Monday, October 16, 2006

Why support state corporate farming laws?



Compromises embodied in state corporate farming laws are responsible both for the success and failure of these laws. Compromises have resulted in corporate farming laws that garner the support of a variety of interest groups. Compromises have also resulted in corporate farming laws that lack a single, clear purpose and are largely ineffective.

State corporate farming laws are laws that generally prohibit corporations from farming or owning farmland, with some exceptions. State corporate farming laws permit corporations to farm and own farmland if they qualify as either a “family farm corporation” or an “authorized farm corporation.” While the definitions of these terms vary by state, a “family farm corporation” generally has shareholders who are related to one another and at least one shareholder actively engaged in farming. An “authorized farm corporation” has a limited number of unrelated shareholders (e.g. five) and at least one shareholder actively engaged in farming. Roughly eleven Midwest states have adopted corporate farming laws. Interest groups support corporate farming laws for a variety of reasons.

Environmental interest groups support corporate farming laws because these laws tend to restrict absentee landownership. Absentee landowners, according to some environmentalists, make less-sustainable management decisions than do on-farm landowners.

Large corporate farmers, who wish to retain independent control over their farming operations, support corporate farming laws because corporate farming laws restrict vertical integration. By preventing corporate buyers from engaging in farming, corporate farming laws force buyers to purchase agricultural products from independent producers and, thereby, preserve markets for independent farmers.

Small unincorporated farmers, like large corporate farmers, support corporate farming laws because these laws help preserve markets for independent farmers. In addition, small unincorporated farmers support corporate farming laws because these laws reduce direct competition from corporate farms. Lastly, corporate farming laws are thought to stabilize land prices. Small unincorporated farmers are interested in stabilizing land prices because rapidly increasing land prices have made it impossible for these farmers to purchase additional farmland. Corporate farming laws theoretically help stabilize land prices by preventing corporations from bidding on farmland (i.e. by reducing demand for farmland).

All interest groups purport to support corporate farming laws because corporate farming laws protect “family farms.” However, each interest group seems to have a different view of what the essential characteristics of family farms are.

Environmentalist View – Family farms are farms owned and operated by the same person and passed from one generation to the next. Family farmers tend to make sustainable management decisions because family farmers have an interest in preserving resources for future generations.

Large Independent Corporate Farmer View – Family farms are farms owned and managed by families. The fact that a farm expands, hires farm laborers, or becomes a corporation or limited liability company (L.C.C.) does not undermine the farm’s family farm character.

Small Independent Unincorporated Farmer View – Family farms are relatively small farms, where all farm labor is provided by the farm family. Family farms are organized as sole proprietorships or partnerships between family members.

Corporate farming laws, like other pro-family farm laws, garner support from persons with all three views. Interest groups support corporate farming laws because each interest group believes that protecting "family farms" will tend to advance one or two of its members' goals. The goals of persons who support 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.

Next, I will consider why corporate farming laws have been largely ineffective at achieving these goals.

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