Anti-Corporate Farming Laws in the Heartland

MEMORANDUM
RE: The Law, History, and Facts on the Anti-Corporate Farming Laws in Oklahoma, Nebraska, South Dakota, North Dakota, Wisconsin, Minnesota Kansas, Missouri, and Iowa

Anti-Corporate Farming Laws in the Heartland

I. The National Corporatization of Agriculture

The numbers documenting the corporatization of Agriculture in the United States:
•    Four corporations control 82% of the nation’s beef cattle market;
•    Five major packers control 55% of the hog industry;
•    Small farms comprising 94% of all U.S. farms receive only 41% of all farm income;
•    There are 300,000 fewer farmers than there were 20 years ago;

The nine states which have passed anti-corporate farming statutes, in some form, constitute 30% of all U.S. agricultural cash receipts.

II. Provisions of Anti-Corporate Farming Laws by State

Oklahoma

“Declaration of Purpose: It is hereby declared to be the public policy of this state and shall be the prohibition of this act that, notwithstanding the provisions of section 5 of this act, no foreign corporation shall be formed or licensed under the Oklahoma General Corporation Act for the purposes of engaging in farming or ranching or for the purpose of owning or leasing any interest in land to be used in the business of farming or ranching. A domestic corporation may, however, be formed under the Oklahoma General Corporation Act to engage in such activity if it meets the requirements of this Act.”

The State of Oklahoma has the oldest anti-corporate farming law in the United States. The original provision was embedded into the 1907 Constitution, but was rendered ineffective by the Oklahoma Supreme Court in 1969 which ruled that corporations could be chartered for the express purpose of farming. The Oklahoma legislature then amended its statute to provide for several limitations upon agricultural corporations. The law provides that corporations may not be formed for the purpose of owning or leasing an interest in land to be used for farming and ranching unless the corporation (1) is composed only of shareholders who are natural persons, (2) receives less than 35% of its revenue from sources other than farming, (3) is composed of less than ten shareholders, and (4) is approved by the State Board of Agriculture. See Okla.Stat.Ann tit. 18, ¤951 and ¤955 (West 1986). A weekly listing of the corporations formed to engage in agricultural activities is provided to the State Department of Agriculture by the Secretary of State. Exemptions to the Act include (1) feeding arrangements concerned with the feeding of livestock or poultry, (2) production and raising of livestock or poultry for sale or use as breeding stock, (3) poultry or swine operations, including operating hatcheries, feed mills, facilities for the production of breeding stock, and providing supervisory, technical, and other assistance to other persons performing such services, (4) forestry, (5) nonprofit corporations, and (6) engaging in fluid milk processing.

The law provides that any charters issued after 1971 to foreign corporations for farming or owning interest in farmland must be revoked within five years; and that all domestic corporations whose articles of incorporation did not comply with the Act must be revoked within five years. Another provision provides for immediate dissolution if a corporation “persistently” violates the Act, and that the State Board of Agriculture is given the authority to prosecute civil and criminal actions to enforce the law. Violations of the law are considered misdemeanors.

A citizens’ suit is also provided by the law, which enables any resident of the county in which land is held in violation of the Act to initiate an action to force divestment of the land by the corporation. If successful, all legal costs and attorneys’ fees are to be borne by the offending corporation.

Minnesota

“Declaration of Purpose: The legislature finds that it is in the interests of the state to encourage and protect the family farm as a basic economic unit, to insure it as the most socially desirable mode of agricultural production, and to enhance and promote the stability and well-being of rural society in Minnesota and the nuclear family.”

Adopted in 1973, the Minnesota anti-corporate farming statute is the third oldest statute, behind North Dakota and Oklahoma, to address corporate participation in agriculture. See Minn. Stat. ¤500.24 (1994). The law generally provides that no corporation, limited liability company, pension or investment fund, or limited partnership may engage in farming or obtain any interest in agricultural land.

General exemptions exist for a “family farm corporation”, an “authorized farm corporation”, an “authorized livestock farm corporation”, and an “authorized farm partnership.” A family farm corporation is defined as one in which (1) the majority of the voting stock is held by the majority of stockholders who are persons or the spouses of persons related to each other within the third degree of kinship, and (2) at least one of those related persons resides on, or operates the farm. An authorized farm corporation must (1) have five or fewer shareholders - all of whom must be natural persons or estates, (2) only have one class of shares, (3) its revenues from other activities must be less than 20% of its total income, (4) shareholders holding 51 percent or more of the interest in the corporation must reside on the farm or be actively engaged in farming, and (5) it must hold interests in less than 1,500 total acres of agricultural land. The other categories generally follow the requirements of the two categories enunciated above. See Minn. Stat. Ann. ¤500.221. Minnesota law establishes a reporting system whereby the chief executive officer of the corporation must file an annual report, listing the officers and directors of the corporation, a copy of the title held to any land, and the acreage and location of that property used for farming. Failure to file a report constitutes a gross misdemeanor. The Attorney General may commence an action in the district court to force divestiture of lands held in violation of the Act. Any lands not divested within five years must be sold at a public sale.

Iowa

Iowa’s anti-corporate farming statute is located at Iowa Code Ann. ¤172C.5A (West 1990). Iowa recently amended its anti-corporate farming statute to ban output contract farming. Iowa Code Ann. ¤9H.4 (West 1995). The law prohibits corporations, limited liability companies, and trusts - other than family farm corporations, authorized farm corporations, family farm limited liability companies, authorized limited liability companies, family trusts, authorized trusts, revocable trusts, or testamentary trusts - from acquiring an interest in any agricultural land in the state.

The major organizational exemptions require (1) that the shareholders be related, (2) that the stockholders all be natural persons, and (3) that sixty percent of the gross revenues of the corporation over a prior three year period have been derived from farming.

Other exemptions include (1) land owned by nonprofit corporations, (2) land owned by municipal corporations, and (3) agricultural land held for research or experimental purposes. Enforcement of the Statute may be carried out by the Attorney General or the County Attorney. Penalties may be assessed up to $25,000 and the corporation forced to divest the farmland within a period of one year. Enforcement is assisted by the lengthy requirements imposed on the submission of reports which must be sent annually to the Secretary of State by contract feeders and by any corporations owning farmland in the State.

Iowa law also makes it unlawful for beef and pork processing corporations to own, control, or operate a feedlot. This section of the law proclaims that “[i]n order to preserve free and private enterprise, prevent monopoly, and protect consumers” there shall be a separation of ownership and processing corporations. See Iowa Code Ann. ¤9H.2. Violations of this portion of the statute may be assessed a penalty of up to $25,000. The Attorney General or a County Attorney may bring suits on behalf of the State to enforce the provisions of the Act.

Kansas

Kansas’ anti-corporate farming statute is located at Kan.Stat.Ann. ¤17-5904. In 1995, the legislature passed legislation allowing counties to opt-out of the anti-corporate farming statute by establishing a process for allowing corporate dairy and swine operations in those counties. The original legislation contained a prohibition against output contracting for hog production purposes, but recently enacted legislation now allows for contract farming. See Kan. Stat. Ann. ¤17-5904 (18)(b)(1995).

The law prohibits corporations, trusts, limited liability companies, limited liability partnerships, or corporate partnerships, other than a family farm corporation, authorized farm corporation, limited liability agricultural company, family farm limited liability agricultural company, limited agricultural partnership, family trust, authorized trust or testamentary trust, from owning or acquiring any agricultural land in the state.

Most of the organizational structural exceptions to the law deal with the number of stockholders, the blood relationship required of the stockholders and the requirement that at least one of the stockholders either resides on the farm or is actively engaged in the labor or management of the farming operation.

Other exemptions include (1) land owned by a corporation for use as a feedlot, poultry confinement facility or rabbit confinement facility, (2) land owned for production of timber and nursery products, (3) land used for commercial production of seed or growing of alfalfa, and (4) swine production and dairy production facilities in those Counties which have decided to opt-out of the Statute. The County opt-out provision for swine production is outlined in Kan. Stat. Ann. ¤17-5908 (same as for dairy production), which requires that the County Commissioners, by resolution, submit the issue to the voters of the County by referendum. The opt-out provision also allows a referendum petition, signed by 5% of the eligible voters of the County, to be circulated to place the issue on the ballot.

Penalties for violation of the Statute can be assessed by the Attorney General and the District Attorney, and fines up to $50,000 are authorized by the statute. The corporation can also be forced to divest itself of the land held in violation of the Statute.

Missouri

Missouri’s anti-corporate farming statute is located at Mo. Rev. Stat. ¤350.015 (1994). In 1993, the State exempted three counties from its anti-corporate farming law. The exemption occurred by legislative pronouncement that the law would not apply to agricultural land within Counties located north of the Missouri River and West of the Chariton River which had less than 7,000 inhabitants but more than 3,500 inhabitants, for the purposes of swine production. Another exemption was also passed in 1993 dealing with counties of the third classification with a Township form of government. Altogether, three counties were exempted from the operation of the Statute by these combined provisions.

The law prohibits corporations from owning farmland or engaging in farm related activities within the state. The law includes two major exemptions, one for the family farm corporation and one for the authorized farm corporation. A “family farm corporation” is defined as a corporation incorporated for the purpose of owning farmland and farming where at least one-half of the voting stock is held by members of the same family and one stockholder lives on the land or is active in the operation of the farm. In addition, all stockholders must either be natural persons or a qualified farming corporation. An “authorized corporation” is one in which all the shareholders are natural persons and two-thirds of the total corporate income is from farming. General exemptions include (1) expansion of corporate farms owned prior to the enactment of the Statute, limited to 20% expansion in any five year period; (2) agricultural land used exclusively for grain or fruit used for brewing or winemaking, for forest cropland or for the production of poultry, poultry products, or fish and mushroom farming; and (3) farmland owned by nonprofit corporations, (4) experimental research conducted on hybrid hogs.

Three major corporations entered Missouri under these two exemptions. These were Premium Standard Farms (began operation in 1989 as an authorized farm corporation), Murphy Family Farms, and Continental Grain (began operation as family farm corporations). Enforcement is carried out by the Attorney General, who is authorized to force a divestment of the agricultural land held in violation of the Statute. If voluntary divestment does not occur, the Attorney General may seize the land and sell at a public sale. The Missouri Statutes, at ¤350.040, also remove all “state tax credits, deductions, state grants, loans, or other financial or economic assistance” from all corporations owning farms or engaging in farming, unless those corporations are family farm corporations or authorized corporations.

The anti-corporate farming statute was challenged on constitutional grounds in 1988 and was upheld by an en banc panel of the Missouri Supreme Court. The case was State ex rel. Webster v. Lehndorff Geneva, 744 S.W. 2d 801 (en banc 1988).

Nebraska

Court of Appeals, MSM Farms v. Spire:
“It is up to the people of the State of Nebraska, not the courts, to weigh the evidence and decide on the wisdom and utility of measures adopted through the initiative and referendum process. Whether in fact the law will meet its objectives is not the question: the equal protection clause is satisfied if the people of Nebraska could rationally have decided that prohibiting non-family farm corporations might protect an agriculture where families own and work the land. . . The people of Nebraska have made a reasonable judgment that prohibiting non-family corporate farming serves the public interest in preserving an agriculture where families own and farm the land. It is not for the courts to second-guess the wisdom of this judgment.”

Nebraska’s anti-corporate farming constitutional provision is located at Article XII, Section 8 of the Nebraska Constitution. It passed in 1982 with 56.6% of the vote and was known as Initiative 300. The law does not prohibit output contract arrangements. The law was challenged in state courts in Omaha National Bank v. Spire, 389 N.W.2d 269 (Neb. S.Ct. 1986) and in the federal courts in MSM Farms v. Spire, 927 F.2d 330 (8th Cir. 1991) on equal protection and due process grounds. The law was upheld in each forum, and the United States Supreme Court refused to hear the case, thus leaving the lower court ruling stand. The law prohibits non-family farm corporations from further purchase of Nebraska farmland and ranch land and prohibits re-establishment of non-family corporate crop and livestock operations. The major exemption to the law is for a “family farm corporation”, which must (1) be engaged in farming or ranching or ownership of agricultural land, (2) must have all shareholders be natural persons, (3) must have a majority of the voting stock held by persons related to one another within the fourth degree of kinship, and (4) must have at least one of the family members residing on the farm or actively engaged in its day to day labor and management. General exemptions include (1) Nebraska Indian tribal corporations, (2) research farms, (3) agricultural land operated by a corporation for the raising of poultry, and (4) livestock purchased for slaughter.

Enforcement of the constitutional provision rests with the Nebraska Secretary of State, which monitors land purchases and farming operations, and the Attorney General, who may commence an action in district court to force divestiture of land held in violation of the Statute or enjoin any pending illegal land purchase. If the Secretary of State or the Attorney General fail to perform their duties, “Nebraska citizens and entities shall have standing in district court to seek enforcement.”

Wisconsin

Codified at Wis. Stat.Ann. ¤182.001, the Wisconsin anti-corporate farming statute was originally passed in 1973 and amended in 1977. The law prohibits corporations and trusts from owning farmland or “carrying on farming operations”. Exceptions to this general prohibition include (1) if a corporation’s shareholders do not exceed fifteen in number and all shareholders are lineal ancestors or lineal descendants, the corporation does not have more than two classes of shares, and the shareholders are all natural persons; (2) expansion of land already owned by corporations, if that expansion does not exceed 20% over any five year period, (3) research farms, and (4) expansion land leased to natural persons. The law specifically delineates which crops are covered by the anti-corporate farming statute. These are: production of dairy products, production of cattle, hogs, and sheep; production of wheat, field corn, barley, oats, rye, hay, pasture, soybeans, millet and sorghum. Penalties for non-compliance with the Statute include a $1,000 per violation penalty and the District Attorney has the authority to enjoin the operation of the land or facility which is in violation of the statute.

South Dakota

Originally passed as a statute in 1974, the original law was deemed ineffective by several farm groups because of the multiple exceptions and the ineffective definition of “family farm” contained within the Statute. The latest blow to the old law occurred in 1989 with an Attorney General Opinion which exempted many large corporate operations. The original codification was found at ¤47-9A-16 (1983). In 1998, “Amendment E” to the South Dakota constitution appeared on the ballot, via a 35,000 signature referendum, and passed by 59% of the vote. It was supported by 75% of the farming community and by the South Dakota Farmers Union and Dakota Rural Action. It was opposed by the South Dakota Farm Bureau. The law, one of the strictest anti-corporate farming laws in the nation, provides that corporations are prohibited from owning farmland or engaging in farming. The law exempts several categories from the general prohibition - including family farm corporations (defined as blood related individuals who actually work the farm), nonprofits, and cooperatives. Enforcement is authorized through the Attorney General’s Office, which can force divestment of land.

The Amendment prohibits output contract arrangements except those contracts entered into prior to the passage of the Amendment until they are terminated by either party to the contract.

North Dakota

The North Dakota Anti-Corporate Farming Act originally became effective in 1932. See N.D. Cent. Code ¤10-06.1 (1985). Until 1981, all corporations - whether foreign or domestic - were prohibited from engaging in farming in North Dakota. In 1981, the North Dakota Legislative Assembly amended the law, providing that all corporations and limited liability companies were prohibited from owning or leasing land used for farming or ranching and from engaging in the business of farming or ranching, unless they met the exemptions provided in the law. See N.D. Cent. Code ¤10.06.1-02. The legislature provided specifically for exemptions for “family farm” and “ranch operations”, if they (1) have fifteen or fewer shareholders, (2) each shareholder is related to each other, (3) the officers and directors are shareholders and actively engaged in operating the farm or ranch, and (4) at least one of the shareholders resides on the farm or ranch. In addition, at least 65% of corporate income must be derived from agricultural operations. Finally, only domestic corporations are eligible to own real estate and engage in farming or ranching.

Every farming or ranching corporation must file an initial report with its articles of incorporation. The report must contain information about each shareholder, management of the corporation, and location of farmland properties. Annual reports, containing this information, must also be filed by the corporation. Failure to file the annual report is a class A misdemeanor.

Any corporation violating the law must cease all farming and ranching operations and has one year to divest itself of any land owned or leased in violation of the statute. Jurisdiction to enforce the law is given to the State Attorney General who may force the divestiture of farmland held in violation of the Act. The affected corporation has one year to fully divest itself of the property. If the corporation fails to divest, it may be fined a civil penalty of up to $25,000 and have its charter revoked by the secretary of state.

Local Anti-Corporate Farming Ordinances in Pennsylvania

Wells Township, Fulton County, Pennsylvania
Thompson Township, Fulton County, Pennsylvania
Belfast Township, Fulton County, Pennsylvania

Passed by the Wells Township Supervisors in September of 1999; by the Thompson Township Supervisors in December of 1999; and by the Belfast Township Supervisors in June of 2000 - all by unanimous votes - an Ordinance modeled upon South Dakota’s Amendment E was adopted into law. Two slight changes were made to the language of the Amendment. The first alteration created a citizen suit provision which authorized any citizen of the Township to bring suit to enforce the Ordinance. The second alteration was undertaken so that the Ordinance complied with the Second Class Township Code in Pennsylvania - amending the enforcement provisions to include a statutory fine and giving jurisdiction to the County Court of Common Pleas to enforce the Ordinance.

III. Impact of Anti-Corporate Farming Laws in These States

National Averages:

Number of Farms: 2,197,690 (1994) to 2,191,510 (1998) - Change of .3% Average Size of Farms: 440 acres (1994) vs. 435 acres (1998) - Change of 1.1% Land in Farms: 965.9 million acres (1994) vs. 953.8 million acres (1998) - Change of 1.25%
Note: Economic figures for small, middle, and large sales class farms:
•    Small Sales Class - 1k -10k Annual Revenue
•    Middle Sales Class - 10k - 99k Annual Revenue
•    Large Sales Class - 100k plus Annual Revenue

Oklahoma

•    Increase in number of farms from 80,000 (1994) to 83,000 (1998).
•    Land in Farms unchanged between 1994 and 1998 (34,000,000 acres)
•    Average size of farms decreased from 425 acres to 410 acres.
•    Small Sales Class farms rose from 48,000 farms to 52,000 farms (1993-1998); Middle Sales Class farms stayed at 25,000 farms; Large Sales Class farms stayed at 6,000 farms

North Dakota

•    Decrease in number of farms from 31,500 (97) to 31,000 (98)
•    Land in Farms decreased from 39.7 million acres (1997) to 39.5 million acres (1998)
•    Average size of farms increased from 1,221 acres in 1993 to 1,274 acres in 1998
•    Small Sales Class farms gained from 6,700 farms (1993) to 8,200 (1998), while Middle Sales Class farms lost from 16,800 to 14,000 farms Large Sales Class farms decreased from 9,500 to 8,800 farms

Minnesota

•    Hog producers dropped from 30,000 in 1980 to 15,000 in 1990.
•    Hog inventory dropped 2 percent from 1990 to 1994.
•    Average farm size has increased 17 percent since 1980.
•    Average farm size increased from 354 acres to 361 acres from 1995 to 1998.
•    Total Land in Farms decreased from 29.1 million acres in 1997 to 28.9 million acres in 1998.
•    Lost 20% of its farms from 1985-1995.
•    Lost 3,000 farms from 1995 to 1998 (from 83,000 to 81,000).
•    Lost 35% of its livestock operations since 1980.
•    Statistic: Each expansion in output of 1 million hogs leads to the exit of 2,000 less efficient operations of the 30-35 sow size.
•    Small Sales Class farms lost from 30,500 farms (1993) to 29,500 farms (1998) Middle Sales Class farms lost from 33,500 to 29,500 farms Large Sales Class farms decreased from 22,000 to 21,000 farms
Iowa
•    Small Sales Class farms rose from 24,000 to 26,500 farms (1993-1998); Middle Sales Class farms lost from 45,000 to 38,500 farms; Large Sales Class farms decreased from 33,000 farms to 32,000 farms
Kansas
•    Small Sales Class farms rose from 23,500 to 24,200 farms (1993-1998); Middle Sales Class farms fell from 30,500 to 27,300 farms; Large Sales Class farms rose from 12,000 to 13,500 farms

Missouri

•    From 1994 to 1998, 1-99 head livestock operations fell from 50.5 to 42 percent market share, while 100-499 head operations grew from 34.3 to 36.0 percent, and 500 head and over operations gained from 15.2 to 22 percent market share.
•    General Figures: In 1976, the state was in fourth place in hog production, with 5 million hogs, in 1992, Missouri was the seventh ranked state in hog production with 2.8 million hogs.
•    From 1969 to 1987, the number of Missouri farmers selling fewer than 100 hogs a year dropped to 6,768 from 20,585.
•    Contract farming rose from eight to twenty percent from 1986 to 1992.
•    Number of farms has dropped from 111,000 (1993) to 110,000 (1998)
•    Average farm size has risen from 272 (1993) acres to 274 acres (1998)
•    Small Sales Class farms rose from 59,600 farms (1993) to 62,700 farms (1998); Middle Sales Class farms fell from 41,800 farms to 36,700 farms; Large Sales Class farms rose from 9,600 farms to 10,600 farms

Nebraska

•    By 1979, almost 20% of the state’s sow herd was in corporate operations and one corporation, National Farms, Inc. was planning to increase its annual marketings by 365,000 head (a 6% share of Nebraska total production)
•    Nebraska’s share of the national hog slaughter has increased, has retained more pork producers than any other leading pork producing state; far larger percentage of operations with under 1000 head of hogs and far more of its hog inventory on those smaller farms.
•    Small Sales Class farms rose from 11,200 to 14,000 farms (1993-1998); Middle Sales Class farms fell from 27,800 farms to 22,600 farms; Large Sales Class farms rose from 17,000 to 18,400 farms
Wisconsin
•    Number of farms dropped from 178,000 farms (1910) to 78,000 (1998)
•    Number of farms dropped from 80,000 (1993) to 78,000 (1998)
•    Average size of farms dropped from 213.8 acres (1993) to 210.3 acres (1998)
•    Small Sales Class farms rose from 30,500 farms to 34,000 farms (1993-1998); Middle Sales Class farms fell from 32,000 farms to 25,500 farms; Large Sales Class farms rose from 17,500 farms to 18,500 farms

South Dakota

•    Small Sales Class farms rose from 6,700 farms to 8,200 farms (1993-1998); Middle Sales Class farms fell from 16,800 farms to 14,000 farms; Large Sales Class farms fell from 9,500 farms to 8,800 farms.
IV. Preliminary Analysis
Among the states, several similar criteria are used to determine when corporations should be allowed to engage in farming or to own farmland. Among these common criteria are:
(1) Limiting shareholders to a small number and requiring that all shareholders be natural persons;
(2) Limiting the amount of revenue that can be earned by corporations from non-farm income streams;
(3) Requiring that all shareholders or shareholders with substantial ownership interests be related by blood;
(4) Requiring that some or all of the shareholders reside or actually work on the farm;
(5) Exempting nonprofit corporations;
(6) Exempting research and experimental corporations;
(7) Exempting corporations holding land or engaging in farming prior to the passage of the Act.
Enforcement:
(1) A reporting structure;
(2) Authorizes Attorney General and County Attorney, and in some states - citizens - to sue to force divestiture of farmland held in violation of the Statute.
Some Negative Trends
(1) Several states outright exempt certain operations, e.g. all poultry operations
(2) Many states do not ban output contract arrangements;
(3) Some states are beginning process of either directly exempting certain Counties or allowing those Counties to opt-out under a referendum or County vote
(4) Negative trends may also involve loosening the common criteria, e.g. increasing percentage allowed of non-farm income, increasing shareholders, etc.