Tuesday, October 17, 2006

Compromise Results in Ineffective Corporate Farming Legislation

Due to their lack of clarity of purpose, state corporate farming laws are largely ineffective at accomplishing their goals. The goals of state corporate farming laws are numerous and include: 1) restricting absentee landownership and tenant farming, 2) stabilizing land prices, 3) restricting vertical integration and preserving markets for independent farmers, and 4) preventing direct competition from packers and processors engaged in agricultural production.

Hog farmingState corporate farming laws are ineffective at preventing absentee landownership and tenant farming. Farmers support permitting absentee landownership and tenant farming in at least some circumstances. Farmers want the freedom to pass on interests in farmland to their off-farm heirs when they die. Off-farm heirs who inherit farmland become absentee landowners. In addition, farmers want to be able to retire, continue to live on their farm, and rent their farmland to someone who lives off-farm (a “tenant farmer”) as a source of retirement income. To accommodate farmers’ interests, while corporate farm laws restrict absentee landownership by many corporations, they do not restrict absentee landownership by individuals, “family farm corporations,” or “authorized farm corporations.” Despite the goal of environmental interest groups to restrict absentee landownership, there has been a steady increase in absentee landownership and corporate farming laws have done little to counter this trend.

State corporate farming laws are ineffective at stabilizing land prices. Corporate farmers with sufficient financial resources want the option of purchasing farmland either to expand their operations or as a source of rental income. These farmers view the acquisition of farmland as a business investment. To accommodate the interests of these farmers, corporate farm laws permit “family farm corporations,” “authorized farm corporations,” and unincorporated farms with sufficient financial resources to acquire land. In addition, corporate farm laws permit individuals to acquire farmland with the intent to use the land for non-farm purposes. Despite the goals of small to mid-sized farmers of stabilizing land prices, corporate farm laws have done little, if anything, to reduce demand for farmland and to slow the trend of rapidly rising land prices.

State corporate farming laws are ineffective at restricting vertical integration and ensuring that independent farmer have a market for their products. While corporate packers and processors are prohibited from directly engaging in agricultural production, corporate packers and processors are free to enter into production contracts with producers that dictate the methods producers must use to produce agricultural products. Many agricultural sectors have become vertically integrated via the use of contract farming. Interest groups representing farmers are conflicted about whether to lobby for restrictions on contract farming. Some farmers, who value retaining independent control over their farms, oppose contract farming. As contract farming becomes more prevalent, independent farmers have fewer buyers willing to purchase their products. Other farmers, who value financial security, view contract farming as an opportunity. In exchange for giving up control over their farming operations, farmers who enter into production contracts are guaranteed income. Thus far, corporate farming laws have done nothing to restrict vertical integration via the use of contract farming.

Chicken farmingState corporate farming laws do prevent direct competition from packers and processors in some agricultural sectors. However, interest groups representing the poultry, hog, and beef packing and processing industries have convinced state legislatures to adopt numerous corporate farming law exemptions. Nearly all corporate farming laws permit corporations to engage in poultry production. In addition, Oklahoma’s corporate farming law permits corporations to engage in hog production and dairy production. Okla. Stat. tit. 18, sec. 951 et al. Kansas’s corporate farming law permits corporations to engage in hog and dairy production, if counties vote in favor of these exemptions. Kan. Stat. Ann. sec. 17-5903 et al. Minnesota’s corporate farming laws permits corporations to engage in hog and beef cattle production, if 80% of the corporation’s revenue comes from agricultural production. Minn. Stat. sec. 500.24 et al. Corporate farming laws have been effective at preventing direct competition from packers and processors, but only in non-exempt sectors.

Paradoxically, compromise seems to explain both the success and failure of state corporate farming laws. State corporate farming laws may not have been adopted absent substantial compromise among interest groups. At the same time, the compromises embodied in these laws have made state corporate farming laws entirely ineffective.

Note: The argument that state corporate farming laws have been largely ineffective comes from Fred Morrison, State Corporate Farming Legislation, 7 U. Toledo L. Rev. 961 (1976). Interest group compromise seems to explain in part the ineffectiveness of corporporate farming laws, that Morrison identified.