Nebraska's anticorporate farming law, popularly known as "Initiative 300," or simply "I-300," was initiated by the people of Nebraska through a petition process and passed in the general election of November 1982 as Article XII Section 8 of the Nebraska Constitution.
Constitution of Nebraska
Article XII, Section 8
Corporation acquiring an interest in real estate used for farming or ranching or engaging in farming or ranching; restrictions; Secretary of State, Attorney General; duties; Legislature; powers.
That Article XII of the Constitution of the State of Nebraska be amended by adding a new section numbered 8 and subsections as numbered, notwithstanding any other provisions of this Constitution.
Section 8(l) No corporation or syndicate shall acquire, or otherwise obtain an interest, whether legal, beneficial, or otherwise, in any title to real estate used for farming or ranching in this state, or engage in farming or ranching.
Corporation shall mean any corporation organized under the laws of any state of the United States or any country or any partnership of which such corporation is a partner.
Farming or ranching shall mean (i) the cultivation of land for the production of agricultural crops, fruit, or other horticultural products, or (ii) the ownership, keeping or feeding of animals for the production of livestock or livestock products. Syndicate shall mean any limited partnership organized under the laws of any state of the United States or any country, other than limited partnerships in which the partners are members of a family, or a trust created for the benefit of a member of that family, related to one another within the fourth degree of kindred according to the rules of civil law, or their spouses, at least one of whom is a person residing on or actively engaged in the day to day labor and management of the farm or ranch, and none of whom are nonresident aliens. This shall not include general partnerships.
These restrictions shall not apply to:
(A) A family farm or ranch corporation. Family farm or ranch corporation shall mean a corporation engaged in farming or ranching or the ownership of agricultural land, in which the majority of the voting stock is held by members of a family, or a trust created for the benefit of a member of that family, related to one another within the fourth degree of kindred according to the rules of civil law, or their spouses. at least one of whom is a person residing on or actively engaged in the day to day labor and management of the farm or ranch and none of whose stockholders are non-resident aliens and none of whose stockholders are corporations or partnerships, unless all of the stockholders or partners of such entities are persons related within the fourth degree of kindred to the majority of stockholders in the family farm corporation.
These restrictions shall not apply to:
(B) Non-profit corporations.
These restrictions shall not apply to:
(C) Nebraska Indian tribal corporations.
These restrictions shall not apply to:
(D) Agricultural land. which, as of the effective date of this Act, is being farmed or ranched, or which is owned or leased, or in which there is a legal or beneficial interest in title directly or indirectly owned, acquired, or obtained by a corporation or syndicate, so long as such land or other interest in title shall be held in continuous ownership or under continuous lease by 1he same such corporation or syndicate, and including such additional ownership or leasehold as is reasonably necessary to meet the requirements of pollution control regulations. For the purposes of this exemption, land purchased on a contract signed as of the effective date of this amendment, shall be considered as owned on the effective date of this amendment.
These restrictions shall not apply to:
(E) A farm or ranch operated for research or experimental purposes, if any commercial sales from such farm or ranch are only incidental to the research or experimental objectives of the corporation or syndicate.
These restrictions shall not apply to:
(F)Agricultural land operated by a corporation for the purpose of raising poultry.
These restrictions shall not apply to:
(G) Land leased by alfalfa processors for the production of alfalfa.
These restrictions shall not apply to:
(H) Agricultural land operated for the purpose of growing seed, nursery plants, or sod.
These restrictions shall not apply to:
(I) Mineral rights on agricultural land.
These restrictions shall not apply to:
(J) Agricultural land acquired or leased by a corporation or syndicate for immediate or potential use for nonfarming or nonranching purposes. A corporation or syndicate may hold such agricultural land in such acreage as may be necessary to its nonfarm or nonranch business operation, but pending the development of such agricultural land for nonfarm or nonranch purposes, not to exceed a period of five years, such land may not be used for farming or ranching except under lease to a family farm or ranch corporation or a nonsyndicate and non-corporate farm or ranch.
These restrictions shall not apply to:
(K) Agricultural lands or livestock acquired by a corporation or syndicate by process of law in the collection of debts, or by any procedures for the enforcement of a lien, encumbrance, or claim thereon, whether created by mortgage or otherwise. Any lands so acquired shall be disposed of within a period of five years and shall not be used for farming or ranching prior to being disposed of. except under a lease to a family farm or ranch corporation or a nonsyndicate and non-corporate farm or ranch.
These restrictions shall not apply to:
(L) A bona fide encumbrance taken for purposes of security.
These restrictions shall not apply to:
(M) Custom spraying, fertilizing, or harvesting.
These restrictions shall not apply to:
(N) Livestock futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks.
If a family farm corporation. which has qualified under all the requirements of a family farm or ranch corporation. ceases to meet the defined criteria, it shall have fifty years, if the ownership of the majority of the stock of such corporation continues to be held by persons I related to one another within the fourth degree of kindred or their spouses, and their landholdings are not increased, to either re-qualify as a family farm corporation or dissolve and return to personal ownership.
The Secretary of State shall monitor corporate and syndicate agricultural land purchases and corporate and syndicate farming and ranching operations, and notify the Attorney General of any possible violations. If the Attorney General has reason to believe that a corporation or syndicate is violating this amendment, he or she shall commence an action in district court to enjoin any pending illegal land purchase. or livestock operation. or to force divestiture of land held in violation of this amendment. The court shall order any land held in violation of this amendment to be divested within two years. If land so ordered by the court has not been divested within two years, the court shall declare the land escheated to the State of Nebraska.
If the Secretary of State or Attorney General fails to perform his or her duties as directed by this amendment, Nebraska citizens and entities shall have standing in district court to seek enforcement.
The Nebraska Legislature may enact, by general law, further restrictions prohibiting certain agricultural operations that the legislature deems contrary to the intent of this section.
I-300 and Beginning Farmers and Ranchers
- Nebraska has 33 percent more farmers and ranchers under the age of 35 than the United States as a whole according to the most recent data. (2002 Census of Agriculture, U.S. Department of Agriculture [USDA])
- Nebraska has more farmers and ranchers by percentage under the age of 35 than Iowa, Illinois, Kansas, Missouri, and Minnesota. (2002 Census of Agriculture)
- I-300 was designed for the easy transition of beginning farmers and ranchers into production agriculture. I-300 allows unrelated farmers and ranchers to own up to 49 percent of an agricultural entity before that arrangement is no longer considered a "family farm." The arrangement has 50 years to regain "family farm" status. Beginning farmers and ranchers have sufficient time under I-300 to acquire agricultural assets and be in I-300 compliance.
- One of the recent claims by I-300 opponents is that the law needs modification to create more opportunities for beginning farmers. Opponents point to the average age of Nebraska's farmers as an indictment against restrictions on limited liability farm entities. But the facts show that I-300 has nothing to do with the aging of Nebraska's farmers or the decrease in the number of young farmers.
- Between 1982 and 1997, the number of farmers under the age of 35 declined by 60 percent in Nebraska. This decline was typical of most Midwestern farm states, with or without an anticorporate farming law. During the same period, Iowa lost 65 percent of farmers that age, Illinois lost 66 percent, Kansas lost 59 percent, South Dakota lost 57 percent, and Minnesota lost 63 percent. In 1997, 11 percent of Nebraska's farmers were under the age of 35, equal to South Dakota and Minnesota, but slightly more than Iowa, Illinois, Kansas, Missouri, and the U.S. as a whole. Other research also bears out the fact that I-300 has had no negative impact on the entry of young farmers into agriculture. A 1991 study by the USDA Economic Research Service showed that during the five-year period after I-300 was adopted, the number of entrants into farming dropped by 11 percent. This compared to a 31 percent drop in Iowa, a 29 percent drop in Illinois, a 20 percent drop in South Dakota, and a 23 percent drop in Kansas. Other than New Jersey, Nebraska had the nation's smallest decline in the number of new people in agriculture during the period following adoption of I-300.
- The reasons for a decline in the number of young farmers are many, but none of them involve I-300. A series of research studies in the 1990s point to the key reasons as a decline in the demographic pool of potential farmers; economic factors such as low farm prices and rates of return; and the availability of higher wages elsewhere. A 1992 USDA study said that when the demographic factors were controlled for, "it is found that higher farm prices attract more entrants, and … entry rates are lower in states where more and better nonfarm opportunities are available."
- Besides ignoring the facts about entry into farming, supporters of modifying I-300 ignore the provisions of the law that already make it possible for young farmers to enter agriculture the right way–gradually over time. For example, under I-300 an older farmer could create a family farm corporation with a younger farmer as minority shareholder who, over time, acquires majority control of the corporation’s assets. The younger farmer could be related or unrelated to the older farmer. The corporation must qualify as a family farm corporation where a family holds the majority stock with one of the family members either residing on the farm or providing day-to-day labor and management. But, even if the corporation later fails to qualify because the older farmer moves to town, it would have 50 years to requalify as an exempt corporation. Presumably, though, within that 50-period the younger farmer will have acquired the majority of the stock.
- There are many other ways for young and older farmers to transfer assets, even with I-300 in place, through contracting, leasing, and general partnerships. In short, opponents of I-300 quickly leap over trying to work with I-300, preferring to distort facts, misrepresent the law’s provisions, and call for its repeal or modification. Beginning farmers have as many or more opportunities to enter farming in Nebraska as they do anywhere else. They can acquire farm assets from relatives or non-relatives and they can add value to their production through a variety of marketing and processing ventures. Programs and policies that make farming a financially attractive career would do far more to increase the number of beginning farmers in Nebraska than would any amendments to I-300. Indeed, I-300’s contribution towards leveling the playing field for farmers and preventing the further erosion of profitability for independent family farmers is a policy that should be embraced by farm and political leaders who profess to care about beginning farmers.
I-300 and Rural Communities
- Nationally renowned rural sociologists Dr. Rick Welsh and Dr. Thomas Lyson found in a 2002 report that anti-corporate farming laws are beneficial to the economies and people of rural communities, and communities in states with anti-corporate farming laws are in better shape than comparable communities in states without such laws.
- Communities in states with anti-corporate farm laws have: lower poverty levels, lower unemployment and a higher percentage of farms reporting cash gains.
- States with more restrictive laws–and the Welsh/Lyson report named I-300 as the nation’s most restrictive–have even lower unemployment rates and more farms with cash gains.
- One of the more persistent and insidious myths about large-scale corporate farming is that it brings economic development to a community; persistent despite the fact most academic studies show the contrary and insidious because the claim plays on the often desperate economic condition of poor rural communities and their residents. Many local and state officials intent on bringing more development to their area are lured by the promise of jobs and tax revenue. But, there is little to justify such decisions or promises. Overwhelming evidence justifies keeping large-scale corporate farming out. As Dr. Linda Lobao from Ohio State University points out in a 1999 report to the South Dakota Attorney General, "Over the past half century, numerous studies, spanning different time periods and regions of the country have tended to find that large-scale industrial farming has detrimental community impacts." According to Lobao, the "empirical evidence" is "sufficiently established" to the point that almost all studies now start with the hypothesis that large scale industrial farms have adverse economic and social impacts.
- Lobao's report analyzes 38 studies over a 50-year period and says that three-quarters of them "found adverse impacts on indicators of community well-being" from industrialized farming (measures of industrial farming included vertical integration of corporations into farming; production contract farming arrangements; absentee ownership of production factors; dependency on hired labor; operation by farm managers, as opposed to material operation by family members; and legal status as a corporation or syndicate). Studies continue to find negative consequences of corporate farming. A 1999 study of north central states, including Nebraska, from Ohio State University, found that in counties where farm concentration was higher, there was significantly higher poverty among families. A 2000 study from Illinois State University on the economic impacts of large hog farms says, "the several models developed here consistently suggest that large hog farms tend to hinder economic growth in rural communities." The study found economic growth rates were higher in communities where traditional family farm hog production was dominant.
- Another report from 2000 purportedly showing that large-scale hog production might be good for communities reveals a different conclusion on closer analysis. A study completed in six states by Dr. John Allen from the University of Nebraska claims to show positive relationships between increased hog production and a rise in per capita income and a reduction in poverty rates (every other variable considered was either negatively affected, unaffected, or had mixed effects). The study’s use of a relatively small-sized farm to determine the impacts of "larger farms" and the fact that two counties in North Carolina significantly skewed the results throws into question the positive impacts. Even if you accept the very limited positive findings, Dr. Allen wrote, "It looks as if there is little economic return for increasing swine expansion in this manner."
- Since I-300 was adopted, Nebraska has lost fewer hog producers than other major producing states and over 30 percent of the state’s hog inventory are on operations with less than 1,000 head. That compares to much higher levels of concentration experienced by other states. In addition, while consistently ranking near the top in cattle on feed, the number of smaller commercial feedlots in Nebraska far exceeds that of Kansas and Texas, two states that respectively have a weak anticorporate farming law and no law at all. The evidence from Nebraska is supported by academic research. A 1998 study by Dr. Rick Welsh, then at the University of Georgia, found "there is some evidence that non-family corporations have a tendency to concentrate cash gains," and that "counties with higher percentages of non-family corporations have, on average, higher cash gains but lower percentages of farms realizing cash gains." Later research by Welsh says anti-corporate farming laws such as I-300 "can mitigate against the increased geographic concentration of production."
- I-300 has been positive for Nebraska’s family farmers, which leads to positive economic and social impacts on rural communities. Based on the wealth and depth of research done, there should no longer be any question about the fact that corporate farming leads to a deterioration in community well-being and that states have a right and an obligation to prohibit the use of some business structures by non-family farmers.
I-300 and Agricultural Production
- Nebraska led the nation in 2002 in: commercial livestock slaughter, commercial red meat production, commercial cattle slaughter, great northern bean production and light red kidney bean production. (Nebraska Agriculture Statistics Service, Nebraska Department of Agriculture)
- In 2001 and 2002, Nebraska ranked second, third, or fourth in the nation in: cash receipts from all meat animals, cash receipts from cattle and calves, all cattle on feed, pinto bean production, all dry edible bean production, cash receipts from all feed crops, all cattle and calves, millet production, cash receipts from corn, cash receipts from sorghum, cash receipts from livestock and livestock products, corn production, cash receipts from farm marketing, and ethanol production. (Nebraska Agriculture Statistics Service, Nebraska Department of Agriculture)
- Since 1982, Nebraska’s share the nation’s hog operations increased; while losing hog operations, Nebraska has lost fewer than most leading states, including North Carolina, the king of corporate hog production. (Nebraska Agriculture Statistics Service, Nebraska Department of Agriculture)
- Since 1982, Nebraska has increased its share of the nation’s cattle on feed, while the number of feedlots with cattle on feed remained constant since 1997 (compared to a national decline). (Analysis of Nebraska Department of Agriculture and USDA data)
- Nebraska ranks at the top in the number of smaller commercial feedlots (far exceeding that of Kansas and Texas, two states that respectively have a weak anti-corporate farming law and no law at all). (University of Nebraska-Lincoln, Institute of Agriculture and Natural Resources)
- According to a University of Nebraska study, Nebraska is the only major cattle-producing region that had feedlots of all sizes. (University of Nebraska-Lincoln, Institute of Agriculture and Natural Resources)
- "Actual numbers of cattle and hogs rose (by 30 percent and 12 percent, respectively) from 1990 to 2000; yet their value of production either increased little or decreased due to declining market price." The Agricultural Economy in Nebraska: Making Nebraska the Agricultural Leader of the 21st Century (the Nebraska Department of Agriculture report that called for changes in I-300)
- "Corn and soybean acreage in Nebraska increased (by 10 percent and 90 percent, respectively) from 1990 to 2000, the price per bushel dropped 17 percent for corn and 21 percent for soybeans." The Agricultural Economy in Nebraska: Making Nebraska the Agricultural Leader of the 21st Century.
- "[Nebraska] is currently the #3 corn producer in the U.S., the #5 soybean producer, the #3 livestock producer, and the largest red meat producer and livestock slaughterer. In total, Nebraska produces more agricultural value than all but three states in the U.S., and it has increased its position in each of the above categories over the past decade." The Agricultural Economy in Nebraska: Making Nebraska the Agricultural Leader of the 21st Century.
I-300 and the Environment
- I-300 prevents the environmental destruction wrought by corporate farming that has occurred in states such as Iowa and North Carolina.
- I-300 does not allow corporate skirting of liability and responsibility and absentee ownership associated with environmental damage by corporate agriculture in other states.
- Studies have found that higher levels of geographic concentration of livestock and resulting environmental damage are associated with the "corporate-driven style" of production; I-300 has prevented such concentration and the damage it can do to our water, air and land resources.
- In 1996, when faced with the possibility of legislation in South Dakota imposing responsibility on corporate investors for environmental damage, an official with the nation's largest corporate pork producer said "The reason people use corporate forms of doing business is to avoid liability." Few things like that statement put into such stark light the consequences of corporate farming and its impact on the environment. But, even if incorporation alone doesn't change an operation's attitude towards environmental protection, the fact that another primary reason for incorporating is to attract capital for expansion creates a direct connection between large, corporately owned agricultural operations and the extent of damage to the environment.
- It is incontrovertible that the scale of farm operation and concentration of production influences the potential risk to the environment. Reports of both air and water quality deterioration resulting from large, industrial-style livestock operations are clear evidence the changing structure of farming leads to more environmental concerns. And, beyond the popular accounts of environmental problems, there is much research documenting the association between large, corporate farm operations and environmental degradation. For example, a 1995 U.S. General Accounting Office report on data from the U.S. Geological Survey, states that "increases in in-stream loadings of nitrogen and phosphorus are, in part, strongly correlated with increases in the concentration of livestock population in a watershed." A 1999 report by the North Central Regional Center for Rural Development indicates that Texas County, Oklahoma, the site of many Seaboard Farms hog confinements, has seen the number of Safe Drinking Water Act violations increase dramatically since the corporate hog operation arrived. Likewise, research in Missouri found that contamination of wells and groundwater and contamination of surface water drinking supplies were both related to large confined hog operations. The same report found that livestock water use in Texas County, Oklahoma increased 66 percent between 1990 and 1995 following the arrival of Seaboard Farms, creating concerns about depletion of the groundwater.
- A 1999 survey report in Agronomy Journal by Dr. Rick Welsh and Bryan Hubbell shows contract hog producers, which are almost always large corporate producers, put total animal units on smaller land holdings. According to the survey, independent producers were more likely than contract producers to spread manure from hogs over a larger area and rotationally graze their hogs. The report acknowledged the survey and other studies conclude that large, corporately owned producers are more likely to adopt pollution control technologies, but it argues the adoption of waste management practices, often only as a result of regulation, is not the same as environmental performance. If the capacity of the land and other natural resources are incapable of absorbing the waste generated by large-scale farm operations, no amount of technology will help. According to the authors, "technology use is meaningful only when understood in the context of whole farm systems…"
- Additional research by Welsh and Hubbell shows that higher levels of geographic concentration of livestock are associated with the "corporate-driven style" of production and that anti-corporate farming laws like I-300 "can mitigate against the increased geographic concentration of [hog] production." Statistics on Nebraska’s livestock industry bear this out. Over 30 percent of the state’s hog inventory is on operations with less than 1,000 head, more than most other major hog producing states. And, cattle feeding in Nebraska is also far more dispersed among producers and communities than in other states. Nebraska’s livestock industry, while one of the strongest in the nation, is also one of the least concentrated, creating less risk of environmental problems and more opportunities for family farmers.
- From the beginning, proponents of I-300 were concerned about the impact of corporate agriculture on the environment. The destructive practices used by corporations farming the ecologically fragile Nebraska Sandhills in the 1970s were a glaring reality when voters adopted I-300 in 1982. Nebraskans saw firsthand an example of how absentee corporate investors see their responsibility to protecting the environment differently than that of family farmers who must live or work daily on the land. I-300 alone can’t do all that’s necessary to protect the environment, but in Nebraska it’s been a first line in the sand against corporate exploitation of our natural resources.
I-300 and Market Access
- I-300 IS a ban on packer ownership of livestock.
- Nebraska is the only cattle producing area with feedlots of all sizes (University of Nebraska-Lincoln), demonstrating I-300’s ability to provide market access to all sizes of operations.
- In the 2000 University of Nebraska Nebraska Rural Poll, farm/ranch households supported by a 72 percent to 12 percent margin the inclusion of a ban on packer ownership of livestock in the 2002 Farm Bill–I-300 has provided Nebraska a packer ban since 1982.
I-300 and Free Enterprise
- I-300 does not prohibit anyone from being involved in Nebraska agriculture.
- I-300 does require all participants in Nebraska agriculture take personal responsibility for their actions by being accountable for their agricultural assets and liabilities.
- I-300 protects all Nebraskans from irresponsible environmental practices and negligent financial schemes.
- I-300 combines two time-honored American values that benefit rural people and communities–free enterprise and personal responsibility.
I-300 and Public Opinion
- In a 1994 University of Nebraska and Nebraska Agricultural Statistics Service survey, Nebraska farmers and ranchers supported I-300 as is by a 65 percent to 20 percent margin.
- In the 1994 survey, only 18 percent of Nebraska farmers and ranchers supported repeal of I-300, and only 22 percent to 27 percent supported suggested modifications to I-300.
- In the 1999 University of Nebraska Nebraska Rural Poll, 80 percent of rural Nebraskans and 89 percent of farm/ranch households prefer that in 20 years none of Nebraska’s farms and ranches be owned by non-family corporations–exactly what I-300 provides.
Beginning in 1972, several bills were introduced in the Nebraska Legislature to limit the ability of corporations to own farmland and livestock in the state. Other states in the region were also considering "anti-corporate farming" legislation, and by 1975 Oklahoma, Kansas, Minnesota, Wisconsin, South Dakota, Iowa, North Dakota, and Missouri had all adopted statutory restrictions on corporate farming (some of them had adopted broad restrictions much earlier in the century). In Nebraska, each of the proposed bills failed, largely because the state Attorney General claimed they were unconstitutional. A Corporate Reporting Act was adopted in Nebraska in 1975 but no funds were allocated to the Secretary of State’s office to help it enforce the law and compliance with the reporting requirement was low.
After 10 years of battling the legislature and the attorney general over corporate farming restrictions, a broad coalition of farm and church groups began gathering signatures to place on the 1982 ballot a proposed constitutional amendment [I-300] banning all corporations and syndicates from owning farmland and livestock in Nebraska unless they were exempted by the amendment. In early March 1982, the coalition submitted 56,636 signatures from all 93 counties in the state, 7,000 more names than were necessary to have the amendment considered. The "Committee to Preserve the Family Farm" (the predecessor of Friends of the Constitution) mounted an aggressive education and organizing campaign [I-300 rationale] to win the ballot issue, labeled Initiative 300 by the Secretary of State. The coalition had only a fraction of the money being spent by the opponents of I-300, which included the state Chamber of Commerce, the Nebraska Bankers Association, and other big business supporters. Opponents of the Initiative argued the law would depress land prices and drive cattle feeding from the state and they ran several television ads around the state urging voters to defeat the proposal. In the end, however, the expensive "vote no" campaign failed and I-300 was adopted by a 56 percent to 44 percent margin. And contrary to some claims that urban voters provided the winning vote, the amendment was adopted by a 62 percent to 38 percent margin in the state’s 45 most rural counties. The measure actually lost in the Omaha area but won by a 56 percent to 44 percent margin in the state’s western congressional district.
Opponents of the law moved quickly. As soon as the 1983 legislative session began, the Nebraska legislature, rather than trying to help enforce the new law, repealed the Corporate Reporting Act so that there would be no official mechanism to identify possible violators. The legislature also considered bills in 1986, 1987, 1988, and 1995 that would have repealed or amended I-300, but each time citizens led by Friends of the Constitution organized to defeat the measures. Because of the work of Friends of the Constitution, I-300 opponents have never been able to muster the votes or the petition signatures needed to weaken the law.
Opponents have also tried to get the courts to strike down or weaken the constitutional provisions. All attempts thus far have failed. The first case brought was Omaha National Bank v. Robert Spire (389 N.W. 2d 269). The bank argued that the law violated the federal constitution’s guarantee of equal protection and that the content of the law was not the kind to be put into a constitution. In 1986, the Nebraska Supreme Court ruled that as long as the different treatment for certain corporations was "rationally related to a legitimate state interest" it would not violate equal protection. The court found that an attempt to restrict the concentration of farmland by corporations was such a legitimate interest. As for the argument about the nature of the amendment not being suitable for a constitution, the court said:
"The ultimate source of power in any democratic form of government is the people. Our Nebraska Constitution is a document belonging to the people. Subject only to the supremacy clause of the United States Constitution, the people may put in their document what they will. Even to the shock and dismay of constitutional theoreticians, the people may add provisions dealing with "non-fundamental" rights, as well as provisions bearing the most tenuous of relationships to the notion of what constitutes the basic framework of government. The people may add provisions which legal scholars might decry as legislative or statutory in nature. But the people may do it nonetheless."
The second case challenging Initiative 300 was Sunrise Ventures v. Robert Spire in 1988. A non-family farm corporation custom feeding 76 cows challenged I-300, but the case was dismissed when Attorney General Spire said he didn’t intend to enforce I-300 against the corporation because he felt they fell under I-300’s exemption for livestock "purchased for slaughter." The judge ruled that since there would be no enforcement by the state there was no case or controversy for him to decide. He did not issue an opinion about whether the Attorney General was correct about the "purchase for slaughter" rule. Friends of the Constitution disagrees with this interpretation of the exemption. The "purchase for slaughter" exemption is only to allow processors the ability to purchase livestock. We have been told by the current Attorney General’s office that they too do not agree with the earlier Attorney General opinion in Sunrise Ventures.
The third case was MSM Farms v. Robert Spire. In this case the challenge was again that I-300 violated the federal constitution’s guarantees of equal protection and due process. The plaintiffs argued that the law wrongly protects family farm corporations while restricting other types of corporations. I-300 was upheld by both the U.S. District Court in 1990 and the Eighth Circuit Court of Appeals (927 F2d 330) in 1991. Friends of the Constitution intervened in this case on behalf of the state and participated in the arguments before the Court of Appeals. The United States Supreme Court refused to hear an appeal, thereby letting the Court of Appeals decision stand. In the Court of Appeals decision, the Court said:
"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."
The fourth case was brought by a group of farmers wanting to form a "non-stock marketing cooperative" and claim exemption as a nonprofit corporation. They intended to build a hog confinement from which cooperative members would obtain pigs. The district court ruled this type of cooperative was a nonprofit corporation but the Nebraska Supreme Court overruled in Pig Pro Nonstock Cooperative v. Moore, 568 NW2d 217 (1997). The Supreme Court said the intended operation was the "type of absentee ownership and operation of farm and ranch land by a corporate entity which the plain language of [I-300] prohibits." Friends of the Constitution filed an amicus brief in support of the state in this case and participated in the argument before the Supreme Court.
The fifth case, Hall v. Progress Pig, was brought by four leaders of Friends of the Constitution to enforce I-300 after the Attorney General refused to do so. The issue involves whether a farm qualifies as a family farm corporation even though the farmer rarely goes to the hog operation, never provides any labor, and only occasionally gets involved in managing the farm. I-300 requires that one of the family members either reside on the farm or be actively engaged in the day-to-day labor and management of the farm. As a counterclaim, the defendant argued that I-300 violates the equal protection clause by exempting poultry but not other types of livestock. The District Court first ruled that the citizens did not have standing to bring the private enforcement action but the Nebraska Supreme Court overturned this decision, 254 Neb. 150 (1998). The district court later ruled that Progress Pig did violate I-300 because the principal owner does not provide day-to-day labor and management. Progress Pig appealed this ruling but the Nebraska Supreme Court agreed with the district court. The Supreme Court said "to be actively engaged in the day-to-day labor and management of the farm or ranch requires that [a] person be involved on a daily or routine basis in all aspects of the farm ... activities, be it labor or management." The Court said that in this case, the principal owner was engaged almost entirely in the management of the operation and only minimally involved in actually raising the hogs.
At the time Initiative 300 was adopted, state law did not authorize the creation of limited liability companies or limited liability partnerships. In fact, limited liability companies did not even exist in the U.S. prior to 1977, and only two states permitted them before 1988. The first state to create limited liability partnerships did so in 1991. Both of these types of new business structures are just hybrids or modifications of the corporations and limited partnerships already restricted by Initiative 300. When the Nebraska legislature created limited liability companies in 1993 and limited liability partnerships in 1996 they included language saying that the business structures would be considered syndicates for purposes of I-300. They recognized that the legislature can not authorize what the constitution prohibits. While the legislative language was probably not necessary to make sure that these new forms of business entities would be considered syndicates, the language does clarify that only family farm limited liability companies and limited liability partnerships may own farmland and livestock in the state.
Finally, after three previous attempts to once again adopt a requirement that corporations and other limited liability entities report their activities in the state, the Legislature passed LB 1193 in 1998. Not only does the law require all limited liability entities to report their ownership of farmland and livestock in Nebraska, it also gives the Secretary of State and Attorney General subpoena powers to enforce both the reporting law and I-300.
Approved by the Governor April 14, 1998
Be it enacted by the people of the State of Nebraska,
Section 1. (1) A person serving as the president, a general partner, any other officer, or an authorized representative of a corporation, limited partnership, limited liability partnership, or limited liability company or a corporate trustee of a trust shall report to the Secretary of State:
(a) Any interest in real estate held by the corporation, limited partnership, limited liability partnership, limited liability company, or trust used for farming or ranching in this state as defined under Article XII, section 8 of the Constitution of Nebraska;
(b) Any activity or enterprise performed, conducted, or engaged in by the corporation, limited partnership, limited liability partnership, limited liability company, or trust defined as farming or ranching in this state under Article XII, section 8, of the Constitution of Nebraska; and
(c) Whether the corporation, limited partnership, limited liability partnership, limited liability company, or trust contracts with others engaged in farming or ranching for the care or production of agricultural commodities, including livestock.
(2) The reports required by this section shall be open to the public.
(3) For purposes of sections 1 to 5 of this act, interest in real estate used for farming or ranching includes legal, beneficial, and other interests, including interests held by a corporation, limited partnership, limited liability partnership, limited liability company, or trust in a general partnership holding real estate used for farming or ranching, but does not include an interest in real estate used for farming or ranching acquired by a corporation, limited partnership, limited liability partnership, limited liability company, or trust by process of law in the collection of debts or by any procedures for the creation or enforcement of a lien, encumbrance, or claim on the real estate, whether created by mortgage or otherwise.
Section 2. (1) The report required by section 1 of this act shall be on a form provided by the Secretary of State. The Secretary of State may incorporate the form with other forms required to be filed by entities identified in subsection (1) of section 1 of this act. If there has been no change in the information contained in the previous report filed by the reporting entity, the reporting entity may so indicate in a space provided on the reporting form for that purpose.
(2) The Secretary of State shall include a list of exemptions to the prohibitions contained in Article XII, section 8, of the Constitution of Nebraska and a means by which persons filing the form may indicate, if applicable, which exemptions apply to the reporting entity. The reporting entity may include or attach a statement indicating the basis upon which the reporting entity claims exemption from the prohibitions contained in Article XII, section 8, of the Constitution of Nebraska.
(3) The Secretary of State shall annually prepare a report indicating the total number of entities reporting under sections 1 to 5 of this act, the number of entities reporting as a corporation, as a limited partnership, as limited liability partnership, as a limited liability company, and as a trust and the basis upon which the reporting entities claim exemption from the prohibitions contained in Article XII, section 8, of the Constitution of Nebraska. The Secretary of State shall deliver the report to the Clerk of the Legislature on or before January 1 each year.
Section 3. (1) Failure to report the information required by section 1 of this act or the filing of false information shall be cause for dissolution or cancellation of registration of the corporation, limited partnership, limited liability partnership, or limited liability company or revocation of authority to transact business in this state in the manner provided in this section.
(2) If the Secretary of State has reason to believe a corporation, limited partnership, limited liability partnership, or limited liability company required to report pursuant to section 1 of this act has failed to report, or has filed a false or incomplete report, the Secretary of State shall send to the registered agent of such entity by certified mail a notice stating that if the defect is not corrected within sixty days after receipt of notice the entity shall be dissolved or its registration shall be canceled.
(3) If the Secretary of State determines that the entity has not corrected the defect upon the expiration of sixty days after notice of failure to report, false reporting, or incomplete reporting, the entity shall be dissolved or its registration canceled. Notice of such cancellation shall be sent by certified mail to the registered agent of the entity.
(4) A business entity dissolved or canceled pursuant to this section may have its existence reinstated at any time by submitting a report as required by sections 1 to 5 of this act correcting the defect for which it was dissolved and paying a reinstatement fee of one hundred dollars to the Secretary of State. Any fees received pursuant to this section shall be remitted to the State Treasurer for credit to the Corporation Cash Fund.
Section 4. (1) The Secretary of State shall use reports generated under section 76-1517 to assist in the identification of trusts engaged in farming or ranching activity as defined in Article XII, section 8, of the Constitution of Nebraska.
(2) Any corporate trustee failing to report the information required by section 1 of this act or filing false information shall be punished by a fine of not more than five hundred dollars.
(3) Any fines received pursuant to this section shall be remitted to the State Treasurer for credit to the temporary school fund.
Section 5. The Secretary of State and the Attorney General, for the enforcement of both sections 1 to 5 of this act and Article XII, section 8, of the Constitution of Nebraska, shall have the authority to subpoena witnesses, compel their attendance, examine them under oath, and require the production of documents, records, or tangible things deemed relevant to the proper performance of their duties. Service of any subpoena shall be made in the manner prescribed by the rules of civil procedure.
Before Initiative 300 was adopted, non-family farm corporations were having a substantial impact on Nebraska agriculture. The impact was especially severe in livestock production and on land use in the Nebraska Sandhills, an ecologically fragile part of the state. In 1979, it was estimated that 20 percent of Nebraska’s sow herd was in corporate hog operations and the percentage was expected to grow higher after National Farms completed its expansion in the state. Corporate involvement in Nebraska cattle feeding was also estimated to be high. But the most egregious corporate farming activity in the 1970s was taking place in the Sandhills, where there was a direct correlation between corporate/investor ownership and development of marginal erosion-prone soils for irrigation. Studies of two Sandhills counties showed that in the 1970s, over one-fourth of the irrigated land was owned by non-family farm corporations, and thousands of Sandhills acres were being converted to crop production, despite its classification as non-arable land. Investors were reaping substantial tax benefits by converting rangeland into cropland and the tax benefits increased as the conversion increased. Family farmers across the state were outraged by the growth of corporate farming and the resulting economic and environmental damage occurring.
Corporations and other limited liability business organizations were authorized by law to limit liability for investors and allow for centralized management and control. This preferential treatment allows them to attract outside investment capital more easily and to build industrial scale enterprises. Limited liability reduces risk for investors who do not directly take part in management and labor functions. At times, lower corporate tax rates have also allowed investors to avoid the progressive affect of personal income taxes on farm profits. This is still true for corporations with very large incomes, and corporations of any size can divide taxable income to achieve lower tax rates. Corporations also get preferred treatment when it comes to paying Social Security taxes and deducting certain business expenses.
Preferential tax treatment helps corporations attract investment dollars that allow them to expand beyond what they otherwise could and puts them at a competitive advantage over individual farmers. As one economist said in 1982, the year I-300 was adopted, the tax system "tends to penalize the farmer who provides most of his labor supply from family resources, buys few purchased inputs, and extends the life of his equipment by careful maintenance and repair…" Even the "double taxation" (taxation at both the corporate entity level and the shareholder level) that some people claim puts corporations at a disadvantage is not a significant problem for corporations that simply reinvest dividends for more expansion rather than making payments to shareholders. Limited liability entities, because of their ability to more rapidly expand as a result of investor benefits, increase the concentration of farm production and land ownership into fewer units. Restricting the use of such structures discourages concentration, thus allowing economic opportunity for greater numbers of independent farm families.
As corporations buy land and/or engage in farm production, they reduce farming opportunities for family farmers and beginning farmers. As corporations engage in livestock production, they add to total agricultural production, thus reducing prices received by family farmers. Corporate ownership of livestock is restricted by I-300 as well as corporate ownership of farmland because corporations can do harm to family farming without directly engaging in production. Corporations control hog production by owning the hogs, and having them raised on contract by producers. This has shifted control of production decisions out of the hands of the farmer. As corporations have gained control of hog production, open markets have disappeared.
Also inherent to the corporate structure is the separation of the economic functions of ownership, management and labor among different people. Over two dozen studies covering five decades have found that a change towards corporate agriculture reduces the quality of life in rural communities. Initiative 300 mandates that the use of these business structures, and the preferential treatment they provide, are available only to family farmers who have the kind of personal daily involvement in a farming operation that will help prevent the undesirable economic and social characteristics of corporate farming. Initiative 300 levels the playing field for Nebraska's family farmers by restricting corporate farming/landownership and restricting access to the tax benefits and limited liability enjoyed by corporations and other limited liability entities.
In 2002, the Center for Rural Affairs partnered with the Nebraska Farmers Union, Friends of the Constitution, and other organizations to sponsor a series of public information meetings across Nebraska.
These meetings provided background and factual information on I-300, as well as information on LB 1086, a bill in the Nebraska Legislature that would create a task force to recommend modifications to I-300. Finally, the meetings provided ways for citizens to become active in protecting I-300 and opposing LB 1086.
On April 2, 2002, the Nebraska Attorney General's Office announced it has filed a lawsuit against a corporation it accuses of violating the I-300 law by operating farmland in Red Willow County.
In 1999, the attorney general's office contacted the limited liability company, Tejon Investments LLC, after receiving information that it had been operating farmland in Red Willow County since March 10, 1997.
At the time, Tejon said it would be using the farm for a non-agricultural purpose and planned to build structures on the property. The attorney general's office then approved a five-year, non-agricultural exemption as provided under I-300, to give the limited liability corporation time to make improvements on the land or to divest ownership of the property.
The lawsuit filed by the Nebraska Attorney General alleges that no improvements have been made and no structures have been built, while crops continue to grow on the property. The state than filed a petition in Red Willow County District Court to have the court order Tejon Investments to divest the land and pay for the costs of not filing the LLC's existence in Nebraska with the Secretary of State.
New Research Says Anti-Corporate Farming Laws Benefit Rural Communities
Research presented at the recent meeting of the Rural Sociological Society shows that anti-corporate farming laws, such as Nebraska’s Initiative 300, lead to fewer families in poverty, lower unemployment, and higher percentages of farmers receiving cash gains from farming. The research also indicated that, while low levels of agricultural industrialization tend to benefit rural communities, these same communities suffer when industrialization and consolidation begins to dominate a county’s farm structure.
The research was conducted by Dr. Rick Welsh of Clarkson University and Dr. Tom Lyson of Cornell University, both located in New York State. First presented at the 2001 annual meeting of rural sociologists in August, the research is published by Friends of the Constitution, a Nebraska coalition of farm, environmental, and church groups opposed to corporate farming.
Drs. Welsh and Lyson analyzed data from the 433 counties in the U.S. classified as "agriculturally dependent," meaning 75 percent of the county’s land is used for farming and 50 percent of the county’s total gross receipts for goods and services come from farm sales. Based on census and economic data over a period of two decades, the researchers concluded that "states that restrict or regulate corporate agriculture (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota, and Wisconsin) are more likely to score higher in rural community well-being than states without such laws." In addition, states with the most restrictive anti-corporate farming laws, such as Nebraska’s I-300, fared even better in the percentage of farms realizing cash gains from farming and unemployment. The restrictiveness of a state’s anti-corporate farming law was determined by a select group of legal experts.
On the issue of agricultural industrialization, the research concluded that some economic flexibility and low levels of industrialization are beneficial to rural communities. "However, there appears to be a ceiling on the beneficial effects of agricultural industrialization, and beyond a certain level, the impact turns negative," according to Welsh and Lyson. For example, higher levels of industrialization were associated with higher levels of poverty and unemployment in rural communities.
The researchers concluded, "economic flexibility... is needed to promote healthy rural communities. However, there is also a need to limit the degree to which industrialization and the corporate penetration of agriculture occurs." Since anti-corporate farming laws have had beneficial impacts on rural communities, the researchers suggested they were good "starting points" for public policy development in U.S. agriculture.
Attorney General Reaches Settlement with Seaboard Farms
Attorney General Don Stenberg has reached a settlement in its lawsuit against Seaboard Farms. Stenberg had alleged that Seaboard was violating I-300 because of its dealings with Nebraska Premium Farms. In the lawsuit filed in 2000, the attorney general claimed Nebraska Premium Farms was under the control and direction of Seaboard. The feeding of hogs by Premium Farms was done for the benefit of Seaboard, with Premium Farms acting as an "instrumentality or alter-ego" for Seaboard. Actions taken to portray a sale of hogs between Premium Farms and Seaboard were just a "facade," according to the attorney general.
In the settlement reached in August 2001, the attorney general agreed to drop the lawsuit in return for Seaboard's termination of all its business dealings with Nebraska Premium Farms and its owners occurring in the state. In addition, for a period of four years, Seaboard must provide annual reports on any business arrangements with anyone involving the purchase, sale, lease, or financing of livestock in Nebraska. Seaboard also granted the attorney general consent to review National Pork Board checkoff records on the sale of any hogs sold to Seaboard by Nebraska entities for a period of four years. The attorney general also agreed to drop claims for the collection of fines for Seaboard's failure to register with the Secretary of State in Nebraska.
Lengthy debate on other bills and redistricting battles have caused LB 196 to be held over until the 2002 legislative session. The bill, designated an Agriculture Committee Priority, reached the full legislature in March after being passed 6-0 from the Committee. But even being named a priority wasn't enough to move a bill in this session. The bill would require certain general partnerships to file a statement with the Secretary of State indicating what agricultural activity they are engaged in and in what counties they are operating. Only general partnerships in which one of the partners is a limited liability entity (like a corporation or LLC) will have to file the statement. Friends of the Constitution will be back to the legislature next year to see that LB 196 is adopted.
In early May, Nebraska Attorney General Don Stenberg announced a settlement in the lawsuit against Christensen Farms of Minnesota for violation of I-300. The lawsuit had been brought in June 2000 alleging that Christensen Farms was farming illegally in the state because it didn't qualify as a family farm corporation. None of the family members of the corporation resided on or provided day-to-day labor and management at the corporation's hog operations. The settlement reached with the corporation requires that all assets owned by the corporation in Nebraska be transferred to a general partnership, which provides no limited liability or tax benefits. The settlement also requires that for five years the partnership will have to provide insurance documents, tax returns, checkoff payment records, and other documents to ensure that neither the Minnesota corporation nor any other limited liability entity connected to the Christensens is engaged in farming in Nebraska.
Friends of the Constitution has filed an amicus curiae ("friend of the court") brief in a lawsuit brought by the Farm Bureau against South Dakota's constitutional ban on corporate farming. The brief was filed on behalf of Everett Holstein, Rudy Meduna, and Dan Hodges, three Nebraska family farmers and I-300 supporters. The Farm Bureau and other plaintiffs in the South Dakota lawsuit claim the law, which was modeled after I-300, violates the equal protection and commerce clauses of the federal constitution. A trial in the lawsuit is scheduled to begin on Dec. 3, 2001.
Friends of the Constitution Requests I-300 Investigations
Friends of the Constitution, a coalition of farm, church, and environmental groups that support I-300, has requested that Attorney General Don Stenberg investigate several entities for possible violation of the law that bans corporate farming. Most of the entities reported to the Secretary of State in 1999 or 2000 that they were engaged in agricultural activities in the state. Others were identified through inquiries made by FOC supporters. A list of some of the entities submitted in 2000 and 2001 for investigation are as follows:
1. Farmland Industries, Inc. – Kansas City, Missouri. In 1999, it reported it has owned land in Gage County since 1988. It claims as an exemption that it is a business that leases land for alfalfa production (this exemption is only available to alfalfa processors).
2. GSI Cattle Company (c/o CT Corporation System) – Lincoln, Nebraska. In 1999 it reported that it is engaged in livestock feeding in Platte County. It claimed an exemption for livestock futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks (this exemption is generally only available to meatpackers).
3. LDH Farms, Inc. – Chanute, Kansas. In 1999, it reported that it is engaged in livestock feeding in Cherry, Dawson, and Lincoln counties. It claimed an exemption for livestock futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks.
4. Middle States Realty, Inc. – Lincoln, Nebraska. In 1999, it reported to be engaged in farming in Fillmore, Dawson, and Phelps counties (as well as Cherokee County, Iowa). It claimed an exemption as a family farm corporation.
5. Omaha Social Club, Inc. – Omaha, Nebraska. In 1999, it reported to be engaged in livestock feeding in Douglas County. It claimed an exemption for alfalfa production.
6. Ranch Spur, Inc. – Pittsburgh, Pennsylvania. In 1999 and 2000 it reported to be engaged in farming in Burt County. It claimed an exemption as a family farm corporation.
7. Schou Enterprises, Inc. – Ft. Collins, Colorado. In 2000 it reported to be engaged in farming in Cheyenne County. It claimed an exemption as a family farm corporation.
8. Steininger Farms, Inc. – South Milwaukee, Wisconsin. In 1999, it reported to own Conservation Reserve Program land in Pawnee County. It claimed an exemption as a family farm corporation.
9. Vaquero, Inc. – Norfolk, Nebraska. In 1999 it reported to be engaged in livestock feeding in Stanton County. It claimed an exemption for futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks.
10. Windmill Valley Enterprises, Inc. – Sioux City, Iowa. In 1999 it reported to be engaged in farming in Lancaster County. It claimed an exemption as a family farm corporation.
11. Benson Chiropractic Clinic P.C. – Omaha, Nebraska. In 1999 it reported it is engaged in farming activities in Nance County and claims an exemption for growing seed, nursery plants, or sod.
12. Birchtree, Inc. – Dickinson, Texas. In 1999, it reported to be engaged in farming in Dawson County and claims an exemption as a family farm corporation and a business that leases land for alfalfa production (this exemption is only for alfalfa processors).
13. Calla Corporation -- Bellingham, Washington. In 1999 it reported to be engaged in farming, ranching, and livestock feeding in nine Nebraska counties. It reported that the property is leased to others and claimed an exemption for alfalfa production and growing seed, nursery plants, or sod.
14. Crow Butte Land Company – Denver, Colorado. In 1999, it reported it leased land to others for haying in Dawes County. It claimed an exemption for mineral rights and land purchased for immediate or potential use for non-farming or non-ranching activities.
15. Koch Agriculture Company – Wichita, Kansas. In 1999 and 2000, it reported to be engaged in livestock feeding in Dawson, Red Willow, and Hitchcock counties. It claimed an exemption for livestock futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks.
16. Morrison and Quirk, Inc. – Hastings, Nebraska. In 1999, it reported to be engaged in farming in Burt, Cuming, Thurston, and Dakota counties. It claimed an exemption for alfalfa production.
17. Sauvage Gas Service, Inc. – Las Vegas, Nevada. In 1999, it reported it was engaged in farming and livestock feeding in Red Willow County. It claimed an exemption as a family farm corporation.
18. Sinclair Cattle Company, Inc. – Towson, Maryland. In 1999, it reported to be engaged in cattle breeding and raising of livestock in Brown and Stanton counties. It claimed an exemption for livestock futures contracts, livestock purchased for slaughter, and livestock purchased and resold within two weeks.
19. Walker III – Voss, LLC – Denver, Colorado. In 1999, it reported it leased agricultural land to livestock producers in Dawes County. It claimed an exemption as a family farm corporation.
20. Yuma Holding Company, Inc. – Englewood, Colorado. In 1999, it reported to be engaged in farming in Sheridan County. It claimed an exemption for growing seed, nursery plants, or sod.
21. Nebraska Partners (d.b.a. Mead Cattle Company) – Mead, Nebraska. Nebraska Partners is a general partnership. The two partners are Bryan and Washington LLC from West Point, Mississippi and Van Horn LLC. The Van Horn LLC lists Mead, Nebraska as its location but there is evidence the primary member in this LLC lives in California. General partnerships are only exempt from I-300 if all of the partners are likewise exempt from the law.
22. Agri Management Systems, Inc. – Holdrege, Nebraska. In 1999, it reported it was engaged in livestock feeding in Phelps County. It claimed an exemption for livestock futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks (this exemption is generally only available to meatpackers).
23. Agrium Nitrogen Company – Denver, Colorado. In 1999, it reported to own land in Lancaster County that was rented out for farming. It claimed an exemption for custom spraying, fertilizing, or harvesting.
24. Agrium U.S. Inc. – Denver, Colorado. In 1999, it reported it owned land in Lancaster County that was rented out for farming. It claimed an exemption for custom spraying, fertilizing, or harvesting.
25. Beaver Valley Investment Company – Edina, Minnesota. In 1999, it reported it was engaged in farming in Merrick County. It claimed an exemption as a family farm entity.
26. Blue Stem Land and Cattle Co. – In 1999, the company listed Fairbanks, Alaska as its address and reported it was engaged in farming in Hamilton County. It claimed an exemption for growing seed, nursery plants, or sod. In 2000, the company listed Broken Bow, Nebraska, as its address and again reported to be engaged in farming in Hamilton County. In 2000, it claimed an exemption as a business that leases land for the production of alfalfa (this exemption is only available for alfalfa processors).
27. Brown's Canyon Country, LTD. – Maywood, Nebraska. In 1999, this limited partnership reported it owned land in Hayes, Frontier, and Lincoln counties. It reported it rented the land out to others to farm and ranch. It claimed an exemption as a family farm entity.
28. ESG Watts, Inc. – Rock Island, Illinois. In 2000, it reported to contract with others for the production of agricultural commodities in Cass County. It claimed an exemption for the production of alfalfa.
29. Excel Corporation – Wichita, Kansas. In 1999, it reported it was engaged in ranching in Colfax and Dawson county. Two reports were filed, with one of them indicating they contracted with others for the production of agricultural commodities. It claimed an exemption for the production of alfalfa and for livestock futures contracts, livestock purchased for slaughter, or livestock purchased and resold within two weeks. This company's meatpacking activities would be exempt under I-300's exemption (1)(N) but this would not exempt any ranching activity that it may be conducting.
30. Riddell Sales, Inc. – Dakota Dunes, South Dakota. In 2000, it reported to be engaged in farming in Burt County. It claimed an exemption as a family farm entity.
31. Scottsdale A.K. Medical LLC. – This is a foreign limited liability company from Arizona but its registered agent is from Norfolk, Nebraska. In 1999, it reported to be engaged in ranching in Knox County. It claimed an exemption as family farm entity.
Restriction on Corporate Farming Rejected in Nebraska Legislature
In April 2008, the legislature killed LB 1174. On a vote of 27 opposed to 20 in support the legislature rejected the committee amendment that addressed opponents concerns about the legislation by allowing unrelated farmers to form farm corporations. LB 1174 itself was withdrawn from debate after the amendment failed.
"While this vote is deeply disappointing, it is only the first round. We will be back. Nebraskans understand the importance of family farms and ranches, as well as corporate responsibility," commented Dan Owens, policy organizer for the Center for Rural Affairs.
March 2008: LB 1174 PASSES AGRICULTURE COMMITTEE 7-1
Today, March 12, the Agriculture Committee in the Unicameral passed LB 1174 on a 7-1 vote. LB 1174 now awaits floor action by the entire Unicameral. Introduced by Senator M.L. “Cap” Dierks and co-sponsored by five other Agriculture Committee Senators, LB 1174 is a legislative replacement for Nebraska’s anticorporate farming constitutional amendment, I-300. I-300 was ruled unconstitutional by a federal court in fall 2006.
February 2008: Fight for I-300 Replacement Bill at the State Capitol
In 1982, Nebraska voters went to the polls and approved I-300, a constitutional amendment to limit corporate ownership of agricultural assets within the state of Nebraska. I-300 stood as an expression of the people's will for 25 years, strongly embracing family farming and ranching and public policy designed to support rural communities. Unfortunately, in fall 2006 a federal judge ruled I-300 violated the U.S. Constitution's Commerce Clause, a decision we strongly disagree with.
We support Legislative Bill 1174 to protect family farming and ranching and support the spirit of I-300. LB 1174 would address the court's concerns and once again enact a law placing reasonable limits on the corporate ownership of Nebraska's agricultural assets.
The federal court ruled that I-300 discriminated against out of state individuals and business entities, thus violating the Commerce Clause of the U.S. Constitution. LB 1174 would be very close to the text of the original I-300 constitutional amendment. However, it would explicitly allow family farm corporations based in other states, with owners actively engaged in day to day labor and management, to farm and own farm land and assets in Nebraska. LB 1174 addresses the court's objections to I-300 while preserving its original intent.
LB 1174 restricts the use of limited liability entities in farming or ranching to individuals and families who work and manage their operations. Its rationale is simple. Government has conferred advantages to corporations, limited partnership, limited liability companies and other limited liability entities. They have tax advantages. And most important, they are allowed to shift responsibility for their debts and liabilities to neighbors and those with whom they do business. It is in the public interest to limit the use of these advantages to owner-operated family farms because they are the most socially responsible and socially beneficial form of agriculture. It is critical to prevent the use of limited liability entities by uninvolved investors to gain a competitive advantage over more socially beneficial family farms and ranches.
August 2007: Developing a Legislative Plan to Move Beyond I-300
In the 2007 session of the Nebraska Legislature, Sen. Phil Erdman (chair of the Agriculture Committee) introduced Legislative Resolution 93. The purpose of this Interim Study Resolution is to “examine implications for the future structure, development, and progress of agricultural production in Nebraska” arising from judicial findings that I-300, Nebraska’s constitutional regulation of corporate farming, is unconstitutional and no longer the law of the state.
LR 93 will allow the Agriculture Committee to obtain public comments and ideas on potential policy instruments available to the Legislature and the people of Nebraska related to the structure and development of agricultural production in the Nebraska.
In the 2007 session, LB 516 was also adopted by the Legislature and signed into law. LB 516 allows for funding to support the study contemplated by LR 93. LB 516 also allows the Agriculture Committee and the Nebraska Attorney General to contract with legal and economic experts to obtain ideas on what policy instruments are available to the Legislature and the people of Nebraska.
I-300 Circuit Court Ruling Upholds District Court
On Dec. 13, 2006, a three judge panel of the U.S. 8th Circuit Court of Appeals upheld the ruling of the U.S. District Court that I-300 is an unconstitutional violation of the Commerce Clause in the U.S. Constitution. The next step in the appellate process is a request for review by the entire 8th Circuit Court of Appeals.
Following in the Omaha World-Herald, Nebraska Attorney General Jon Bruning said the state would pursue such action and, if necessary, appeal to the U.S. Supreme Court. Gov. Dave Heineman also stated he supports I-300 and that the U.S. Supreme Court should consider the case.
While that doesn’t necessarily impact the legal process, it may eventually bode well if the Legislature has to consider a potential substitute for I-300 (according to the Governor, it is too early to consider legislative action).
I-300 Declared Unconstitutional
On Dec. 15, 2005, a federal judge declared that Initiative 300 interferes with interstate commerce and violates the federal Americans with Disabilities Act and enjoined the state of Nebraska from enforcing the law. Attorney General Jon Bruning promised to appeal the decision. Initiative 300 will remain in effect while the case is appealed.
Others are now debating and will continue to debate the merits of the decision in this case, and that debate may play out in an appeal to the 8th U.S. Circuit Court of Appeals. But, at a time like this, it is also important to remember why the Center for Rural Affairs and our allies have fought so hard and so long to preserve I-300.
I-300 Decision a Blow to State and Local Power over Corporations
The federal court ruling striking down Nebraska’s corporate farm law should send shivers down the spines of all Americans. Its implications reach far beyond agriculture and Nebraska.
The decision will be appealed. But if it stands, it strikes a profound blow to the power of states to control corporate power. And it concentrates power in the federal government. More local and responsive levels of government will be neutered of their ability to control corporate excess.
Nebraska’s I-300 was challenged on grounds that it violates the commerce clause of the U.S. Constitution, by discriminating against out-of-state companies in favor of in-state interests. It was prompted by the successful challenge of the South Dakota corporate farm law. But this ruling went much further – to extreme lengths.
The South Dakota ruling was based on circumstances. The judge there found that the law’s proponents demonstrated through their statements that they intended to favor South Dakota companies over out-of-state companies. We disagree with that finding, but the legal rationale was based on longstanding precedent. States cannot pass laws for the purpose of favoring in-state companies over out-of-state companies in interstate commerce.
But in the Nebraska case, the judge never held a trial to discern the evidence. She ruled that I-300 is unconstitutional on its face, essentially because it is inconvenient for out-of-state interests to comply. She based that conclusion on the fact that to qualify as a family farm corporation allowable under I-300, a family member must either live on or operate the farm.
There are two problems with her finding. First, it’s wrong on the facts. I-300 does not distinguish between in-state and out-of-state corporations. So a resident of Utah who works everyday on his Utah ranch could qualify his operation as a family farm corporation with no more difficulty than a rancher in the Nebraska Sandhills.
And once the Utah ranch qualifies as a family farm corporation, it can place its cattle in Nebraska custom feedlots just like Nebraska ranchers, who don’t drive to the feedlot each day to feed the cattle they own.
But most troubling is the far reaching legal precedent established by the ruling that could undermine a wide range of state laws, thereby transferring power to corporations and the federal government. For example, it is inconvenient for a Floridian to gain certification to teach school in Iowa, compared to an Iowan prepared to meet those requirements in the state’s teachers colleges. If this ruling stands, will state teacher certification laws be struck down and that responsibility handed to the federal government?
In years past, politicians railed about activist judges handing down liberal rulings. We are in a new era. Now, activist judges hand down rulings that are neither conservative nor liberal, but rather designed to protect corporate interests and concentrate power at whatever level of government they can best manipulate.
This ruling is more evidence that elections matter. It calls on each of us to carefully consider the philosophies of candidates for governor and president on regulation of corporate excess before we cast our votes.
Efforts at Modification: I-300 and LB 1086
Committee hears "Hands off I-300"
On Feb. 17, 2004, over 400 supporters of I-300 descended upon the Nebraska State Capitol to tell their state senators “Hands Off” I-300. The occasion was the hearing on LB 1086, a bill that proposed to create a gubernatorial-appointed task force to determine ways to “modify” Nebraska’s anti-corporate farming constitutional amendment.
At the hearing, representatives from the Center for Rural Affairs, Nebraska Farmers Union, the AFL-CIO, the Nebraska Catholic Conference, Nebraska Grange, Women Involved in Farm Economics, the American Corn Growers, the Organization for Competitive Markets, and the Sierra Club all testified about the positive aspects of I-300 and the Pandora’s Box that would be created by opening I-300 for changes.
Dr. William Heffernan of the University of Missouri testified as to the unique position Nebraska enjoys in providing agricultural structural and market access advantages compared to other states. Several farmers and ranchers – including beginning farmers and ranchers – testified to the positives of I-300 and the fact that I-300 has not acted as a barrier in their operations (contrary to the assertions of many proponents of LB 1086).
This activity shows the power of an engaged citizenry. Finally, the legislative clock ran out on LB 1086. Though advanced out of the Agriculture Committee, LB 1086 never received a minute's worth of debate on the legislative floor.
Our view on LB 1086 was well known – we opposed it, thought it unfairly targeted I-300, and thought it an attempt to begin the process of changing I-300 under the guise of a “study.” We look forward to working with the Legislature – both opponents and proponents of LB 1086 – on genuine studies of all issues facing agriculture and rural communities in Nebraska.
Presented by William D. Heffernan, Ph.D., Professor Emeritus, Department of Rural Sociology, University of Missouri-Columbia. Prepared for the Committee on Agriculture of the Legislature of Nebraska, Feb. 17, 2004.
For decades we have been informed that one sector of the economy after another was being restructured. The agricultural sector seemed somewhat immune to this major economic reorganization because small, community-sized economic operations in the input/supply, production and marketing stages appeared to be stable. The family farm appeared to be the dominant structure and agriculture continued to be used as an example of a competitive economic system.
However, the restructuring of the broiler sector had begun in the late 1950s and early 1960s under the name of vertical integration or production contract production. In this new structural arrangement, the integrating firm, usually a feed supply firm, owned the birds and feed while hiring “growers” on a piece-rate basis. This change came much more slowly in other commodity sectors until about a decade ago when slightly different structural arrangements evolved in each of the different commodity sectors. The consequence was a major concentration of ownership and control in the agriculture/food system. What has been called “restructuring” is in reality a major alteration in the organization of the national and international economic system.
Unfortunately the economic system we had in agriculture 50 years ago, as well as the system we have today are both called capitalism. By identifying both systems by the same term, restructuring sounds like we are just tinkering with the same system. In fact, the two systems are quite different. What some call “early capitalism” is based on competition characterized by no single firm buying or selling enough to in any way influence the market price, by all parties having full information regarding the economic transaction, and by freedom of entry or exit. Early capitalism and “late or mature capitalism” are more different from each other than mature capitalism is from communism. Mature capitalism and communism both depend on highly concentrated decision-making frameworks, face many of the same administrative/organizational problems, and both are inherently undemocratic organizational structures.
Most, but not all, agricultural economists would have us believe that this movement from early capitalism to mature capitalism is inevitable. They sometimes call it a “natural system.” In fact, there is nothing inevitable about this system. The system was designed for the results we are seeing. A century ago after witnessing a movement toward the control of some economic sectors by a few firms, U. S. citizens decided that this was not desirable. They persuaded the government to change the policy relating to monopolies. Since World War II, however, some individuals, groups and corporations with political influence have been working to dismantle antitrust laws and other protections. These fluctuating policies suggest that national and global economic systems are put in place by humans and can be changed by humans.
Twenty-two years ago, legislators here in Nebraska decided they could initiate a new policy that would provide a more “level playing field” for family farmers. While Initiative 300 has not solved all the problems faced by farmers, I congratulate Nebraska for challenging those who say that the trend toward increased concentration of ownership and control and the elimination of family farms is inevitable. The result is that Nebraska is still a leading producer of red meat in the nation. This is at a time when our national agriculture/food policies and the international policies under the jurisdiction of the World Trade Organization (WTO) were tilting the scales in favor of the transnational corporations. We usually feel that these global trade issues must be left to the federal government, but you have shown that when the federal government does not act, a state can make a difference.
I-300 cannot solve all of the problems that producers and consumers will face in the future, but it has shown that government policy can be designed to produce a food system that society desires. A look ahead suggests that agriculture in this country faces some major challenges.
A few years ago, economist Stephen Blank, University of California - Davis, wrote a book entitled, The End of Agriculture in the American Portfolio?. In it he argues that given that the United States can import food cheaper than it can produce it, we should import our food and use our farmland for its “higher value” uses such as recreation and urban expansion. Notwithstanding the myth that U.S. farmers are the most efficient in the world, he notes that they are among the highest cost producers in the world. This is a result of such factors as high land and labor costs and the enforcement of government regulations related to health and environmental issues. Global and national food policy is moving us in the direction Professor Blank described. That the value of our agricultural/food exports the past two decades has increased slowly, while the value of these imports has been increasing rapidly provides ample evidence of this point. I have said for some time that we will soon become a net importer of agricultural/food products. A couple of articles in the most recent agricultural newsletters report that a paper has been released by an economist at Purdue University predicting that such will occur in the next three to four years.
Maybe that prediction can be altered. Can you imagine continuing to develop an increasingly centralized and import-based food system when we are concerned about acts of terrorism? Do we really want to become dependent on other countries for much of our food in the same way we are dependent on other countries for oil? Food is different from all other goods and services exchanged in the global market. It is a necessity, even more than oil, and it is needed on a regular basis. Even the questions raised at recent meetings of the WTO suggest that more and more people in the United States and around the world are challenging the evolving global food system. Increasingly, we hear the argument that food is different and requires unique government policies.
Do not give up a policy that has served Nebraska well. If we can level the playing field so that family farmers can make an adequate living, there are plenty of young families eager to farm. They are not interested in assuming large financial debts that lock them into specific noncompetitive market arrangements in which they feel helpless to negotiate. Contracts are not inherently good or bad. When making major economic investment, they can be a major risk-management tool. The problem is not the contract itself, but rather the unequal power relationship that it represents. In a region where there is no market competition, the only time that the farmer and the marketing firm are in an equal power relationship is before the farmer assumes a large loan. Once a farm family depends on a single firm for repaying a large debt, the power relationship favors the integrating firm. At a minimum, the contract must extend the full length of the farmer’s debt payment period. No firm can guarantee such long periods because it may be bought by another firm and the original contracts may no longer be honored.
If we tell our youth there is no alternative but to follow the trends of the last decade, they will know that Professor Blank is correct. The evolving system is a race to the bottom for all farmers and ranchers in the world. Because we are high cost producers, our farmers will continue to be eliminated. You took a small step 22 years ago. Don’t give up now. Ask the question: What is the next step to assure that this country has a secure and sustainable food system?