N' CHAPTER II. THE FARMER AND THE COMMISSION MERCHANT. EARLY all perishable products, a majority of the semiperishable, and probably a majority of staple goods, are sold by the farmer, through commission merchants or brokers. A "broker" is a commission salesman who canvasses for orders, but maintains no store or shop. The commission trade of the United States, in all lines with which I am familiar, is in a thoroughly unsatisfactory condition. It is probably so in all lines. While any experienced business man could suggest effectual methods for correcting the abuses-real and imaginary-attaching to this business, the cooperation of too many would be required for carrying them out to admit of any hope of success. What can be done is to indicate the nature of the troubles, with their ultimate causes, and leave the matter to be dealt with in the light of the sturdy common sense of the farmer. A commission merchant or broker is one who sells goods for account of another, receiving and accounting for the proceeds. He is what the law terms the "agent" of his consignor, and the law holds him strictly to the powers and duties of an agent as defined in the statutes of different states and countries. In practice, the letter if not the spirit of these obligations is openly violated every day by most or at least many commission men. For an agent to apply the proceeds of a commission sale to his own purposes is, in most states and countries, if not in all, a crime. Nearly all commission merchants deposit the proceeds of their sales to their own account, intermingled with their private funds, and where it would be attachable for their private debts. This is doubtless a matter of convenience, and it is very rarely that losses accrue to the farmer from this cause, but it is not a correct transaction. The duty of the commission merchant is to faithfully prose cute the business of his consignor to the best of his ability and judgment, disposing of the property to the best advantage, and making immediate remittances of the net proceeds. It will be ordinarily understood that he will at the same time be acting for many principals, who, as between themselves, will be competitors of each other, and all that can be expected is that he will act impartially as between them. At the same time it is true that often, in a glutted market, the common agent will have to decide, as between two or more of his consignors, whose produce shall be sold, and whose shall be left unsold, perhaps to deteriorate. The consignors never hear of these occasions, which, indeed, can not be avoided. They have no recourse but to rely upon the fairness of their agent, in striking a fair average one day with another. It would be too much to expect, however, that agents, in making these decisions, should not be more or less influenced by their opinion of their own interests in securing or retaining trade. I have never heard farmers complain of unfairness upon the part of commission merchants in this respect. Many of them have probably never thought of it. But while commission merchants may, in the main, be safely trusted to deal fairly as between different consignors, it would be contrary to all human experience to expect them to deal fairly as between themselves and others. If a commission merchant has my goods for sale, and some of the same kind of his own, and the market is bad, he will sell his goods first, and then do the best he can with mine. It often happens, indeed, that he must, for he may have bought his goods with the proceeds of some sale for a consignor who may call for his money. In some lines of trade there is a great deal of this. It was once a fundamental principle of the commission trade that the merchant should not, under any circumstances, buy and sell for his own account. I am not acquainted with the practices of the commission trade in foreign countries, but am of the opinion that in some of them, at least, there is a survival of this good old-fashioned principle. In America it is dead. Commission merchants may and do speculate freely in the products for whose sale they are agents, and often, unquestionably, with the money of their consignors. In some lines of trade there is much petty fraud. As the capital required is small, the business is greatly overdone in all cities, and among those who enter the trade there is certain to be an undue proportion of dishonest men. This is inevitable because dishonest men will seek to enter those lines of trade which afford the best opportunities for dishonesty. For this the commission trade has no equal. The consignors are not business men. Many of them live far away. They have no means of knowing what is done with their produce, and no ability to prosecute if wrong is discovered. The field could not well be more inviting to dishonesty, and there is dishonesty. At the same time there are as honorable men in this trade as there are in any business. I think the fundamental trouble with the commission trade is that public opinion permits the commission agent to buy and sell, if not to speculate, in the products for which he is agent. It affords the temptation to dishonesty, and the means of covering it up. When my commission agent returns me an account of sales, he does not usually say who has bought the goods. He may have sold them to himself, to be immediately resold at a higher price. It is done every day in all markets. It is not considered fraudulent, at least by the trade. The only remedy is a return to primitive customs. This can only be secured by the organized action either by farmers or commission men themselves. It is not likely to be done by the latter until organized farmers compel it. The first step towards this is the adoption of "resolutions" against the practice by the grange and similar influential organizations of farmers. This educates public opinion, and prepares the way for other steps. Even this stage, however, has not been reached. On the contrary, farmers are always extremely eager to sell outright to their commission agents, not understanding that these men almost never buy except upon almost a certainty of a rising market, and not reflecting that a commission merchant who has this habit is a very unsafe person to consign to, as the farmer may be doing in a few days. I will not willingly put my produce into any man's hand to be sold by him in competition with his own. If I deposit money in a bank, or if I insure my property, paying a premium therefor, I, at least in all civilized states, have the protection of a rigid system of law governing the conduct of the business, supplemented by inspection by state agents. The commission business is as much a trust business as banking or insurance, and the small producers who are compelled to intrust their produce to the fidelity of commission merchants, are even more in need of the protection of the state than the depositors in banks. The commission business should be recognized as a trust business requiring state regulation. The obvious method of dealing with it is to impose state licenses sufficient to provide the revenue to pay for inspection. The license fee for commission merchants desiring to buy and sell upon their own account should be placed very high, perhaps at a prohibitory rate. They would thus, at any rate, be known, and consignors could avoid them if they so desired. There probably would be none of that class registered. The enactment of such a law would probably reduce the number of commission merchants by fifty per cent, as those most familiar with the business estimate that not more than half the present number could live, if the business were reduced to a legitimate basis. The majority of commission merchants and brokers make only a living, and sometimes a poor living. Competition is fiercer than in almost any other line of business. The notion of some farmers that commission merchants habitually “combine" against them is an error. They are harder to unite than the farmers. Combinations in a small way are often attempted, but they are seldom directly against the interests of the farmer, and for the most part are directed towards protection from bad debtors. An open and responsible organization of commission merchants is a very desirable thing both for themselves and the farmers. At this writing there is a national society of commission merchants in this country, which, it is to be hoped, will grow and become strong. With all its faults the commission business is here to stay. The alternative-cooperative marketing-will be dealt with elsewhere in this volume. A cooperative marketing society simply does the work of a commission house, sometimes at a saving, as compared with the employment of commission merchants, and sometimes at a loss. The ordinary rates of commission charged in the different branches of the commission trade are fixed by competition and are not too high. Large gains by commission merchants can only be legitimately made by very able men, competent to organize and sustain a large business. The principal gains in the business are often made not so much from commissions as from side interests connected with the handling of the crops, of which the farmer never hears. They may come from speculative or other buying and selling, from rebates on freight, from transportation companies, or draymen, or in other ways, depending upon the branch of trade. These methods are less open to cooperative companies, whose main reason for existence lies rather in their power to prevent combinations or speculative movements to the injury of the farmer. While cooperative marketing is increasing, and likely to increase, the commission trade is increasing also with the growth of the country. It should be recognized and regulated. As it stands, the relation of principal and agent, which should be cordial and confidential, is too often one of mutual distrust and dislike. The farmer says that the commission merchant cheats in his returns, and the merchant says that the farmer cheats in his packing. Both are often correct. In selecting a commission merchant a farmer should be at the expense of visiting his man in his place of business. Nothing else will really answer. Seek a firm whose members look honest, and appear to act honestly. Give them your confidence, send them honestly-packed produce, and stay by them. Upon the occasions when a commission merchant has to choose between the interests of two customers, he will, if he is bright, favor the regular instead of the occasional shipper. Sometimes they do not do this, in the endeavor to attract new trade, while trusting to habit to retain the old. But such a course is unwise, and most merchants know too much to attempt it. A man shipping to two commission merchants |