44 BULLETIN 1237, U. S. DEPARTMENT OF AGRICULTURE. 
UTILIZATION OF BY-PRODUCTS. 
"Recognizing that the salvaging of the waste of an industry is 
vital to its prosperity," to quote the general manager of the exchange 
in his report for 1920-21, the exchange members established by- 
products plants primarily for the salvaging of cull oranges and 
lemons. The organization and operation of these companies have 
been described. Although returns from this source have not been 
large up to the present time, there are promising possibilities in both 
orange and lemon by-products. The plants have already served 
to improve the quality of the citrus fruit shipped from California by 
offering an outlet for fruit not strictly in the cull class but of inferior 
quality. During years of large production, an increased percentage of 
low-grade fruit is sent to the by-products plants, and the market for 
the higher grades of fruit is stabilized at a time when such stabiliza- 
tion is most necessary. 
It must be remembered that the by-products plants operate under 
handicap of constantly fluctuating supplies of raw material. These 
fluctuations result in idle plants and machinery for a portion of the 
year, and in a large, unavoidable labor turnover, all the more serious 
because a training period of more than average length is necessary 
to make a workman familiar with by-product processes. In spite of 
these difficulties they have rendered a useful service to exchange 
members with the possibility of increased usefulness in the future. 
SOME FUNDAMENTALS OF THE EXCHANGE SYSTEM. 
What are the fundamental principles upon which the exchange 
was organized, and by which it has been guided in its operation ? 
To what extent are these in harmony with generally accepted prin- 
ciples of cooperation ? Some departures from strict cooperative prin- 
ciples, notably the admission of commercial packing companies as 
members of a district exchange or as direct contract shippers, have 
already been mentioned. The following discussion will relate most 
directly to the local cooperative associations. It will simplify the 
discussion to consider the district exchanges and the central exchange 
merely as the creations and the agents of the associations and their 
members, and the principles upon which they are organized and the 
policies under which they operate as expressions of the principles 
and policies of the associations. The feature of local control of the 
central and district exchanges, therefore, may be accepted as the 
first principle of the exchange system. 
OPERATION FOR MUTUAL BENEFIT. 
The associations and the exchanges are operated for the mutual 
benefit of the members. No dividends are paid on the capital stock 
of the associations or district exchanges. The central exchange is 
organized as a nonstock corporation and can make no profit on its 
operations. Dividends on the slock of the by-products companies 
and the supply company are limited to (i per cent. In the market- 
ing organizations, therefore, there can la 4 no conflict of interest 
between stockholders and patrons. The patrons are stockholders in 
proportion to their orchard holdings, or to tin* amount of fruit which 
the} ship; and invested capital, as such, yields no interest. 
On the other hand, the members have equal rights to the facilities 
of the association. Oranges and lemons are harvested from the 
