Corporate Farming Regulations Enter New Phase with I-300 Decision

The refusal of the U.S. Supreme Court to hear an appeal of the district court ruling overturning Initiative 300 – Nebraska’s anti-corporate farm law – may end one era. But it signals the start of a new phase of state efforts to regulate corporate farming and level the playing field for family farms.

The recent string of court rulings overturning the Iowa, South Dakota, and Nebraska corporate farm laws does not prevent state regulation of corporate farming. Corporate farm restrictions can be tough and still meet the principles laid down by the court.

Those restrictions were overturned on the same point of law. The U.S. Constitution places some limits on state efforts to discriminate in favor of in-state interests over out-of-state interests.

The Iowa law was overturned because it allowed certain Iowa cooperatives to farm but not cooperatives organized in other states. Activist judges said the South Dakota law was unconstitutional because they could tell that proponents intended to favor in-state investors.

The court ruled the Nebraska law was unconstitutional because it was hard for non-Nebraskans to meet the requirements of a family farm corporation – to work or live on the farm. The activist judges ignored the plain meaning of the law, which allowed a North Dakota family farmer to buy land or feed cattle in Nebraska through a family farm corporation that he/she lived and worked on in North Dakota.

Withstanding Future Lawsuits
Initiative 300 itself is finished. But its provisions could be largely reinstated by the Nebraska legislature or any other state’s legislature.

To withstand future lawsuits, new legislation would need a clearly stated intent that does not involve advantaging in-state farmers and investors over out of staters. And it would have to clarify how out-of-state farmers and ranchers can qualify their operations as family farm corporations able to do business in the state.

The Agriculture Committee of the Nebraska Legislature will soon begin an in-depth study to determine what should be proposed to take the place of Initiative 300 when the Legislature reconvenes next January. Its findings will not only help guide the Nebraska Legislature, they could provide guidance to other states grappling with corporate farming.

Key Principles in a New Approach
Several key principles should guide state legislators and citizens in constructing a new approach to regulating corporate farming and revitalizing family farming and ranching.

>> Rural America and America are better off when those who work the nation’s farms and ranches have the opportunity to own the fruits of their labor and the land they work. As wrote University of California researcher Dean MacCannell:

“All the serious studies reach the same conclusion. As farm size and absentee ownership increase, social conditions in the local community deteriorate. We have found depressed median family incomes, high levels of poverty, low education levels, social and economic inequality between ethnic groups associated with land and capital concentration in agriculture .... Communities surrounded by farms that are larger than can be operated by a family unit have ... a few wealthy elites, a majority of poor laborers, and virtually no middle class.”

>> Effective corporate farm restrictions must offer a level playing field to family farms and ranches by preventing non-farm investors from using the corporate form of business to gain unfair advantages – including tax advantages and limited liability that prevents them from being held personally responsible for the debts and damages of the corporations they own.

Limited liability is a misleading term. The more accurate term is shifted liability. When investors are allowed to shirk legal responsibility for damages they cause, liability is shifted to community members and other businesses left holding the bag.

>> Any effective state policy to foster family farming and ranching must go beyond restrictions on corporate farming. Corporate farm restrictions are one important policy tool that strengthens family farming by regulating access to the corporate tax and liability advantages conferred by units of the government.

But state legislatures should also look to other measure to revitalize family farming in the 21st century, including beginning farmer programs, support for value-added initiatives by family farmers, targeted property tax relief on a limited amount of owner-operated farm land, and refundable state income tax credits to start farming and launch new non-traditional enterprises such as agritourism ventures and alternative crops.

Contact: Chuck Hassebrook, chuckh@cfra.org or 402.687.2103 x 1018 for more information.

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