Financing through loans is undertaken to carry inventorj'. In 

 general these loans are considered a high type and there has been no 

 great difficulty with this type of financing in the industry. Some 

 further information with respect to recent Reconstruction Finance 

 Corporation experience in the domestic tuna industry is given in 

 Chapter VII. 



In pricing their product for sale it has become a comnon prac- 

 tice among processors of canned tuna and tunalike products to "guar- 

 antee floor stocks". Floor stock guarantees mean that the packers of 

 tuna adAd-se their brokers that the prices of certain kinds of canned 

 tuna or tunalike products held by buyers will be guaranteed against 

 the packers own reduction in prices. This applies to the buyer's 

 warehouse floor stocks, goods in transit, and unshipped ordei*s. Most 

 of the firms limit this guarantee to about sixty days. 



This guarantee allows the brokers to quote a specific price to 

 buyers without the associated risk of a price decline from the proc- 

 essor level occurring shortly after the buyer pays for and gets his 

 order. The arrangement establishes good processor-buyer relations, 

 and to some extent, assures the processor of a future buyer. Guaran- 

 tees should tend to reduce the processors' inventories since the buyers 

 can purchase greater quantities without the risk of a packer price cut. 



Brokers and wholesalers consider guarantees desirable since risk 

 of canners' reduction in price is removed. However, from a packers 

 standpoint certain difficulties could arise. For instance, if some 

 phase of the production or raw material costs were reduced, and the 

 packers wished to cut their prices, so that buyers could take advan- 

 tage of the lower price and enlarge markets, they would be penalized 

 to the extemt of their existing guarantees. Generally speaking, the 

 processors are opposed to floor stock guarantees; they are a problem 

 for themj but the guarantees have become a policy of the industry and 

 are virtually required to be extended in order to sell canned tuna 

 expeditiously. 



Floor stock guarantees are "insurance" — price change insurance— 

 for distributors of canned tuna and tunalike products. They tend to 

 stabilize prices to some extent. Anything that helps to stabilize 

 prices tends to stabilize physical movement and thus lead to lower unit 

 cost of operation. 



On the whole, the tuna packers' present methods, as described in 

 the material above, for marketing their canned pack are efficient and 



390 



