Anti-Corporate Farming Laws: “BIG AG” VERSUS THE FAMILY FARM

ANTI-CORPORATE FARMING LAWS: “Big Ag” versus the Family Farm

by Jennifer Villier, J.D.Business Law Faculty

Nine Midwestern states have laws that restrict the involvement of publicly held corporations in agriculture. As one of those nine states, North Dakota has the second oldest anti-corporate farming statute in the U.S. (the “Act”). In mid-March, 2015, North Dakota House and Senate lawmakers voted to exempt dairy and swine operations from the Act, which would permit corporate dairy and swine farms to operate in North Dakota for the first time since 1932. This paper discusses the Act with a focus on how it has evolved to open the door to corporate farming in recent years. Attorneys representing agricultural clients and investors should be aware of the changing legislative landscape that historically prohibited non-family corporate farming in North Dakota and should be prepared for the potential for similar legislative changes in other historically protective (anti-corporate farming) states.

Anti-Corporate Farming Laws Generally

The main objective of anti-corporate farming laws is to protect family farms from having to compete with corporate-owned and managed farms. While the laws vary among the nine states that have them, anti-corporate farming laws generally (1) prohibit corporate farming, (2) specify exemptions to the general prohibition, and (3) provide a legal means of forcing corporations to divest land owned in violation of the law. Cooperative associations, non-profits, and “family farm corporations” are some of the more common exemptions from anti-corporate farming laws.

Generally, a family farm corporation is an entity comprised of family members within a certain degree of kinship who own a majority of the voting stock in the corporation. The shareholders of a family farm corporation generally must be natural persons, rather than corporate entities, and in some states, the total number of shareholders is limited by statute. Family farm corporations are also commonly required to have at least one family member who lives on the farm.

North Dakota’s Anti-Corporate Farming Law The Act originally prohibited all corporations, foreign and domestic, from engaging in farming in North Dakota. In 1981, the Act was amended to provide that all corporations and LLCs 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 an exemption. One of the enumerated exemptions was for family farms and ranches, provided that:

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1Note that “anti-corporate” farming laws are also regularly referred to as “corporate” farming laws. This article refers to them as “anti-corporate” farming laws to emphasize their restrictive nature on farming operations and ownership. 2N.D. Cent. Code 10-06.1-02 (1985)

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(1) They have 15 or fewer shareholders, (2) Each shareholder is related to each other shareholder, (3) The officers and directors are shareholders and are actively engaged in operating the farm or ranch, (4) At least one of the shareholders lives on the farm or ranch, (5) At least 65% of corporate income is derived from agricultural operations, and (6) The corporation is a domestic corporation.

In effect, the 1981 legislative amendment carved out family corporations from the general prohibition against corporate farming in the state.

Thirty-four years later, a new exemption further erodes North Dakota’s prohibition against corporate farming. The highly contested, recently approved exemption to the Act permits non-family corporations to own and operate dairy and swine farms with up to 640 acres of farmland. Supporters of the new exemption feel that it will open the door to corporate investment that will help North Dakota dairy and pork operations rebound after years of decline.

Supporters also believe that the exemption will improve farmers’ access to capital, improve the state’s economy, and help fuel other agriculture business, such as feed and fertilizer. Opponents worry the exemption will bring in “Big Ag” — big, out of state corporations that will be impossible for small family farms to compete with. Interestingly, supporters of the new exemption may have the upper hand in the debate when viewed in light of the state’s constitution.

North Dakota Constitution

In 2011, the North Dakota Farm Bureau sponsored a measure proposing an amendment to the state’s constitution. The North Dakota Farming and Ranching Amendment was approved by 66.9% of voters in 2012. It reads:

“The right of farmers to engage in modern farming and ranching practices shall be forever guaranteed in this state. No law shall be enacted which abridges the right of farmers and ranchers to employ agricultural technology, modern livestock and ranching practices.”

North Dakota Farm Bureau President, Eric Aasmundstad, indicated that the amendment was intended to stop laws that he described as potentially ruinous to agriculture, which is North Dakota’s largest industry. Additionally, Aasmundstad said that the amendment was intentionally broadly worded to prevent North Dakota from considering legislation adopted in other states, such as laws mandating minimum cage sizes for certain hens, sows and calves. Opponents of the amendment, such as the director of rural development and outreach for the Humane Society, Joe Maxwell, said that the amendment would “clearly prevent any reasonable regulation” of agriculture and would

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allow for “large, corporate factory farms to pretty much do whatever they want.” Nonetheless, the North Dakota Farming and Ranching Amendment was approved and is now part of the state’s constitution.

Conclusion

It is difficult to reconcile the broad language of the 2012 constitutional amendment with the narrow scope of the Act. If the constitution’s reference to “modern livestock and ranching practices” encompasses corporate farming, then perhaps the Act, which prohibits most corporate farming, will be challenged on constitutional grounds. The 2012 constitutional amendment, followed by the recent dairy and swine farm exemption, seems to indicate a clear shift in favor of corporate farming in the state.

While it remains to be seen how the dairy and swine farm exemption to the Act will affect agriculture in North Dakota, it certainly seems that doors are opening to non-family corporate farming operations in the state. Attorneys representing clients involved in agricultural enterprises should be aware of this changing tide, as well as the potential investment opportunities for corporations that were previously prohibited from involvement with North Dakota farms. Relaxing the standards for farming in North Dakota may enable corporate farms to operate in North Dakota without having to satisfy the onerous requirements of a family farm. Additionally, other states may follow North Dakota’s lead in loosening the restrictions that have historically kept corporations out of the business of farming.

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