88 CIRCULAR 10 0, U. S. DEPARTMENT OF AGRICULTURE 



Despite the fact that it rendered new and additional services to 

 both its members and its patrons there can be no doubt that the 

 Tobacco Growers' Cooperative Association was operated on an un- 

 economical and extravagant basis. On tobacco valued at $100,480,- 

 514.46 at the time of its receipt, according to the bankers' valuation, 

 and on sales of $98,186,272.70, the total general overhead expenseb 

 were $8,214,545.99. The carrying charges totaled $2,209,942.60. 

 The redrying expenses (which as a step in its processing should 

 enhance the value of the tobacco redried by an equal amount) were 

 $9,586,797.25 or 47.9 per cent of the total of all expenses of 

 $20,011,285.60. 



These figures show the high cost of handling and selling tobacco 

 through the Tobacco Growers' Cooperative Association of Virginia 

 and the Carolinas but they also show the possibility of economical 

 handling of tobacco if it can be sold cooperatively in large volumes 

 and if the costs of carrying, redrying, or other processing can be 

 added to the price in the green state. It must be borne in mind 

 that the general overhead expenses in the case of this association 

 cover the costs of a number of services not included in those given 

 by the looseleaf auction system to the growers or to the purchasers, 

 as well as the unwarranted costs of some extravagances. 



In regard to the total expenses the receivers said in their state- 

 ment on the mismanagement of the association : 



The management is entitled in a statement of this character to credit for 

 redrying cost of tobacco on hand at the time of the receivership. This would 

 reduce the total expense figure to about $17,000,000, or a cost ratio of over 

 17 per cent on the total sales. These figures reflect the serious mistakes in 

 management, the too great outlay in the purchase of warehouse properties, the 

 maintenance of a pay roll disproportionate to the volume of business, the 

 failure to adjust the expenses of operation to tobacco receipts which should 

 have been radically scaled down consistent with their actual experiences in 

 procuring membership tobacco, which from the above figures amounted to only 

 about one-third of the contract sign up; and the discreditable redrying policy. 

 No cooperative dealing with tobacco can hope to achieve permanent good to its 

 members, or win their support and confidence, upon such an unbusinesslike 

 ratio between sales and expenses. This one comparison alone fully explains 

 the failure of the association. 



DEDUCTIONS FOR RESERVES 



The costs of operation, the overhead, and the reserves, were de- 

 ducted from the sales price of the tobacco. A reserve for contin- 

 gencies was computed on the basis of 1 per cent of the gross sale 

 value of receipts, on the green basis. Overpayments to members on 

 closed pools were charged to this reserve by pools, according to the 

 resolution of the board of directors to that effect. At June 19, 1926, 

 the reserve set up on closed pools amounted to $623,707.77, against 

 which overpayments to members amounting to $404,326.03 and sun- 

 dry expenses jmd excess values given to closed grades over the actual 

 sales price of $141,728.22, reduced the reserve to $77,653.52 on the 

 association books. 43 



PRICE AND SALES POLICY 



Before describing the manner in which sales were made and the 

 sales policies adopted by the association, it may be advisable to 



43 Audit report of December 20, 1926. 



