1446: Noyes v. Erie and Wyoming Farmers Cooperative Corporation, 281 N. Y. 187, 22 N. E. 2d 334; Turner v. Maryland, 107 U. S. 38, 2 S. Ct. 44, 27 L. Ed. 370; New York State Guernsey Breeders' Co-operative, Inc. v. Noyes, 284 N. Y. 197, 30 N. E. 2d 471.

21

Hartford Steamboiler Inspection & Insurance Company v. Harrison, 301 U. S. 459, 57 S. Ct. 838, 81 L. Ed. 1223.

"any cooperative society or association not organized for profit." In this connection the court said: 22

That exemption is not confined to merely transactions between such an association or society and its members. It is equally applicable to sales made by such associations or societies in competition with other retail dealers to the public at large, but as to which such exempted associations or societies would be permitted to sell at less than minimum resale prices stipulated under the Fair Trade Act. Thus there would be defeated its "primary aim to protect the property, namely, the good will of the producer."

Although cooperative marketing statutes, generally, authorize associations formed under them to include in their marketing contracts provisions for liquidated damages, and also authorize the associations to enforce such contracts by suits for injunctions and specific performance, only one instance has been found in which the violation of such a contract was made a crime. A statute was enacted in Kentucky which made it a crime for a farmer who had entered into a pooling contract covering his tobacco to dispose of the tobacco contrary to the contract. The statute was enacted in Kentucky in 1908, as an amendment to a statute enacted in 1906 which authorized farmers to pool their tobacco. In a case in which a farmer was indicted, the statute was held unconstitutional by the Supreme Court of the United States,23 because the statute as construed by the Supreme Court of Kentucky "did not authorize the pool to enhance the cost of crops above their real value" and what constituted their real value was considered too uncertain to form a basis for criminal action.

Many benefits accrue to agriculture generally from cooperative marketing and purchasing associations. Numerous instances could be cited in which the margins taken on products marketed for farmers or the mark-up on supplies sold to them have been materially reduced through the influence of what might be called the pace-setting work of cooperative associations. These are indirect benefits that accrue to all farmers whether they are members of cooperative associations or not. In fact, some farmers apparently fail to realize what the situation would be if their cooperative associations were not functioning. For example, purchasing associations have every incentive to furnish their members with the best and highest-grade feeds and fertilizers. Likewise, in marketing, associations have every incentive

22

24

Weco Products Company v. Reed Drug Company, 225 Wis. 474, 274 N. W. 426, 433.

23 Collins v. Kentucky, 234 U. S. 634, 34 S. Ct. 924, 58 L. Ed. 1510. See also Commonwealth v. Hodges, 137 Ky. 233, 125 S. W. 689.

24

Stitts, T. G. THE CO-OP. AND ITS SECOND GENERATION MEMBERS. F. C. A. Cir. A-19, 20 pp., illus. 1940.

to handle the products of their members efficiently, and to obtain as wide and complete a distribution of such products as is practicable. Farmers have a direct and vital interest in keeping the bridge between the producer and the consumer as short as possible and in decreasing the tolls on the bridge to a minimum. Obviously all transportation, handling, and marketing costs are reflected in the price which the consumer pays. Broadly speaking, when a greater percentage of the consumer's dollar is spent for transportation, handling, and marketing costs, a smaller percentage of the consumer's dollar is available for the farmer.25 Moreover, the consumption of agricultural commodities is discouraged as the price is increased. Ordinarily industry is able to pass on to consumers its manufacturing costs plus a profit, but farmers find it much more difficult to do so.

On account of the fortuitous character of agricultural production and the whims of nature, agriculture is not able to adjust production to demand with ease and comparative certainty as industry may do. By means of efficient cooperative associations, however, farmers may reduce the costs incident to the assembling, handling and marketing of their products. Industry determines how its products will be marketed. Farmers are increasingly doing likewise. Most of the products of industry are manufactured and distributed by large corporations which represent a pooling of capital. On the other hand, it is neither practicable nor desirable for farmers to pool their farms in giant agricultural corporations; so the only way in which farmers may proceed to market their products on a basis that is at all comparable with industry is through the medium of cooperative associations.

Every farmer, as a producer, is in a sense a manufacturer and is directly interested in the costs of the goods which he must buy for conducting his farming operations. The lower his production costs the greater are his chances for deriving a livelihood. Again, this is a problem comparable to the problem of industry which aims to buy its raw materials on the most favorable basis to increase its chances of making a profit. Thus it is only natural that farmers should act together in the purchase of farm supplies. No one has so unquestionable a right to market the products of farmers or to furnish them with supplies needed for production purposes as the farmers themselves.

Statistics compiled by the Farm Credit Administration on farmers' marketing and purchasing cooperatives for the 1940-41 marketing

25

Arnold, T. W. THE BOTTLENECKS OF BUSINESS. 335 pp. illus. New York. 1940. See p. 18.

season showed 10,600 associations. Of this number, 7.943 were engaged primarily in the marketing of farm products and 2,657 in the purchase of supplies. The farm products marketed by these associations during the 1940-41 marketing season had an estimated value of $1,830,000,000 and the supplies purchased, an estimated value of $450,000,000 making a total of $2,280,000,000.

Approximately 55 percent of the associations are organized under cooperative statutes and have capital stock, and 22 percent are nonstock enterprises. About 13 percent of the associations are incorporated under general corporation laws, and approximately 10 percent are not incorporated.26

Cooperative associations vary widely in character and in the manner in which they function. The largest group consists of marketing associations which act either on a purchase-and-sale basis or on an agency basis, assembling and marketing agricultural commodities with little or no processing.26 In some instances an association simply acts as bargaining agent for the purpose of entering into contracts with buyers covering the sale of members' products.27 Dairy farmers frequently form associations of this type.28

Some cooperatives, like the livestock associations in the terminal markets, act as "commission agents" for their members in the disposition of their livestock. Some associations operate auction markets at which the products of their members are sold. Other associations do a considerable amount of processing of the commodities which they receive from their members. Purchasing associations sometimes operate on what is known as a car-door-delivery basis, receiving orders from their members and delivering supplies from the car at local stations.29 Some purchasing associations operate feed mills in which grain is ground and mixed into feeds adapted to the particular needs of the members. A constantly increasing number of purchasing cooperatives manufacture fertilizer which they supply to their members. There are, of course, organizations of farmers that are engaged in neither marketing nor purchasing, but it is beyond the scope of this publication to enter upon a discussion of the specific legal problems incident to them. Among these associations are co

26 A STATISTICAL HANDBOOK OF FARMERS' COOPERATIVES. F. C. A. Bul. 26, 334 pp.,

illus.

27

1938.

Mountain States Beet Growers' Marketing Association v. Monroe, 84 Colo. 300, 269 P. 886.

28 Dairy Co-operative Association v. Brandes Creamery, 147 Ore. 488, 30 P. 2d 338, 147 Ore. 503, 30 P. 2d 344; Stark County Milk Producers' Association v. Tabeling, 129 Ohio St. 159, 194 N. E. 16, 98 A. L. R. 1393; Connecticut Milk Producers' Association v. Brock-Hall Dairy Co., Inc., 122 Conn. 482, 191 A. 326.

29

Appeal of Beaver County Co-op. Ass'n, 118 Pa. Super. 305, 180 A. 98.