Credit Woes in the Heartland

Ethanol continues its shake out.

UPDATE: NYT story on Saturday: Verasun files for bankruptcy.

Also, an interesting drama is being reported from Illinois. Imagine this: Debtor gets into financial trouble. Debtor enlists the locals to help him conceal assets. Some locals defect when the bank starts asking questions. And then some locals turn up dead.

Iowa Meatpacking

This story from the AP has the latest. $10,000,000 fine!

Agricultural Law / Food Law Opportunity

Issues involving food and agriculture have always been important. Recent concerns about our food system, however, have highlighted critical issues and peaked interest in the study of agricultural law. Consumers seek connections with their food; farmers seek ways to sustainably produce that food. Environmental issues, biotechnology, international trade, and other compelling issues challenge our preconceptions.

The Agricultural Law LL.M. Program at the University of Arkansas School of Law offers a unique opportunity to study these timely issues. Founded in 1980, this program is the only advanced degree program in agricultural law in the United States. Its curriculum covers the full spectrum of law and policy from the perspective of the farmer, the processor, the retailer, and the consumer. And, new course offerings address the most current aspects of food law, labeling law, and food policy, including issues of local and sustainable food sources.

The program attracts attorneys from throughout the United States and from abroad; University of Arkansas LL.M. alumni now practice in 35 different states and 15 different countries, serving as leaders in the agricultural law and food law communities.

The LL.M. Program is now accepting applications for Fall 2009. Merit-based graduate assistantships may be available to a limited number of those admitted to the class as LL.M. candidates. These assistantships provide a tuition waiver plus a small stipend.

Interested students are encouraged to apply to the Program as soon as possible. The Program website has application information, and those interested can also e-mail llm@uark.edu or call 479-575-3706.

Additional information is posted on the aglawllm blog.

Recent Publication

If you are interested in agricultural law, you probably receive notice of this publication. But if it misses you, here is a link to the ABA's Agricultural Management Committee's newsletter. The Ag Management Committee is within the Section of Environment, Energy and Resources of the ABA.

AALA Materials

The materials I presented at the AALA conference are included below.

The Ag Environmental Law Update slides are here.

The Corporate Farming slides are here. In addition, here is a report that David Aiken and I prepared dealing with legislative examples of defining farming. Also, the failed legislation that I mentioned can be found here. In it, you can see an effort at complying with Jones.

The 29th Annual American Agricultural Law Association

Today and tomorrow, practitioners, academics, and many interested in agricultural law and policy are gathering in Minneapolis for the 29th annual agricultural law conference. This is my third conference, and I am beginning to fully appreciate the breadth of agricultural law and the diversity of interests at stake in this important sector. For instance, the "updates" plenary session have covered the following topics: the UCC, taxation, bankruptcy, environmental law, food law, the farm bill, and a marquee lecture on global commodity prices (which is interestingly discussing the increased exposure of the ag sector to the volatility of energy markets). From there, the program expands into breakout sessions on precaution, business entity regulation, problems associated with high commodity prices, producer-initiated vertical integration, and cooperatives. And that is just the first day.

On day two, the program includes sessions on ethics and law office management, immigration law, siting livestock production facilities, water allocation, biofuel's carbon footprint, organics, estate planning, livestock economics, and whatever is left of the 2008 farm bill.

This marvelous spread speaks volumes to the legal and policy demands of the agricultural sector. And it only scratches the surface.

The conference materials will be available on the AALA's website: www.aglaw-assn.org. A membership is required.

Food Policy for the Future President

From Fresh Aire, on National Public Radio today, Michael Pollan has serious advice for the next President:

In a open letter to the next president, author Michael Pollan writes about the waning health of America's food systems — and warns that "the era of cheap and abundant food appears to be drawing to a close." The future president's food policies, says Pollan, will have a large impact on a wide range of issues, including national security, climate change, energy independence and health care.

Pollan is the author of The Omnivore's Dilemma: A Natural History Of Four Meals and In Defense OF Food: An Eater's Manifesto.

Michael Pollan writes for the New York Times and is a professor of science and environmental journalism at University of California at Berkeley.

Listen to the discussion -
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The New Farm Bill - ACRE

ACRE: A brief primer on the new payment mechanism.

The statutory text is available here.

If you see any errors or oversights, please let me know. I find this statutory text difficult to parse and would welcome a discussion with anyone who cares to parse it with me. Forgive me for using "Farmer Joe" in the example. At the time this was written, I did not yet appreciate the role of Joe in our political culture. In the end, perhaps we can add Joe the Farmer to Joe the Plumber and Joe Six Pack.

UPDATE: An excellent tool to understanding this program is available here.

How payments are triggered:

Basically, ACRE payments are triggered when state revenue per acre falls below the target revenue for the state—what is called the "ACRE program guarantee." [§ 1105(b)(2)(A)] That trigger is not, however, complete until the farmer has an individual revenue shortfall as well. That shortfall occurs when the farmer's actual revenue falls below the target revenue for that farmer—what is called the "ACRE farm revenue benchmark". [§ 1105(b)(2)(B)]

Read the rest of this post . . . .
Both the ACRE program guarantee, and the ACRE farm revenue benchmark are calculated from history. That is, state shortfalls and farmer shortfalls are judged in relation to what revenue could reasonably be expected to be. To calculate what the state and the farmer should expect in terms of revenue, we need a measure of historic yields and historic prices. That, in turn, will give us a per acre revenue number that we can compare to the revenue the state and the farmer actually generated per acre.

In order to get the yield, the statute says we look at the past five years' production average, calculated without the highest and lowest values. We do this for the state in calculating the "ACRE program guarantee" under § 1105(d) and we do it for the individual in calculating the "ACRE farm revenue benchmark" under § 1105(f). Then we find price by looking at the average market price for the preceding two years under § 1105(d)(3), which is incorporated to the farmer's benchmark calculation under § 1105(f)(1)(B). The average market price is determined by looking at the average price received for a given commodity on a national basis during the 12 months occurring after harvest—the marketing year.

So let's run some numbers. Let's say the 5 year olympic average for corn is 162 bu./acre in the state. The five-year olympic average for Farmer Joe is 145 bu./acre. The national average market price for the 2006 crop was $3.00/bu. The national average market price for the 2007 crop was $4.20.

This means that, had the program been in effect for the 2008 crop, Farmer Joe would get paid if the actual state revenue fell below the ACRE program guarantee and his individual revenue was below the ACRE farm revenue benchmark. Thus, if actual state revenue falls below $524.88/acre ($3.60 * 162*.9) [the revenue guarantee is set at 90% of the calculated state revenue], Joe would get a payment so long as his revenue falls below $522/acre ($3.60 * 145).

To figure out their actual revenue, we look at the amount of commodity they produced, divide it by their planted acres, and multiply that number by the national average price for that crop. These calculations are described in §§ 1105(c) and (e). That, in turn, tells us if their per-acre revenue is smaller than the per-acre revenue they would have expected based on recent history. Let's say the state had 9 million acres of corn planted and brought in 1.5 billion bushel of corn, while Joe had 1000 acres of corn planted and brought in 130,000 bushel of corn. The yield (bu./acre) for each was 166 bu. and 130 bu. respectively. Let's assumer further that the national average price for corn in the marketing year following the 2008 harvest is $3.20. That would mean that the actual revenue for the state was $531.20 and for the farmer was $416.

Does Joe get a payment? No. State revenue was not short enough. Joe had a shortfall of $106, but he doesn't get a payment.

Let's keep Joe's numbers the same but decrease the state's revenue by decreasing its yield. Let's say the state brought in only 1.3 billion bushel of corn. Thus, its yield was 144 bu./acre. In turn, its actual revenue was $460.80 (144 * 3.20). On these facts, the states revenue is small enough to trigger a payment along with Joe's revenue shortfall.

Note how both price and yield have an impact on current and past revenue measures. Given the 5 year averaging for yields, the state level guarantee and the individual benchmark shouldn't fluctuate too quickly in terms of yield changes. But given the 2 year average for prices, the state level guarantee and the individual benchmark could swing a bit wildly. To avoid this problem the statute caps the overall change in the state level guarantee at 10% of the prior year's guarantee, either up or down. § 1105(d)(1)(B).

How payments are calculated:

How much does the farmer get paid? This is found in subsection (g). The first element of the payment is finding the lesser of the difference between the program guarantee and the state revenue or 25% of the program guarantee. On our facts, the difference between the program guarantee and the state's revenue was $64.80 (524.88 – 460.80). 25% of the program guarantee is $131.22 (.25 * 524.88). Thus, the number to use is $64.80. This is the shortfall in per acre revenue for corn on a statewide basis.

Then, that number is multiplied by the % of base acres the farmer has. So, if all of Joe's 1000 acres are base acres, he gets to multiply the $64.80 by 833. Thus, his payment is $53,978.40, so far. But the $64.80 was based on state-wide averages. So the number needs to be adjusted to account for individual farmer's historic yields. To do that, it is multiplied by the quotient obtained by dividing the farmers olympic average yield by the state's benchmark yield (i.e., its olympic average yield). Here, the farmer's average is 145 and the state's is 162, which yields a quotient of .895. That is, in turn multiplied by the $53,978.40 we calculated earlier, yielding a total ACRE payment for Farmer Joe of $48,310.66.

Current Problems

The problem the administration is having right now has to deal with the administration of this program. Note how important it is to figure out the starting price. If the 2006 and 2007 marketing years are used to set this program up, then the price used to calculate the program guarantee and the farm revenue benchmark will be around $3.60. If yields are consistent with the average in 2009, and the 2009 marketing year brings prices averaging $3.30, the governmental outlays will be significant. But not nearly as significant as they would be if the price used to calculate the guarantee and benchmark were $4.88—a real possibility if the 2007 and 2008 marketing years are used.

Additionally, if one were to start with the $3.60 prices, the statute is not built such that the big payments would ensue for the 2010 crop if prices remain depressed. The new 2-year average price would be $4.88 (the 2007 and 2008 marketing years), but the revenue guarantee can only move 10%. Assuming yields are the same, that would mean the price used to set the guaranteed revenue would effectively be $3.96. That still results in a larger payment to farmers, but not one that would rise to the same level as those payments that will be made by starting with the 2007-2008 average price.

Note also, that the 10% limit on increases or decreases also means that the government's outlays that result from starting with a $4.88 average price for the 2009 program year will not diminish in a way that fully captures the drop in commodity prices. So if the price the next year were 3.60 (because the 2009 crop has an average price that is relatively low), the 10% limit would, on the same yield, generate an effective price of 4.40. That, is a somewhat decreased revenue guarantee, but not nearly to the same extent as a true decrease to the 2 year average.

There is much that is complicated about this program and much uncertainty. Many farmers will likely enroll and, I suspect, the administration will end up starting with the 2007-08 crop years' average price for the 2009 crop. If that happens, and prices drop, expect large payments to producers that persist for a few years.

In terms of signing up, setting the prices on the 2007-08 level at the outset will likely (or at least should) draw farmers into the program.

Participation Conditions

To participate in this program, farmers must give up 20% of their direct payments, all counter cyclical payments, and 30% of the loan rate for commodities in that program. However, as I've heard Dr. Barnaby say, the only real cost to a farmer is the 20% direct payment. [presentations on the new farm bill can also be found here] If prices drop to levels that trigger counter cyclical payment or make loan rates relevant, bankruptcy is likely to ensue anyway. So playing this game really involves losing 20% of the direct payments. Notably, as one of my students pointed out, the adjusted-gross-income limitation on direct payments (barring people and entities from getting such payments if they have more than $750,000 in average adjusted gross farm income over a 3 year period [sec. 1604 of the bill]), means that there is little reason for producers at that income level to refrain from entering this program.

Urban Farmer Wins MacArthur "Genius Grant"

Need some good news in these difficult times?

ABC News tells the amazing story of former professional basketball player Will Allen, CEO of Growing Power, an organization that built a farm in the middle of a Milwaukee residential neighborhood. Their goal: to help feed the community's residents affordably using "urban farming." Their 2 acre farm produces enough food to sustain 2000 people.

Here is the story, as reported by Courtney Chapman, Lisa Stark, and Lee Ferran of ABC News. Watch the video of how its done.

"Well, my goal has always been to feed people healthy, safe, affordable food and make sure that everybody has access to the same food, regardless of your economic situation," Allen told "Good Morning America."

Such vision has earned Allen a $500,000 "genius grant" from the John D. and Catherine T. MacArthur Foundation to continue and expand his efforts.

According to Sophie Brown of Growing Power, a $16 bag filled to the brim with Growing Power's fruits and vegetables, along with those of other local growers, could feed a family of four for a week.

"I wanted to set up a program that was fair farm prices that they're paying for that stuff and can afford it," Allen, the son of a sharecropper, said last week. "They can eat healthy."

The farm uses it's own version of renewable energy. Decaying compost piles in the corners of a greenhouse heat up the structure, turning up the temperature high enough to allow plants to survive during the harsh Wisconsin winter. The farm also features an innovative three-level growing system with a giant fish tank on the ground floor and two levels of plants above. Water is pumped from the giant fish tank to the top level, where the plants then filter out the waste, and return fresh water to the fish below. It's a fish farm and plant farm all in one.

"You can grow just about anything, anywhere you want," Allen said.

On this farm, nothing goes to waste. Old food is used as animal feed or dumped into the compost pile. And Allen has an army of worms working for him. Millions of the red wiggly worms turn the compost into rich fertilizer and soil. "They are eating all the dead stuff and creating fertilizer, it's a living system" said Allen.

While Allen is already more than willing to tell people how to set up similar farms in their own communities, according to his son Jason, the inner city is the focus of Allen's attention.

"He focuses a lot on urban and inner cities," Jason said. "All you see is fast-food places. To have something like this in an inner city is real important."

That space is generally hard to come by in America's inner cities does not phase Allen; he simply plans to build vertical farm skyscrapers.

"I see food growing on rooftops," he said, lost in his vision of the future. "I see food growing on asphalt with compost."

NY Times Magazine on Food Issues

This Sunday's New York Times Magazine will be devoted to international/U.S. food policy and the "true costs of cheap food: obesity in the U.S., malnutrition in developing countries and environmental degradation everywhere." Almost the entire issue is devoted to this topic, discussing problems and suggesting solutions. It is available online .

Cattle Branding and Presidential Politics

This story is just made for the Agricultural Law blog. Cowboys and cattle that evoke images of Texas range land and independent ranchers; and maybe even early animal welfare concerns.

It turns out that the term "maverick," the signature image claimed by the Republican candidates McCain and Palin comes from Samuel Augustus Maverick, a Texas Rancher in the 1800s who refused to accept the practice of branding his cattle. His last name became associated with that of an independent-minded person, as as did unbranded cattle, also known as "Maverick's."

A nice little agricultural law connection to an election that has otherwise not been very much about food or agriculture.

But now for the news and the fun video - turns out that the Maverick family don't think much of John McCain, and the constant call out of their name is quite annoying.

Organic Farmer Wins $1 million Verdict for Pesticide Drift

The Environmental News Service reports that last week a Santa Cruz County, California jury awarded $1 million to Jacob's Farms, an organic farming operation whose edible herbs were contaminated by pesticides applied to vegetables on nearby farms. At issue were the pesticides chlorpyrifos, diazinon and dimethoate (organophosphates) applied to the adjoining property. The pesticide drift occurred after evaporation of the liquid application, likely as a result of wind and fog.

According to the news report, the court ruled that the pesticide applications that were made by Western Farm Services and that drifted onto the organic herb fields constituted a trespass and a nuisance depriving the organic farmer the right to use and enjoy the land. The jury also found negligence on the part of Western Farm Services in its application of the pesticides. Western Farm Services said it is likely to appeal the verdict.

Aren't We Forgetting Something (Again)?

A recent article informs us that the government program that "test the levels of pesticides in fruits, vegetables and field crops" will cease. The article encompasses a number of dire impacts on the long term studies of pesticides withing related agencies. This spans over to the Environmental Protection Agency's ability yo establish requisite safe levels of pesticides in food for consumption purposes. Further concern for the environment signals additional alarm in the article.

The decision to cease testing does in fact trigger apprehension on multiple levels. Yet an additional purpose governs this tirade. Specifically, the article fails to include the potential impact on the nation's domestic and foreign agricultural laborers and the potential injuries that could result from the failure to test pesticides. This omission raises red flags for those employed cultivating and harvesting fruits, vegetables and field corps with further emphasis for the children working in agriculture.

New Deal agricultural based exemptions permit child labor in agriculture and thus children pick fruits and vegetables for human consumption. State laws highly protection of child laborers also recognize agricultural exemptions that expedite children working in fields. Where and if available, the very few protections children receive are highly deficient and difficult to reconcile with protective mechanisms afforded other industries. This dilemma follows moreover the severe lack of enforcement that escapes the reaches of law's potential in protecting children in rural fields.

In sum, the omission of the human component of feeding the nation underscores their historical exclusion as valuable participants in the food chain and forces of production. Shrouded in historical amnesia, the plight of children working in fields is once again shielded from public scrutiny. Sadly and ultimately the new pesticide decision portends further harmful consequences and peril for the nation's youngest employees.

Posted on behalf of Guadalupe Luna