• TABLE OF CONTENTS
HIDE
 Front Cover
 Abstract
 Table of Contents
 Summary
 Introduction
 The current statutes
 Nature of the statutes
 Corporate and other large-scale...
 State restrictions on corporat...
 State restrictions on ownership...
 Additional reading






Group Title: Agricultural economic report - United States Dept. of Agriculture - no. 419
Title: State regulation of corporate farming
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Permanent Link: http://ufdc.ufl.edu/UF00056213/00001
 Material Information
Title: State regulation of corporate farming
Series Title: Agricultural economic report no. 419
Physical Description: iii, 44 p. : map ; 26 cm.
Language: English
Creator: Edmondson, Thomas D
Krause, Kenneth R., 1934- ( joint author )
United States -- Dept. of Agriculture. -- Economics, Statistics, and Cooperatives Service
Publisher: Dept. of Agriculture, Economics, Statistics, and Cooperatives Service
Place of Publication: Washington
Publication Date: [1978]
 Subjects
Subject: Farm corporations -- United States   ( lcsh )
Farm management -- United States   ( lcsh )
Genre: federal government publication   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographical references.
Statement of Responsibility: Thomas D. Edmondson, Kenneth R. Krause.
General Note: Issued Dec. 1978.
Funding: Electronic resources created as part of a prototype UF Institutional Repository and Faculty Papers project by the University of Florida.
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Bibliographic ID: UF00056213
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Holding Location: University of Florida
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Resource Identifier: aleph - 001198176
oclc - 04612558
notis - AFU8417

Table of Contents
    Front Cover
        Front Cover
    Abstract
        Page i
    Table of Contents
        Page ii
    Summary
        Page iii
    Introduction
        Page 1
        Page 2
    The current statutes
        Page 3
        Page 4
        Page 5
    Nature of the statutes
        Page 6
        Partial restrictions
            Page 6
        Accord with other statutes
            Page 7
        Uncertainties
            Page 8
        Reporting laws
            Page 9
            Page 10
            Page 11
    Corporate and other large-scale farming
        Page 12
        Overview
            Page 12
        Number and significance of corporate farms
            Page 12
            Page 13
            Page 14
            Page 15
            Page 16
            Page 17
            Page 18
        Corporate commodity specialization - Vertical integration and contracting
            Page 19
            Page 20
            Page 21
            Page 22
        Fedral data sources
            Page 23
            Page 24
    State restrictions on corporations
        Page 25
        North Dakota
            Page 25
            Page 26
            Page 27
        Minnesota, Missouri, South Dakota, and Wisconsin
            Page 28
            Page 29
            Page 30
            Page 31
        Oklahoma
            Page 32
        Kansas
            Page 33
        Iowa
            Page 34
        Texas
            Page 35
        Nebraska - Oregon - West Virginia - Legal conclusions
            Page 36
            Page 37
            Page 38
            Page 39
            Page 40
            Page 41
            Page 42
    State restrictions on ownership of real estate by Alien Corporations
        Page 43
        Page 44
    Additional reading
        Page 45
Full Text


State Regulation of

Corporate Farming

Thomas D. Edmondson
Kenneth R. Krause


United States
Department of
Agriculture


Economics,
Statistics, and
Cooperatives
Service


Agricultural
Economic
Report
No. 41 9







STATE REGULATION OF CORPORATE FARMING. By Thomas D. Edmondson and Kenneth R. Krause.
Economics, Statistics, and Cooperatives Service, U.S. Department of Agriculture.
Agricultural Economic Report No. 419.


ABSTRACT

As of December 1977, 10 States had enacted legislation restricting corporate farm-
ing (farm operations, vertical integration, and ownership of farmland). The statutes'
main intent was to protect the family farmer from competition by large agribusiness
firms. Those statutes are described and their effectiveness analyzed. The available
data on corporate farming operations, from the census of agriculture and the Internal
Revenue Service, suggest that the State statutes may be premature; corporate farms
with more than 10 shareholders account for only 5 percent of total U.S. agricultural
sales. Thus, some States concerned with the encroachment of corporate farming are
considering enactment of reporting laws to collect more specific information.

Keywords: Corporate farming statutes, farm organization, vertical integration, land-
ownership, real estate, State laws, alien regulation.


This report was prepared jointly by the Economics, Statistics, and Cooperatives
Service (ESCS) and the Office of General Counsel, U.S. Department of Agriculture.







ACKNOWLEDGMENTS

We have drawn heavily on description and analysis by Dr. Neil Harl, Charles F.
Curtiss Distinguished Professor, Department of Economics, Iowa State University. The
more recent work by Fred L. Morrison, University of Minnesota Law School, has also
been helpful. We thank both for their advice and review throughout the course of the
study. We also thank James D. Keast, formerly General Counsel, USDA, Dr. Donald R.
Levi, Professor of Agricultural Law, Department of Agricultural Economics, Texas
A & M University, W. Fred Woods, Public Policy Specialist, Science and Education Ad-
ministration, and George W. Coffman, Economics, Statistics, and Cooperatives Service,
USDA.


Washington, D.C. 20250


December 1978








CONTENTS

Page


SUMMARY . . . . ............ .. iii

INTRODUCTION . . . . * * 1

THE CURRENT STATUTES . . . ...........* 3

NATURE OF THE STATUTES . . . . . . 6
Partial Restrictions . . .... . ......... 6
Accord with Other Statutes . . .... ....... 7
Uncertainties . . ... .. .............. 8
Reporting Laws . . . .... ........... 9

CORPORATE AND OTHER LARGE-SCALE FARMING . . . .. 12
Overview . . . .... . * * 12
Number and Significance of Corporate Farms . . . .. 12
Corporate Commodity Specialization . .... . 19
Vertical Integration and Contracting . .... .. . 19
Federal Data Sources . . . .... . * 23

STATE RESTRICTIONS ON CORPORATIONS .... . ......... 225
North Dakota . . . .... . .* 25
Minnesota, Missouri, South Dakota, and Wisconsin . . .. 28
Oklahoma . . .... . . * * 32
Kansas . . . . .. * .... 33
Iowa . . . . . * * *. 34
Texas . . .. . . * * 35
Nebraska . . .... . . . * 36
Oregon . . . . . * * 36
West Virginia . . ... . . . .* .36
Legal Conclusions . . . .... * 36

APPENDIX: State Restrictions on Ownership
of Real Estate by Alien Corporations . .. .. .. . 43

ADDITIONAL READING . . . .... . * 45








SUMMARY


The corporate presence in U.S. agricultural production is not yet significant.
Agricultural corporations with more than 10 shareholders produced only 5.3 percent of
total U.S. farm sales according to the most recent estimates. Because corporations
are heavily involved in producing certain crops, however, like fruits and nuts, broilers,
and sugarcane, there is a perception of unchecked corporate penetration into the agri-
cultural sector. In response to that perception, 10 States, most since 1970, have en-
acted statutes that restrict corporate farming activities. In all 10 States, agricul-
ture is the leading industry or a very important one.

The intention of the statutes (enacted through December 1977) is to maintain a
competitive market environment and to preserve the family farm as the dominant farm
production unit. To accomplish that, the statutes restrict the farming activities of
investors and firms outside the farming sector. The State restrictions vary. Some
virtually prohibit large corporations from owning farmland, operating farms, and ver-
tically integrating into farm production. Others impose restrictions only on specific
activities or commodities. Most of the statutes contain exceptions that allow author-
ized corporations (primarily family farm corporations) to own and operate farms. Some
of the statutes impose only minor restrictions that probably do not deter prudent in-
vestors from accomplishing their objectives. The relevant statutes are summarized in
detail in the report.

Alien investment is the object of restrictions in some of the 50 States. Seven
States have statutes that prohibit almost all alien real estate investment whether by
individuals or corporations. In five States, the amount of acreage that may be owned
by aliens is substantially limited. In many States, however, the restrictions are
minor. The alien statutes are also briefly reviewed in an appendix.

While some of the farming statutes impose substantial limits on corporate in-
volvement in agriculture, they do not entirely protect the family farmer from nonfarm
investors or large-scale enterprises. The State statutes for the most part, do not
apply to nonfarm investors who enter farm production through sole proprietorships,
partnerships, or trusts. Individuals and firms who use those forms of business or-
ganization to engage in farming may pose competition equal to or greater than that
from incorporated businesses. That is particularly the case where there are various
incentives--such as achieving economies of size, capital appreciation, or income tax
avoidance--for investing in the farm sector and for producing farm products on a large
scale. Most of the statutes are also silent on contractual arrangements between
suppliers, processors, and farmers.

Several States require detailed public reporting by farm corporations. Iowa's
reporting law also includes partnerships under its requirements. The available data
on corporate farming are not sufficiently detailed to allow a complete assessment of
the nature and extent of corporate farming. Because of that, the States may wish to
use reporting laws to collect more specific information.









State Regulation of Corporate Farming


Thomas D. Edmondson and Kenneth R. KrauseJl/



INTRODUCTION

As of December 1977, 10 States had enacted legislation to limit the agricultural
activities of corporations. The statutes were enacted in response to the perception
that corporations represented a threat to the family farm. That perception was based
on the increasing size of farms and by the presence of large, highly integrated cor-
porations in producing certain crops: nuts, broilers, sugarcane and sugarbeets, citrus
fruits, vegetables for processing, and fluid-grade milk. To varying degrees, the
statutes restrict corporate agricultural operations by limiting the size of corporate
landholdings, by restricting corporate integration into farming, and by preventing cor-
porations from engaging in agricultural production altogether.

The statutes are effective in accomplishing their narrow goals; many, however,
contain exceptions and exemptions that undermine their wider purpose of protecting the
family farm. For example, the statutes emphasize restricting corporations, but none
of the statutes restrict other types of nonfarm operations (limited partnerships, for
example). Besides that, however, the timing of the statutes may be premature. The
available data suggest that corporate involvement in agricultural production is not
significant--either in the United States as a whole, or in those States that enacted
the statutes. In 1969, total agricultural production by widely held corporations 2/
was only 3 percent of the U.S. total; in 1974, the latest figures available, the
figure had risen to 5 percent. U.S. farming is still very much a family-run business.
Proprietorships, family owned and operated partnerships, and family corporations com-
prised 99 percent of all farms and accounted for 95 percent of all farm sales in 1974.

To obtain a more accurate picture of the extent of corporate farming activities,
the States may want to enact laws that require agricultural firms to report their
landholdings, operations, shareholders, etc. By doing so, the legislators will be
better able to ascertain which aspects of agriculture require legislative protection.
The legislature can then enact a law to meet a specific need rather than a more
general law that may unnecessarily restrict a firm's operations.

This report assesses the statutes and their implications and provides the latest
data available on the nature and extent of farm corporations and vertical integration
into farming. The data were compiled by the Bureau of the Census, the Internal Rev-
enue Service, and the Economics, Statistics, and Cooperatives Service. The report
concludes with a comprehensive review of the State statutes regarding corporate
farming activities and, in an appendix, a brief treatment of State statutes affecting
alien investment in U.S. agriculture.

1/ Edmondson is an attorney with the Office of General Counsel, U.S. Department of
Agriculture; Krause is an economist with the Economics, Statistics, and Cooperatives
Service, USDA.
2/ The census of agriculture, our primary source of data, divides farm corporations
into two groups: those with 10 or fewer shareholders and those with more than 10
shareholders. Throughout the paper, we have referred to those groups as closely held
corporations and widely held corporations. Although those two designations do not cor-
respond exactly to private and public corporations, we do feel that most of the closely
held corporations are private.







This report updates "State and Federal Legal Regulation of Alien and Corporate
Land Ownership" which identified those States with statutes and applicable court cases
dealing with corporate investment in farmland and agricultural production through June
1974 and provided a brief review of each. (1) 3/ When used in conjunction with "Legal
Regulation of Alien Land Ownership in the United States," the present report provides
a more complete perspective on the regulation of alien and corporate investment in land
and agricultural production and vertical integration into farm production. (2)

3/ Underscored numbers in parentheses refer to sources listed at the end of each sec-
tion.










References

1. Fred L. Morrison and Kenneth R. Krause. "State and Federal Legal Regulation of
Alien and Corporate Land Ownership and Farm Operation." Econ. Res. Serv., U.S. Dept.
of Agr., May 1975 (rev. December 1975). AER-284.

2. Fred L. Morrison. "Legal Regulation of Alien Land Ownership in the United
States." Report to the Congress, Foreign Direct Investment in the United States, vol.
8, appendix M, U.S. Dept. of Commerce, April 1976.







THE CURRENT STATUTES


Kansas adopted its corporate farming law in 1931, becoming the first State to do
so (among those with statutes in effect as of December 31, 1977). North Dakota adopted
its statute in 1932; its law remains the most comprehensive in banning corporations
from agricultural production. Texas' corporate farming statute (enacted in 1955) is
aimed mainly at preserving open range cattle production and at preventing integration
between cattle production and meat processing. The other States adopted their laws in
the seventies: Oklahoma in 1971, Minnesota in 1973, South Dakota and Wisconsin in 1974,
Iowa, Missouri, and Nebraska in 1975. Several of these States amended the laws in sub-
sequent years. In addition, Oregon enacted a reporting law in 1977 and West Virginia
has had, since 1939, a statute requiring a landowner to obtain a certificate of author-
ization for all land owned above 10,000 acres (fig. 1).


Figure 1


Consideration of such statutes has not been confined to those States, however.
Legislation to restrict corporate farming activities has also been introduced in
Tennessee, Oregon, Montana, Kentucky, Indiana, Illinois, and Colorado. Those States
had not enacted such legislation by December 1977. In addition, some Federal legisla-
tion has been proposed, but not enacted. Most recently, for example, the Family Farm
Antitrust Bill (H.R. 941) was introduced in Congress in 1977 to prohibit large nonagri-
cultural firms from engaging in farming.

The reasons for the restrictive statutes, as set forth in their objectives, in-
clude preserving and protecting the family farm as the basic unit of production and
maintaining competition in agriculture. Some States have also added that the statutes


STATES WITH CORPORATE FARMING LEGISLATION, 1977


ES MAJOR RESTRICTIONS
M MINOR RESTRICTIONS
CE CERTIFICATE REQUIRED
M ANNUAL REPORT REQUIRED







are designed to protect family farms against monopolization of the agricultural indus-
try and to prevent vertical integration of nonfarm corporations into farm produc-
tion. 4/

The general concern in enacting the statutes was to prevent large businesses from
controlling farm production locally, regionally, and nationally. Corporations were
apparently singled out, not because of their form of business organization, but because
of their size: large business firms usually use the corporate form of business organi-
zation.

An equally important concern was to stem the influx of investments in agriculture
by "farm outsiders." Nonfarm operators are resented by those who believe that farms
should be owned, operated, and controlled by individual families who buy and sell
through open competitive markets. More specifically, the focus of the laws was on non-
farm operators, nonfarm investors, and those who integrate into farm production. Other
than in the very limited Texas statute, the restrictions were generally not placed on
"farm insiders," i.e., farm operators, retired farmers who continue to own farmland,
and heirs of farm operators.

Several specific types of nonfarm investors and firms are the objects of restric-
tion: nonfarm investors whether individuals or syndicates with large equity and credit
positions who are interested in farming only as a secondary investment but who retain
sufficient control to preserve and enhance their investments; food and fiber firms,
such as suppliers, marketers, processors, transporters, wholesalers, and retailers,
presently integrated into farm production either through ownership or contractual
arrangements and who have finances and incentives for expansion; large nonfarm firms
that may or may not be involved in food and fiber system activities but are not inte-
grated into farm production. The firms in the last category are usually involved in
other sectors of the economy, such as oil and gas production, transportation, retail-
ing, manufacturing, or insurance.

Agricultural investment from nonfarm sources has increased because of several
factors. The increased size and scope of farming operations have required additional
capital. The increased size, in turn, has been encouraged by new production and mar-
keting technologies that require larger sizes to be cost effective and by the expanding
export market. Agricultural investments were also enhanced by tax laws that allowed
so-called "tax loss" farming, that is, farm losses were used to offset nonfarm income.
(4, 6, 7) Some of the tax advantages, however, were lessened by the Tax Reform Act of
1976. That Act made partnership formation less attractive in certain cases to nonfarm
investors by limiting claims of losses by the investors to the amount that they actu-
ally had at risk in the venture. Previously, the entire amount of the annual loss
incurred by the partnership was distributed in a pro rata basis among all partners.

As is shown in more detail by the data in a later section of this report, the
States that have enacted the statutes were, for the most part, unaffected by large cor-
porate farms, either through direct production or contractual arrangements. Only in
Texas did sales of widely held corporations exceed 5 percent of total farm sales within
the State. 5/ Other States without restrictive statutes had higher concentrations of

4/ With the exception of North Dakota, there has been no noticeable restriction on
family farms that incorporate. In Successful Farming, Fred Woods expressed the view
that many more family farms will incorporate in the future. (1) Several incentives
favor a farm's using the corporate form of organization. (2, 3)
5/ Neil Harl has observed that to date no "giant" corporations have been able to
compete successfully in the Midwest. (5) He suggests that, in other parts of the
country, the success of larger operations seems to be attributable to uniqueness of
risk (e.g., a combination of production, price, and size of dollar exposure), capital
infusion, economies of scale, and type of management required. Yet the States with
statutes are for the most part those without "giant" corporations.








corporate farm sales. The State with the largest such concentration is Hawaii, where
81-percent of total farm sales were derived from widely held corporations. In enacting
their statutes, therefore, it seems that the States were responding more to a perceived
than actual threat to the family farm.

In general, the data that have been collected at the Federal level are not suffi-
ciently detailed to allow one to judge the full extent of corporate involvement in ag-
riculture. One, therefore, cannot ascertain whether or not a problem exists or the
nature of the problem. The sources traditionally available (the census of agriculture,
aggregated to the State level, and returns filed with the Internal Revenue Service,
purged of individuals' names and aggregated to the national level) do not provide an
adequately detailed picture of the situation. In an effort to obtain more facts, some
States, like Oregon, have postponed enacting any restrictive legislation and have in-
stead enacted a reporting law requiring each farming corporation operating in the State
to provide detailed information on its landholdings, products produced, and names of
shareholders. Until such information is fully and accurately reported and analyzed,
any attempts to regulate corporations will probably be unsuccessful. Although legisla-
tion that is inadequately informed may achieve the narrow goals specifically expressed,
it will probably fall short of achieving the wider goals of assuring the orderly pro-
duction of agricultural goods in an equitable manner through an independent system of
family farms.

References

1. "Legislation and Family Farm Corporations," an interview with Fred Woods, of
the Federal Extension Service, U.S. Dept. Agr. Successful Farming, May 1976.

2. Levi, Donald R., and James B. Grover. "Federal Income Tax Savings Possibili-
ties by Incorporation." College Station, Texas: Texas Agr. Ext. Serv., 1975. MP-1229.

3. Halbrook, Steven A. "An Analysis of Variables Influencing the Use of the Cor-
porate Form of Organization in American Agriculture." Diss., Iowa State U. 1976.

4. Harl, Neil E. "Comments on Corporate and Tax Loss Farming." Presented to
State Resolutions Committee, Iowa Farm Bureau Federation, Des Moines, Iowa, September
17, 1974.

5. Harl, Neil E. "Comments on H.F. 215, Act Relating to Farming by Corporations."
Unpublished. Dept. of Economics, Iowa State U., April 15, 1975.

6. Sisson, Charles A. "Provisions of Importance to Agriculture in the Tax Reform
Act of 1976." Econ. Res. Serv., U.S. Dept. Agr., November 1976. ERS-645.

7. Woods, W. Fred, compiler. "Farm Corporations and Their Income Tax Treatment."
Econ. Res. Serv., U.S. Dept. Agr., April 1974.








NATURE OF THE STATUTES


Some of the statutes contain exemptions for particular activities or contain
grandfather clauses that may decrease the statute's effectiveness in attaining its
stated objectives. Most restrictive statutes, however, may affect economic activities
more than the States had anticipated. This section assesses the viability of the
statutes and their possible economic impacts.

Partial Restrictions

The statutes of the different States do not coincide in their intended effects.
Eight States have what are generally referred to as "family farm laws," designed to
help preserve the family farm as an independent economic entity, buying and selling in
a competitive market. Other statutes were designed to help preserve only certain
features of the independent family farm. For instance, Nebraska and Texas do not focus
on protecting the family farm from large corporations. Nebraska's statute forbids
corporations not chartered in the State from owning or leasing land. Corporations
chartered in Nebraska are not restricted in their agricultural enterprises. The Texas
statute restricts, in a very limited manner, monopolization in a subsector of the food
system. Texas apparently wanted to preserve a structure of cattle production that is
not vertically integrated with meat processing. The Texas statute does not prohibit
outside firms and individuals, not otherwise involved in processing, from entering
cattle production.

Nebraska, however, with the other eight States, restricts monopolization from
outside interests. Iowa likewise specifically prohibits meat processors from inte-
grating into feeding their own cattle or to placing feeder cattle with farmers under
contractual arrangement. But the Iowa statute, for at least a few years, also re-
stricts outside corporations with 25 or more shareholders from entering farming. The
Oklahoma statute restricts outside investors from entering farm production but speci-
fically allows vertical integration in farming. The South Dakota statute is similar to
the Oklahoma statute. It permits 10 unrelated nonfarmers to own a corporate farm
business in conjunction with a nonfarm business which could include food processing and
marketing. This permits integrated livestock operations.

Most of the statutes include grandfather clauses that exempt corporations that
were in existence before the statutes were passed. In addition, none of the statutes
directly restrict the activities of partnerships. Partnerships thus continue to have
the potential to attract outside money into farming activities.

Fred Morrison has suggested that, in addition to specific exclusions and ex-
emptions and forms of legal business not restricted, there are legal ways that firms
and nonfarm investors can still accomplish some of their general economic and finan-
cial objectives. (1) He suggests that large corporations, not directly involved in
farm production (for instance, suppliers and farm product exporters), can engage in
production and market contracting with farm producers in most of the States with
statutes. Even in North Dakota, with the strongest statute restricting corporate
farming, it would be possible for a wheat farmer to contract his crop to an elevator
corporation in which he is the principal owner, in order to reduce his farm income for
tax purposes. When production under contract occurs, production, marketing, and price
risks along with major management decisions may be shifted to the contractor. Such
contracts may leave the farm producers with limited managerial freedom but yet require
him to supply large amounts of production capital in the forms of farm real estate and
labor. Some farm producers seem willing and in some cases eager to accept production
or marketing contracts, but at the same time want to prohibit the integrator, nonfarm
investor, and corporation from owning farm resources.








NATURE OF THE STATUTES


Some of the statutes contain exemptions for particular activities or contain
grandfather clauses that may decrease the statute's effectiveness in attaining its
stated objectives. Most restrictive statutes, however, may affect economic activities
more than the States had anticipated. This section assesses the viability of the
statutes and their possible economic impacts.

Partial Restrictions

The statutes of the different States do not coincide in their intended effects.
Eight States have what are generally referred to as "family farm laws," designed to
help preserve the family farm as an independent economic entity, buying and selling in
a competitive market. Other statutes were designed to help preserve only certain
features of the independent family farm. For instance, Nebraska and Texas do not focus
on protecting the family farm from large corporations. Nebraska's statute forbids
corporations not chartered in the State from owning or leasing land. Corporations
chartered in Nebraska are not restricted in their agricultural enterprises. The Texas
statute restricts, in a very limited manner, monopolization in a subsector of the food
system. Texas apparently wanted to preserve a structure of cattle production that is
not vertically integrated with meat processing. The Texas statute does not prohibit
outside firms and individuals, not otherwise involved in processing, from entering
cattle production.

Nebraska, however, with the other eight States, restricts monopolization from
outside interests. Iowa likewise specifically prohibits meat processors from inte-
grating into feeding their own cattle or to placing feeder cattle with farmers under
contractual arrangement. But the Iowa statute, for at least a few years, also re-
stricts outside corporations with 25 or more shareholders from entering farming. The
Oklahoma statute restricts outside investors from entering farm production but speci-
fically allows vertical integration in farming. The South Dakota statute is similar to
the Oklahoma statute. It permits 10 unrelated nonfarmers to own a corporate farm
business in conjunction with a nonfarm business which could include food processing and
marketing. This permits integrated livestock operations.

Most of the statutes include grandfather clauses that exempt corporations that
were in existence before the statutes were passed. In addition, none of the statutes
directly restrict the activities of partnerships. Partnerships thus continue to have
the potential to attract outside money into farming activities.

Fred Morrison has suggested that, in addition to specific exclusions and ex-
emptions and forms of legal business not restricted, there are legal ways that firms
and nonfarm investors can still accomplish some of their general economic and finan-
cial objectives. (1) He suggests that large corporations, not directly involved in
farm production (for instance, suppliers and farm product exporters), can engage in
production and market contracting with farm producers in most of the States with
statutes. Even in North Dakota, with the strongest statute restricting corporate
farming, it would be possible for a wheat farmer to contract his crop to an elevator
corporation in which he is the principal owner, in order to reduce his farm income for
tax purposes. When production under contract occurs, production, marketing, and price
risks along with major management decisions may be shifted to the contractor. Such
contracts may leave the farm producers with limited managerial freedom but yet require
him to supply large amounts of production capital in the forms of farm real estate and
labor. Some farm producers seem willing and in some cases eager to accept production
or marketing contracts, but at the same time want to prohibit the integrator, nonfarm
investor, and corporation from owning farm resources.








The examples provided elicit two observations. First, the States with restric-
tive statutes are not all unanimous in their emphasis on those aspects of agricultural
production that they set out to protect. A large part of the difference among statutes
can probably be attributed to the different agricultural production in the States and
the importance of those different commodities to the States' economies. Secondly, even
in those States with the more inclusive statutes, the exceptions and exemptions written
into the laws probably provide enough scope for corporations and investors to accom-
plish their ends. Taken individually or as a group, the statutes contain enough
exemptions and exclusions that they do not themselves appear to guarantee a future in-
dependent family farm structure.

We suggest that, before enacting restrictive statutes, the States can better
serve their agricultural producers by enacting reporting laws to collect more complete
and accurate data on farm structure. With more accurate data available, the legisla-
tures would be in a better position to ascertain which facets of the food and fiber
system needed protection, and could then enact legislation that better reflects that
need.

The statutes will likely have a mixed impact on preserving an independent family
farm structure in the States with statutes as well as in those States without statutes
but with similar agricultural resources. Morrison has suggested that the significance
of the statutes probably stands not so much in their specific provisions and exclusions
but in their symbolism. He observed that an abuse of economic power by large firms or
the excessive use of legally permissible avoidance techniques (like financing and con-
tracting for activities otherwise forbidden or by setting up noncorporate organizations
not subject to the statutes) could incite the same political forces that enacted the
statutes. He suggested that another round of "tighter and more restrictive" statutes
may, however, give at least temporary protection to the independent family farm.

Accord with Other Statutes

The effectiveness of the statutes may be affected by the other State and Federal
regulations and programs that can help or hinder the States from accomplishing their
objectives. The Farmers Home Administration, for example, lends to smaller farmers
for farm real estate, farm operations, and rural housing, as well as for disaster re-
lief. With its emphasis on the small farmer, Farmers Home indirectly supports the in-
tent of the statutes. Similarly, regulations of Packers and Stockyards, Agricultural
Marketing Service, are aimed at restricting integration of custom feedlots and meat-
processing operations. In those cases where the regulation applies, it may encourage
independent feeders and discourage large integrated operations. The Farm Credit Ad-
ministration, on the other hand, although providing loans to family farmers, may some-
times work against the full intent of the State statutes. Because of the nature of the
regulations of the Farm Credit Administration and the intermediaries involved in the
lending process, Farm Credit banks sometimes lend to corporate farms and nonfarm in-
vestors. Similarly, State and Federal banking regulations may have a mixed impact on
the statutes; banking regulations, particularly loan and size limits and interest rate
usury laws, may affect the formation and operation of corporations. State usury laws,
for example, often apply only to individuals and not to corporations, the intent being
to protect the individual from high rates of interest. In times of tight money, how-
ever, lenders will be reluctant to finance individual loans at the low interest rate
when they can receive a larger return by lending to corporations.

Federal Reserve Board policy on the availability and cost of credit affects banks
in both rural and urban areas and can thereby affect farms as well. For example, a
lack of funds at competitive rates in rural areas could favor large firms that can
arrange for borrowing from urban centers. Federal income tax regulations and rulings
are thought to have attracted nonfarm investors to farming, especially those regula-
tions regarding cash accounting, current expensing of costs, loss carryback and








carryforward, capital gains, and combined farm and nonfarm income accounting. Recent
laws and rulings in the environmental and health and safety fields apparently differ in
their effects on farm firms and may encourage or deter outside investors. For in-
stance, the often high cost of meeting environmental standards may discourage both
small and large livestock producers from expanding or even staying in business.

Federal farm programs that directly or indirectly influence farm commodity prices
can encourage nonfarm investors to participate in farming. The Government's import and
export policies on food can make farm investments competitive with other alternatives.

In addition, there are many State and Federal research and education institutions
that are funded by the legislatures. These institutions, with private firms, have de-
veloped technology that is thought to provide incentives for farm enlargement and to
help nonfarm investors obtain competitive returns. This new technology is intended to
increase the farmers' efficiency. The cost of applying the technology, however, as in
the case of larger and more productive tractors and farm equipment, or with mechanizing
the production of broilers, often exceeds the small farmer's capability. The small
farmer then, compelled to use less efficient machinery, may be placed at a competitive
disadvantage.

Uncertainties

The family farm has generally been able to provide most types of food and fiber in
ample supply and at a reasonable price to the consumer. Certain types of farming and
integrated activities may, however, be beyond the scope of the ordinary farmer's mana-
gerial and financial ability. Consequently, some large farms, usually corporations,
have begun to produce agricultural commodities and to provide agricultural services.
In enacting legislation that restricts the activities of corporations, the States may
inadvertently create an atmosphere of general uncertainty in the business sector. Such
an atmosphere may affect the States' economies more than the actual laws themselves and
more than the States had anticipated. Besides circumscribing the area of permissible
corporate activities, such regulations may discourage those corporate activities that
are allowed or exempted and may discourage other corporations from moving to States
with such regulations.

Businesses need a relatively stable commercial environment in order to grow and
provide their services most effectively and efficiently. Regulatory statutes and the
litigation and uncertainty that often accompany them may reduce outside investment and
hinder the allocation and efficient use of business resources. Inevitably, such im-
pacts will also affect consumers. For the firm itself, restrictive statutes create un-
certainty about permitted future use of resources. Especially important is whether the
firms' current and contemplated investment in plants, equipment, and personnel will be
able to be used in the most profitable manner.

Corporations will probably avoid States with strong restrictions on corporations
and States where a new round of more restrictive statutes or unfavorable court rulings
is.highly probable. In abandoning such States, the corporations would be expected to
choose other States, or countries, for their farming activities. Even large family
farms that want to grow larger may leave a State or start new operations in another
State with laws more conducive to growth. Such corporations may have provided the
jobs, tax revenues, and private sector growth that the State wanted to encourage.

Nonauthorized corporations that are exempted by the laws may similarly choose to
go to another State or country without such restrictions. That would be expected es-
pecially when a firm believes that, by expansion or vertical integration, it will
achieve economies of size and increase efficiency and profits. In causing an exodus
of businesses, the State with the restrictive statutes loses investment money and man-
agerial and entrepreneurial ability that may be important.








Some agricultural development projects, like timber development and irrigation of
;large tracts to make an area suitable for farming, require large firms that are able to
accepthigh risks and endure possible negative cash flows and returns on investment for
several years. Other projects may require large firms to achieve the greatest effi-
ciency in use of developed resources over a period of years. For example, a watershed
can be farmed most efficiently in large tracts with continuous contouring. If the
watershed were divided into smaller tracts, each operated by different farmers using
different cultivating methods, the diversion of the runoff from its natural flow would
probably increase silting and erosion. If the void created by the loss of prohibited
firms is not filled by others, the State will lose jobs and gross income, and may handi-
cap development of its resources.

The efficiency of the farms and the food processors may also be reduced. Family
farms that cannot afford to use the larger, more efficient machines and equipment will
have to use smaller farm machines, which often require more labor. In addition, as in
the watershed example above, smaller farmers may not be well enough financed and cap-
able of developing soil and water resources to their maximum production potential with
available technology. Where vertical integration is prohibited, the processor may en-
counter inefficiencies in procuring supplies and in using processing machines, labor,
and storage facilities. The farmer may be required to add extra storage facilities to
hold storable commodities for better product prices. Extra transportation facilities
may be required to transport farm commodities from the farm to the public market and,
in turn, to the processor.

Since businesses require a stable climate in which to operate, the uncertainties
posed by the statutes might be mitigated somewhat by some of the following suggestions.
Restrictive legislation, if necessary, needs to be easily understood and enforced in a
uniform manner. Thus, restrictions are probably most effective when placed on specific
activities, like livestock feeding by meat processors or purchasing farmland by con-
glomerates not engaged in food and fiber production, rather than on more general and
open-ended farming activities. In addition, uncertainty could be reduced if time lim-
its were placed on statutes so that firms could be reasonably certain of being allowed
to amortize their investments. Business firms might receive assurance, in the absence
of court rulings, that the statutes would not be changed, for example, for a period of
3 or 5 years. Time limits would also be helpful in assuring that the statutes are re-
viewed periodically in the light of recent and prospective developments in the agricul-
tural sector.

Reporting Laws

Some States require that all farms located within the State file periodic reports
in which the farms disclose certain aspects of the farm's ownership, size, crops, etc.
Such reporting laws are a potential means of providing specific data to be used in
analyzing the effectiveness of restrictive statutes and the need for restrictive stat-
utes. Reporting laws may also be used to provide information for economic development
programs in a State. Reporting laws can provide periodic information on the number of
various types of businesses in farming, the changes that occurred from the previous
reporting period, and the relative importance of each type of farming organization in
controlling a State's farm resources and farm output. With such information, the
States can better determine if restrictions are required or if they should be modified.

Seven States currently have reporting requirements: Wisconsin, Minnesota, South
Dakota, Nebraska, Kansas, Missouri, and Iowa. The reporting requirements are so new
that they have not yet been appraised on the quality of the data, the rate of compli-
ance, or the use that the States make of the information. 6/ Cooperation between the

6/ The initial results from Iowa, Minnesota, and Nebraska have been studied. (2, 3,
4, 5)







Federal and State Governments could be especially helpful for the more complex analyses
since corporations with different resources, enterprises, and sizes will be reporting.
A regional profile can be formed by combining the basic reports of several States. A
cooperative analytical effort will help to fill the gaps in the data and to develop a
more comprehensive analysis. 7/

By collating the data from the State reports, the Federal Government could verify
compliance with provisions of the Interstate Commerce Act, antitrust regulations, and
foreign treaties. The States could use such collations to verify compliance with their
statutes. Lacking reports that cut across State lines, the States are not in a posi-
tion to enforce their laws where firms may be involved in prohibited activities in
other States. For instance, while a corporation's activities in Minnesota may be in
compliance with that State's laws, its activities elsewhere may put it in the category
of an unauthorized corporation in Minnesota. Without access to a collation of the re-
ports of all States, however, Minnesota, in the above example, would be unable to de-
termine the corporation's interstate status. 8/

The Federal Government could also use the State reports to verify compliance with
the less frequent national census of agriculture. The information and analysis from
the State reports can be used in designing census questionnaires so that emerging de-
velopments of regional or national importance are enumerated and analyzed. In addi-
tion, the analysts who work with the State data would represent a new source of
expertise on the effect and significance of corporate farming.

7/ The potential for cooperative efforts follows concepts advanced by Kenneth Farrell
in 1976 and R.J. Hildreth et al. in 1973. (6, 7)
8/ For a lucid treatment ot this problem, see ?teven Zumback and Neil Harl. (8)
While the article focuses on alien investors, the principles developed are similar for
domestic entities.







References


1. Morrison, Fred L. "State Corporate Farm Legislation." Toledo Law Review, No.
3 (1976).

2. Harl, Neil E., and Steven A. Halbrook. "Some Observations on Organization of
Farm Firms and Farm Land Ownership in Iowa." Presented at annual convention of Iowa
Farmers Union, Waterloo, Iowa, September 5, 1975.

3. Secretary of State, State of Iowa. "Analysis of Corporations, Limited Partner-
ships and Non-Resident Aliens Involved in Agricultural Activities in the State of
Iowa." Des Moines, Iowa. November 1976.

4. "Statistical Summary of Annual Agricultural Reports Filed with the Minnesota
Department of Agriculture." Dept. of Agr., State of Minnesota, August 1975.

5. Pribbeno, Jeffrey, Bruce Johnson, and Maurice Baker. "Farm Corporations in
Nebraska." Dept. of Agr. Econ., Agr. Exp. Sta., Lincoln: U. of Nebraska, July 1977.
Report No. 78.

6. Farrell, Kenneth R. "Public Policy, the Public Interest and Agricultural
Economics." American Journal of Agricultural Economics, 60, No. 5 (1976).

7. Hildreth, R.J., Kenneth R. Krause, and Paul E. Nelson, Jr. "Organization and
Control of the U.S. Food and Fiber Sector." American Journal of Agricultural Econom-
ics, December 1973.

8. Zumback, Steven E., and Neil E. Harl. "Anonymity and Disclosure in Ownership
Recording Systems." Report to the Congress, Foreign Direct Investment in the United
States, vol. 8, appendix L. U.S. Dept. Commerce, April 1976.







CORPORATE AND OTHER LARGE-SCALE FARMING


This section presents the available Federal data and assesses the relative impor-
tance of corporations in farm production. In addition, a short description of the
sources of Federal data is included. The Internal Revenue Service (IRS) has collected
data on farm corporations annually from 1957 through 1974. The 1969 Census of Agricul-
ture was the first time that the Bureau of the Census collected information on corpora-
tions involved in farming. In the following analysis, both IRS and census data are
used, including data from the 1974 Census of Agriculture, the most recent census con-
ducted.

Overview

Data for the 14-year period from 1957 to 1971 indicate that corporations have be-
come more important in farm product sales. The increase occurred during a period when
a declining proportion of farms were accounting for an increasing share of production.
Those farms that produced most of the food and fiber during this period turned increas-
ingly to the corporate form of business organization, but most such corporations had 10
or fewer shareholders, presumably family farms.

Census data show that there were about 11 times as many closely held corporations
as there were widely held ones in 1969; and closely held corporations had nearly five
times the sales of the widely held ones. By 1974, there were more than 13 times as
many closely held corporations as there were widely held ones; and sales of the closely
held corporations were about two and one-half the sales of the widely held.

The commodities in which large corporations specialize, like broilers, eggs,
fruits, nuts, and vegetables, are not generally important in the States where restric-
tions on corporate farming activity have been enacted.

Number and Significance of Corporate Farms

IRS data (table 1) show that the sole proprietorship was the dominant form of farm
business organization among firms filing tax returns between 1957 and 1974. There were
3.3 million in 1957 and about 3.2 million in 1974. Partnerships were the second most
numerous, but substantially fewer: 136,600 in 1957 and 109,600 in 1974. Partnerships,
however, were much more numerous than corporations. The number of incorporated farm
businesses filing income tax returns was 8,200 in 1957 and 37,300 in 1974.

During that period, the number of sole proprietorships declined by about 165,000,
partnerships by about 27,000, and corporations increased by about 29,000. In relation
to all farm business organizations filing returns, the percentage of each changed by
less.than 1 percent over the 14-year period. The growth in corporations occurred
mainly among corporations with 10 or fewer shareholders, most of which are probably
privately held corporations. That growth reflects the trend of family farms to incor-
porate both for tax purposes and for the limited liability provisions of corporate law.

The business receipts of farm corporations increased substantially from 6.8 per-
cent in 1957 to 20.6 percent in 1974. During the same period, the share of the sole
proprietorships decreased by 13.4 percentage points, while the share of partnerships
showed the least change, down about 0.4 point.

Some corporations have few shareholders and manage their business affairs, in-
cluding financing and income tax filing, like partnerships. The shareholders are







CORPORATE AND OTHER LARGE-SCALE FARMING


This section presents the available Federal data and assesses the relative impor-
tance of corporations in farm production. In addition, a short description of the
sources of Federal data is included. The Internal Revenue Service (IRS) has collected
data on farm corporations annually from 1957 through 1974. The 1969 Census of Agricul-
ture was the first time that the Bureau of the Census collected information on corpora-
tions involved in farming. In the following analysis, both IRS and census data are
used, including data from the 1974 Census of Agriculture, the most recent census con-
ducted.

Overview

Data for the 14-year period from 1957 to 1971 indicate that corporations have be-
come more important in farm product sales. The increase occurred during a period when
a declining proportion of farms were accounting for an increasing share of production.
Those farms that produced most of the food and fiber during this period turned increas-
ingly to the corporate form of business organization, but most such corporations had 10
or fewer shareholders, presumably family farms.

Census data show that there were about 11 times as many closely held corporations
as there were widely held ones in 1969; and closely held corporations had nearly five
times the sales of the widely held ones. By 1974, there were more than 13 times as
many closely held corporations as there were widely held ones; and sales of the closely
held corporations were about two and one-half the sales of the widely held.

The commodities in which large corporations specialize, like broilers, eggs,
fruits, nuts, and vegetables, are not generally important in the States where restric-
tions on corporate farming activity have been enacted.

Number and Significance of Corporate Farms

IRS data (table 1) show that the sole proprietorship was the dominant form of farm
business organization among firms filing tax returns between 1957 and 1974. There were
3.3 million in 1957 and about 3.2 million in 1974. Partnerships were the second most
numerous, but substantially fewer: 136,600 in 1957 and 109,600 in 1974. Partnerships,
however, were much more numerous than corporations. The number of incorporated farm
businesses filing income tax returns was 8,200 in 1957 and 37,300 in 1974.

During that period, the number of sole proprietorships declined by about 165,000,
partnerships by about 27,000, and corporations increased by about 29,000. In relation
to all farm business organizations filing returns, the percentage of each changed by
less.than 1 percent over the 14-year period. The growth in corporations occurred
mainly among corporations with 10 or fewer shareholders, most of which are probably
privately held corporations. That growth reflects the trend of family farms to incor-
porate both for tax purposes and for the limited liability provisions of corporate law.

The business receipts of farm corporations increased substantially from 6.8 per-
cent in 1957 to 20.6 percent in 1974. During the same period, the share of the sole
proprietorships decreased by 13.4 percentage points, while the share of partnerships
showed the least change, down about 0.4 point.

Some corporations have few shareholders and manage their business affairs, in-
cluding financing and income tax filing, like partnerships. The shareholders are







CORPORATE AND OTHER LARGE-SCALE FARMING


This section presents the available Federal data and assesses the relative impor-
tance of corporations in farm production. In addition, a short description of the
sources of Federal data is included. The Internal Revenue Service (IRS) has collected
data on farm corporations annually from 1957 through 1974. The 1969 Census of Agricul-
ture was the first time that the Bureau of the Census collected information on corpora-
tions involved in farming. In the following analysis, both IRS and census data are
used, including data from the 1974 Census of Agriculture, the most recent census con-
ducted.

Overview

Data for the 14-year period from 1957 to 1971 indicate that corporations have be-
come more important in farm product sales. The increase occurred during a period when
a declining proportion of farms were accounting for an increasing share of production.
Those farms that produced most of the food and fiber during this period turned increas-
ingly to the corporate form of business organization, but most such corporations had 10
or fewer shareholders, presumably family farms.

Census data show that there were about 11 times as many closely held corporations
as there were widely held ones in 1969; and closely held corporations had nearly five
times the sales of the widely held ones. By 1974, there were more than 13 times as
many closely held corporations as there were widely held ones; and sales of the closely
held corporations were about two and one-half the sales of the widely held.

The commodities in which large corporations specialize, like broilers, eggs,
fruits, nuts, and vegetables, are not generally important in the States where restric-
tions on corporate farming activity have been enacted.

Number and Significance of Corporate Farms

IRS data (table 1) show that the sole proprietorship was the dominant form of farm
business organization among firms filing tax returns between 1957 and 1974. There were
3.3 million in 1957 and about 3.2 million in 1974. Partnerships were the second most
numerous, but substantially fewer: 136,600 in 1957 and 109,600 in 1974. Partnerships,
however, were much more numerous than corporations. The number of incorporated farm
businesses filing income tax returns was 8,200 in 1957 and 37,300 in 1974.

During that period, the number of sole proprietorships declined by about 165,000,
partnerships by about 27,000, and corporations increased by about 29,000. In relation
to all farm business organizations filing returns, the percentage of each changed by
less.than 1 percent over the 14-year period. The growth in corporations occurred
mainly among corporations with 10 or fewer shareholders, most of which are probably
privately held corporations. That growth reflects the trend of family farms to incor-
porate both for tax purposes and for the limited liability provisions of corporate law.

The business receipts of farm corporations increased substantially from 6.8 per-
cent in 1957 to 20.6 percent in 1974. During the same period, the share of the sole
proprietorships decreased by 13.4 percentage points, while the share of partnerships
showed the least change, down about 0.4 point.

Some corporations have few shareholders and manage their business affairs, in-
cluding financing and income tax filing, like partnerships. The shareholders are







Table 1--Tax returns and business receipts by form of organization, 1957-74

Tax returns Business receipts
Year : Sole :Sole
proprie- :Partner- :Corpora- : Total :proprie- : Partner- Corpora- : Total
: tnrhip : ships : tions 1/ : torships : ships tions/ :/

----------------- Thousands ------------------- ------------- Billion dollars --------------

1957 : 3,343.2 136.6 8.2 2/ 3,488.0 22.4 3.4 1.9 3/ 27.7
1960 :3,358.6 126.9 11.8 3,496.6 25.5 3.6 2.8 -31.9
1965 : 3,063.6 116.3 18.5 3,198.4 29.9 4.1 4.4 38.4
1969 : 3,089.2 108.8 20.5 3,218.8 37.6 5.5 7.8 50.9
1970 : 2,905.9 111.3 24.1 3,041.2 39.1 6.8 9.0 54.9
1971 : 2,941.4 109.3 25.4 3,076.1 40.9 6.5 8.4 55.8
1972 : 3,007.2 102.3 27.5 3,137.0 48.6 8.1 9.5 66.2
1973 : 3,203.0 111.4 34.5 3,408.0 62.6 11.5 17.9 92.0
1974 : 3,178.2 109.6 37.3 3,325.1 63.4 11.2 19.4 94.0

Percent

1957 : 95.9 3.9 .2 100.0 80.9 12.3 6.8 100.0
1960 : 96.0 3.6 .4 100.0 79.9 11.3 8.8 100.0
1965 : 95.8 3.6 .6 100.0 77.9 10.7 11.4 100.0
1969 : 96.0 3.4 .6 100.0 73.9 10.8 15.3 100.0
1970 : 95.6 3.6 .8 100.0 71.5 12.3 16.4 100.0
1971 : 95.7 3.5 .8 100.0 73.3 11.6 15.1 100.0
1972 : 95.8 3.3 .9 100.0 73.5 12.2 14.3 100.0
1973 : 95.7 3.3 1.0 100.0 68.4 12.2 19.4 100.0
1974 : 95.6 3.3 1.1 100.0 67.5 11.9 20.6 100.0


1/ Corporations were classified and included as farm corporations when the major portion of all business receipts
were from farming.
2/ Farms estimated at 69 percent of agricultural, forestry, and fisheries corporations.
3/ Farm business receipts estimated at 67 percent of agricultural, forestry, and fisheries corporations.

Source: Statistics of Income: Business Tax Returns, Internal Revenue Serv., U.S. Dept. Treasury.








Table 2--Tax returns, total assets, and business receipts, by type
of farm corporation, 1963-71 /1


Subchapter S Other corporations

Year R Total Business Total Business
: Returns : Returns
assets 2/ receipts assets receipts


S Number --Million dollars-- Number --Million dollars--

1963 : 3,725 704 NA 12,501 3,810 NA
1964 : 4,444 830 NA 13,133 4,094 NA
1965 : 4,862 929 NA 13,663 4,492 NA
1966 : 5,409 1,180 766 13,520 4,748 4,104
1967 : 6,424 1,369 1,044 15,335 5,049 4,238
1968 : 6,164 1,521 769 13,811 4,815 4,408
1969 : 6,503 NA 887 13,963 NA 6,863
1970 : 8,667 NA 1,184 15,439 NA 7,811
1971 : 8,719 NA 1,409 16,682 NA 7,014


NA = Not available.,
1/ Corporations were classified and included
tion of all business receipts was from farming.


as farm corporations when the major por-


2/ Estimated by multiplying the average assets for each class interval
of subchapter S corporations.


times number


Sources: Statistics of Income: Business Tax Returns, various issues, and unpublished
IRS Source Book of Statistics, Corporation Income Tax Returns. Data not available
since 1971.



often members of the same family. Many of the closely held corporations file Federal
income tax returns under subchapter S corporation provisions. 9/

Closely held subchapterr S) corporations, where the majority of the sales were
from farming activities, were in the minority in 1963, 3,700 returns versus 12,500 for
other corporations (table 2). The subchapter S corporations were still in the minority
in 1971 with 8,700 returns versus 16,700 for other corporations. The data indicate,
however, that farming corporations filing as closely held corporations increased at a
more rapid rate than those filing under general corporation provisions. 10/ But the
proportion of business receipts received by subchapter S corporations was about the
same in 1971 as it was in 1966. Subchapter S corporations had about 16 percent of the
receipts in 1966 and about 17 percent in 1971.

The census of agriculture is based on different concepts than the IRS reports.
Despite that, the 1969 Census and IRS numbers were similar: 21,513 census farm corpor-

9/ Under subchapter S provisions, corporations with 10 or fewer shareholders (15 un-
der the 1976 Tax Reform Act) are treated as partnerships for Federal income tax pur-
poses if the income is passed directly to the owners who pay the income taxes; no
corporate income tax is paid.
10/ The effect of the unified gift and estate tax provisions of the 1976 Tax Reform
Act on future formation of closely held corporations cannot yet be determined. How-
ever, former incentives to incorporate for the purpose of minimizing gift and estate
taxes have been decreased.








nations and 20,466'IRS 'farm corporations. The census showed that about 14 percent of
farm sales were made by corporations with sales of $2,500 or more in 1969 while IRS
showed about 15.3 percent. The 1974 census recorded 27,637 farm corporations while IRS
recorded about 37,300. The census reported that, in 1974, about 17.7 percent of farm
sales were made by corporations with farm sales of $2,500 or more; IRS reported about
20.4 percent. Caution is necessary in comparing sales data since the census reports
all corporations with farm sales, while IRS reports as farms only those corporations
with the majority of business receipts from farming.

The census reports data for corporations with 10 or fewer shareholders and with
more than 10 shareholders. The 1969 census reported 19,716 corporations with 10 or
fewer shareholders, substantially more than IRS's 6,503 subchapter S corporations;
other IRS farm corporations (13,963) were substantially greater than the 1,797 corpora-
tions with more than 10 shareholders reported by the census. Such comparisons for 1974
were not possible since IRS had not yet made available its 1974 data. The difference
probably results from many corporations with 10 or fewer shareholders electing not to
file tax returns under subchapter S. For example, a 1968 study of California corpora-
tions showed that only 23 percent of corporations with 10 or fewer shareholders filed
under subchapter S. (1)

In 1974, in the 10 States with statutes, there were 7,407 corporations of which
6,938 were closely held (table 3). Texas was the only State with more than 100 widely
held farm corporations. The other 40 States had 20,230 farm corporations of which
18,739 were closely held. Among the 40 States without statutes, California and Florida
were the only ones with more than 100 widely held farm corporations.

The number of corporate farms, as recorded by the Bureau of the Census, increased
from 21,513 in 1969 to 27,637 in 1974 (table 3). The increase was 50.0 percent in
States with restrictive statutes, while the increase for the other 40 States was 16.9
percent. North Dakota was the only State among the 10 States with statutes that showed
a decrease in numbers while six of the States without statutes showed a decrease.

In 1974, as a percentage of farms with sales of $2,500 or more, widely held cor-
porations accounted for about 4.2 percent of sales in the 10 States with restrictions,
and about 6.1 percent of sales in the other 40 States (table 4). Corporations with 10
or fewer shareholders .accounted for about 9.6 percent of sales in the 10 States and for
about 14.4 percent in the remaining 40 States. States with the largest number of cor-
porations generally have the largest acreage held and sales by corporations. Corpora-
tions in Nebraska averaged more acreage than corporations in the other nine States with
statutes. In States with corporate farm laws, among farms with sales of $2,500 or
more, widely held corporations accounted for less than 3 percent of all State farm
sales except in Texas, Kansas, and Nebraska; Texas corporations exceeded 14 percent of
State farm sales. By contrast, widely held corporations exceeded 3 percent of all
State farm sales in 17 of the States without statutes.

While farm corporations held large amounts of acreage in some States without stat-
utes, the total acreage was less than 9 percent of all land held by farms with sales of
$2,500 or more (table 4). The largest concentration of corporate landholdings was in
Hawaii, where corporations held 56 percent of all land in farms. In the Corn Belt,
corporate farmland accounted for less than 3 percent of the land area in farms and
widely held corporations held only a small part of that.

Corporations and partnerships accounted for a larger proportion of farms as sales
increased (table 5). Sole proprietorships, however, accounted for 71.1 percent of the
farms with sales of $100,000 or more. Most of the corporations (55.5 percent of the
closely held and 66.4 percent of the widely held) had sales of $100,000 and over where-
as 55.2 percent of the sole proprietorships had sales of less than $20,000 (table 6).









Table 3--Corporations by States with or without corporate farming laws,
ranked by number reporting with more than 10 shareholders, 1974

More than 10 shareholders 10 or fewer shareholders All
S : Percent : : : Percent : : Percent-
States
hange, : : change, : age
Number Acres Sales can Number Acres Sales : Number ge
: number number : change,
: : : 1969-74 : : : : 1969-74 : : 1969-74

No. Thou. Mil. dol. Pet. No. Thou. Mil. dol. Pet. No. Pet.

States with corpor-
ate farming laws:
Texas : 164 3,144 826.2 21.5 1,228 5,668 881.0 16.0 1,392 16.6
Wisconsin : 69 117 62.6 11.2 786 532 140.5 55.0 855 50.3
Iowa : 47 62 49.0 -30.8 1,012 657 245.4 65.1 1.059 70.5
Minnesota : 46 56 31.5 -6.1 675 550 206.9 64.2' 721 56.7
Nebraska : 40 490 132.7 -4.7 1,116 3,924 562.0 80.8 1,156 75.4
Kansas : 33 82 148.7 -19.5 629 1,396 611.0 119.1 662 101.8
Missouri : 33 43 26.6 3.1 717 689 113.9 39.4 750 37.4
Oklahoma : 19 68 39.7 5.5 287 710 204.5 55.9 306 51.5
South Dakota : 14 44 21.5 0.0 426 2,219 113.2 71.7 440 67.9
North Dakota : 4 10 3.4 -50.0 62 129 12.2 -30.3 66 -32.9

10-State total : 469 4,116 1,341.9 0.0 6,938 16,474 3,090.6 55.2 7,407 50.0

States without cor-
porate farming laws:
California : 303 1,463 721.1 39.6 2,228 3,990 1,904.2 29.7 2,531 30.8
Florida : 173 .1,605 331.8 33.0 1,831 2,479 654.7 18.9 2,004 20.0
Louisiana : 64 309 67.8 -32.6 376 550 110.2 0.8 440 -5.9
Arizona : 63 2,324 156.2 61.5 364 3,350 461.4 7.6 427 13.2
Hawaii 55 873 494.8 37.5 117 296 41.0 30.0 172 32.3
North Carolina : 54 74 44.0 -22.8 525 327 134.4 -45.3 579 -43.8
Illinois : 52 101 41.1 -17.4 476 311 128.1 -11.0 528 -11.7
Ohio : 52 21 29.4 0.0 679 266 139.6 31.3 731 28.4
Colorado : 48 611 344.0 20.0 845 4,197 466.0 55.5 893 46.6
Washington : 48 124 102.0 26.3 898 1,738 326.3 79.6 946 75.8
Arkansas : 44 63 65.3 21.4 564 857 162.3 37.5 608 30.4
Georgia : 41 57 48.5 17.1 406 606 121.1 -10.1 447 -8.2
Oregon : 38 553 45.2 123.5 574 2,389 189.4 40.3 612 43.6
Pennsylvania : 35 36 51.0 12.9 509 180 137.6 42.1 544 39.8
New York 34 22 30.2 78.9 874 353 175.3 68.4 908 68.7
New Mexico : 32 2,094 60.5 33.3 290 5,861 130.9 41.4 322 40.6
Indiana : 32 29 21.1 17.9 784 429 176.9 43.8 816 39.7
Mississippi : 31 86 52.7 29.1 460 828 120.8 16.1 491 16.9
Virginia : 28 61 14.7 -20.0 382 302 97.7 -8.3 410 -9.2
Montana : 25 491 23.5 4.1 1,184 11,551 188.2 64.9 1,209 62.9
Idaho : 23 84 19.8 43.7 664 2,079 261.0 32.5 687 32.8
Massachusetts : 22 15 19.6 37.5 272 57 51.0 51.1 294 50.0
Alabama : 22 39 26.2 -4.3 220 251 72.1 -4.7 242 -4.7
Wyoming : 20 969 4.4 11.1 528 8,882 77.3 29.7 548 28.9
Connecticut : 19 13 28.3 52.6 154 30 28.7 40.0 173 45.3
Maryland : 18 18 13.4 5.8 263 146 67.9 39.1 281 36.4
Utah : 17 116 8.7 -5.5 293 1,739 53.7 72.3 310 64.8
Michigan : 15 21 8.2 -44.4 387 204 98.3 54.8 402 45.1
Tennessee : 13 31 8.6 -27.7 169 94 24.8 -34.4 182 34.0
South Carolina : 12 26 8.1 -25.0 220 232 46.7 -35.6 232 35.1
Nevada : 12 919 5.9 100.0 114 2,502 44.8 25.2 126 29.8
New Jersey : 11 8 5.5 10.0 336 97 68.3 39.4 347 38.2
Kentucky : 10 15 2.9 -60.0 302 166 42.1 -16.5 312 -19.3
West Virginia : 6 2 2.6 0.0 66 48 9.2 4.7 72 4.3
Maine : 6 21 14.9 50.0 140 111 41.5 19.6 146 20.6
Vermont : 5 2 1.0 150.0 71 39 11.5 57.7 76 61.7
Delaware : 4 3 6.6 0.0 77 75 45.8 54.0 81 50.0
New Hampshire : 2 1 6.2 0.0 56 19 12.8 30.2 58 28.8
Alaska : 1 1 1/ 0.0 10 408 1.5 42.8 11 22.2
Rhode Island : 2/ / -50.0 31 5 7.2 40.9 32 39.1
0.0
40-State total : 1,491 13,301 2,932.8 12.2 18,739 58,046 6,932.3 22.9 20,230 16.9

U.S. total : 1,960 17,417 4,274.7 9.0 25,677 74,520 10,022.9 30.2 27,637 28.4

1/ Less than $500. 2/ Less than 500 acres.

Sources: 1969 Census of Agriculture, vol. 2, ch. 3, and 1974 Census of Agriculture, vol. 4, part 5.









Table 4--Corporations as a percentage of all farms with sales of $2,500
or more by States with or without corporate farming laws, 1974


More than 10 shareholders 10 or fewer shareholders Sal
: :Sales
States 1/ : : : : : : of all
SNumber : Acres : Sales : Number :Acres : Sales : corporations


Percent

States with corporate:
farming laws:
Texas .1 2.5 14.9 1.2 4.5 15.9 30.8
Wisconsin .1 .7 2.7 1.6 3.3 6.0 8.7
Iowa : .1 .2 .8 .9 2.0 2.2 4.6
Minnesota .1 .2 .9 .8 2.1 6.0 6.9
Nebraska .1 1.1 3.6 1.8 8.6 15.1 18.7
Kansas 1/ .2 4.1 .9 3.0 16.7 20.7
Missouri : 1 .2 1.2 .9 2.6 5.0 6.2
Oklahoma : / .2 2.5 .6 2.4 13.1 15.6
South Dakota : 1/ 1.1 1.3 1.1 5.5 6.8 8.1
North Dakota : / 1/ .2 .2 .3 .7 0.9

10-State total : 0. 1.0 4.2 1.0 3.8 9.6 10.2

States without cor-
porate farming laws::
California .6 4.6 9.8 4.4 12.4 25.9 35.7
Florida : .8 13.1 17.6 8.7 20.2 34.8 52.4
Louisiana .3 3.9 5.8 2.0 6.9 9.4 15.2
Arizona : 1.5 13.7 14.8 8.4 19.7 43.8 58.6
Hawaii 2.6 41.8 81.3 5.6 14.2 6.7 88.1
North Carolina .1 .8 2.1 .8 3.4 6.5 8.6
Illinois : .1 .4 .9 .5 1.1 2.8 3.6
Ohio : .1 .1 1.3 1.0 1.9 6.3 7.6
Colorado : .2 1.8 17.5 4.0 12.4 23.7 41.3
Washington : .2 .9 6.2 4.3 6.5 19.8 26.0
Arkansas : .1 .5 3.5 1.8 6.9 8.8 12.3
Georgia : .1 .5 2.6 1.1 5,0 6.6 9.2
Oregon : .2 3.3 4.5 3.4 14.2 18.7 23.2
Pennsylvania : .1 .5 3.5 1.4 2.6 9.3 12.8
New York .1 .3 2.1 2.7 4.3 12.1 14.2
New Mexico : .4 5.5 11.9 3.7 15.4 25.8 37.7
Indiana : 1/ .2 .8 1.1 2.7 6.8 7.7
Mississippi .1 .7 4.4 1.8 7.2 10.1 14.5
Virginia : .1 .8 1.6 1.0 3.8 10.5 12.1
Montana : .1 .9 2.3 5.9 20.4 18.3 20.6
Idaho : .1 .7 1.4 3.4 16.3 19.0 20.4
Massachusetts .7 3.0 11.1 8.5 11.5 28.8 39.9
Alabama : .1 .4 2.4 .8 2.7 6.6 9.0
Wyoming : .3 3.2 1.2 2.2 29.2 21.6 22.8
Connecticut .8 3.5 15.3 6.3 8.0 15.5 30.8
Maryland .2 .7 2.2 2.3 6.1 11.0 13.2
Utah : .2 1.3 2.6 6.8 19.9 16.4 19.0
Michigan : / .2 .6 .8 2.1 6.7 7.3
Tennessee : / .3 1.0 .3 .9 2.8 3.8
South Carolina : .1 .5 1.2 1.3 4.5 7.1 8.3
Nevada .7 9.9 4.5 7.0 27.0 34.2 38.7
New Jersey .2 .9 1.9 6.1 11.3 23.3 25.2
Kentucky : / .1 .2 .4 1.4 3.5 3.7
West Virginia : .1 .1 2.2 1.1 2.3 7.6 9.8
Maine : .1 1.6 4.2 3.1 8.6 11.6 15.8
Vermont : .1 1.0 .5 1.6 11.2 5.6 6.1
Delaware .1 .5 2.6 2.6 12.2 18.3 20.9
New Hampshire .1 .3 8.8 3.8 5.0 18.2 27.0
Alaska : .5 .1 2/ 5.0 26.3 23.1 23.1
Rhode Island : .2 2.2 / 7.4 11.2 32.8 32.8

40-State total : .2 2.8 6.1 1.9 6.4 14.4 18.3

U.S. total .1 1.9 5.3 1.5 8.2 12.4 17,7

1/ States are ranked according to ranking in table 4.
2/ Less than 0.05 percent.

Source: 1974 Census of Agriculture, Vol. 4, part 5.







Table 5--Percentage distribution of types of farm organization by farm sales, 1974

: Farm sales
: $2,500 :$20,000 :$40,000 : $100,000
Form of organization to : to : to : and :Total
: $19,999 :$39,999 :$99,999 : over

Percent

Sole proprietorship 93.5 90.3 86.6 71.1 89.5
Partnership 5.8 8.6 11.4 18.2 8.6
Corporation: .5 .9 1.8 10.4 1.7
10 or fewer share-
holders .5 .9 1.7 9.2 1.5
More than 10 share-
holders 0 0 .1 1.2 .2
Other .2 '.2 .2 .3 .2
All farms with sales
of $2,500 or more : 100.0 100.0 100.0 100.0 100.0


Source: 1974 Census of Agriculture (Bureau of the Census, U.S. Dept. of Commerce),
volume 1, part 51, table 31 and volume 5, tables 4 and 5.








Table 6--Percentage distribution of farm sales for each type of farm organization, 1974

: Farm sales
: $2,500 : $20,000 :$40,000 : $100,000
Form of organization : to : to : to : and : All
: $19,999 : $39,999 : $99,999 : over : classes

Percent

Sole proprietorship : 55.2 19.2 18.5 7.1 100.0
Partnership 36.1 19.1 25.6 19.2 100.0
Corporation: 15.6 9.7 19.6 55.1 100.0
10 or fewer share-
holders 13.6 10.1 20.8 55.5 100.0
More than 10 share-
holders 13.3 7.5 12.8 66.4 100.0
Other 47.4 19.1 19.5 14.0 100.0


Source: 1974 Census of Agriculture, volume 1, part 51, table
4 and 5.


31 and volume 5, tables







Corporate Commodity Specialization


Certain geographic regions have a high percentage of corporate sales (table 7).
The larger widely held corporations tend to be located in Hawaii, California, Texas,
Louisiana, and Florida. In Hawaii, a few large corporations produce high-value crops
like pineapple and sugarcane. In California, corporations are an important element in
producing fruits, vegetables, and poultry and in feeding cattle. In Texas, large
cattle-feeding corporations are important, while sugarcane production is a corporate
activity in Louisiana. Corporations produce a large portion of the sugarcane in
Florida.

The large corporations in the various States, although important, do not dominate
total farm sales in any State except Hawaii. For instance, in Louisiana, 24 large cor-
porations produced sugarcane and 6 produced rice, but all corporations produced less
than 16 percent of total farm sales. Arkansas, likewise, had a number of large corpor-
ations producing rice, soybeans, and broilers but corporations accounted for only about
12 percent of total farm sales. Widely held corporations accounted for less than 15
percent of the sales in each of the 10 States with restrictive statutes. In seven of
these States, widely held corporations accounted for less than 3 percent of sales.

Vertical Integration and Contracting

Some of the 10 States with statutes limit certain aspects of vertical integration
into farming and contract farming. The most general restriction forbids vertical inte-
gration within a firm between farm production and some combination of supplies, market-
ing, or processing.

Donn A. Reimund studied 410 multiestablishment firms (mostly vertically inte-
grated), each with sales of $1 million or more in 1969. (2) Farming was the major
business activity for more than a third of the firms. Most of the firms were organ-
ized as corporations. The 410 firms had aggregate sales of $59.1 billion, including
farm production of $3.3 billion. About $25 billion was from food and other product
sales, some $4 billion of which was the value of inputs of farm products from inte-
grated farming operations.

Farming activities of the vertically integrated firms were concentrated in crops
and livestock that favor large operations and allow control over product perishabil-
ity, uniformity, and timely availability. Beef cattle were produced by more than 25
percent of the firms and were the most common farming enterprise. That was followed,
in order of importance, by vegetables, fruits, and poultry other than broilers. Most
of the integration in livestock and poultry was by input firms, suggesting that an
important motivation for integration was to provide an outlet for manufactured feeds.
Vertical integration into crop and dairy farming was mostly by firms involved in pro-
cessing and distribution.

Ronald Mighell and William Hoofnagle provided estimates of vertical integration
and contracting for the major crops and livestock for 1960 and 1970. Corporations
apparently account for most of the vertical integration and contracting, both of which
increased slightly from 19 percent of farm output in 1960 to about 22 percent in 1970.
Contract production was, however, much more prevalent (17.2 percent) than vertical in-
tegration (4.8 percent--table 8). Updated estimates by commodity specialists showed
no major changes occurring between 1970 and 1977.

Contracting was substantially greater for livestock than for crops in both 1960
and 1970--31 percent versus 9.5 percent. The crops most heavily contracted were sugar-
beets, vegetables for processing, seed crops, citrus fruits, potatoes, and sugarcane,
ranging from nearly all of production of sugarbeets to 40 percent of output of







Table 7--Farm corporations with more than 10 shareholders
sales of $100,000 or more, 1969


and farm product


Farm type and
m r : Commodity : Corporations
major State or region


Number


Cash grain:
Arkansas
Louisiana
California
Other States
Total


Rice, soybeans
Rice, soybeans
Rice


Tobacco:
Massachusetts, Connecticut


Cigar tobacco


Cotton:
Delta States
California
Other States
Total


Other field crops:
Hawaii
Louisiana
Florida
Other States
Total

Vegetables:
Lake States, Illinois
California
Florida
Other States
Total

Fruits and nuts:
California
Florida
Northeast
Other States
Total

Poultry:
Lake States
Corn Belt
California
Arkansas
Other States
Total


: Cotton
: Cotton


Sugarcane, pineapple
Sugarcane
Sugarcane
Primarily potatoes in N.W.



Canning vegetables
Fresh and canning vegetables
Fresh and canning vegetables


:All kind
:Fresh and processed citrus
:Apples, blueberries


Turkeys, eggs
Eggs
All types
Broilers


S6
S6
: 7
: 19


S 22
S 24
S7
: 17
: 70


S 26
S 10
S9
: 21
S 66


S 59
S 49
S 15
: 16
S 139


S 18
S 18
S 16
S 14
: 59
: 125
Continued--


: 11


:21
:47







Table 7--Farm corporations with more than 10 shareholders and
sales of $100,000 or more, 1969--Continued


farm product


Farm type and Commodity : Corporations
major State or region


: Number


Dairy:
California
Other States
Total


Livestock, excluding dairy and
poultry:
Corn Belt
Northern Plains
Texas
California
Other States
Total


Livestock ranches:
Mountain States
Texas
Pacific
.Other States
Total


General:
California
Other States
Total

Miscellaneous:
Corn Belt
Pennsylvania
California
Other States
Total

All farm types


Fluid grade milk


Fed cattle; hogs
Fed cattle 1/
Fed cattle 1/
Fed cattle 1/


Cow-calf
Cow-calf
Cow-calf


Diverse commodities


Nursery
Nursery
Various


S7
: 19
: 26



S 28
S 18
S 18
S 13
: 64
141


: 25
1 01


S 14
: 18
: 32


operation 20
operation 9
horticultural products: 9
: 45
: 83

S 858


Includes some cow-calf operations.
Includes some fed cattle.


Source: 1969 Census of Agriculture, Vol. 1, except commodity specialty
column.







Table 8--Crops, livestock and livestock products, and total farm output as a
percentage of output under production contracts and vertical integration, 1960 and 1970
S Production Vertical
Products contracts 1/ integration 2/
: 1960 : 1970 : 1960 : 1970

Percent

Crops 3/ : 8.6 9.5 4.3 4.8
Feed grains .1 .1 .4 .5
Hay and forage .3 .3
Food grains : 1.0 2.0 .3 .5
Vegetables for fresh market 20.0 21.0 25.0 30.0
Vegetables for processing : 67.0 85.0 8.0 10.0
Dry beans and peas 35.0 1.0 1.0 1.0
Potatoes 40.0 45.0 30.0 25.0
Citrus fruits : 60.0 55.0 20.0 30.0
Other fruits and nuts : 20.0 20.0 15.0 20.0
Sugarbeets 98.0 98.0 2.0 2.0
Sugarcane : 40.0 40.0 60.0 60.0
Other sugar crops 5.0 5.0 2.0 2.0
Cotton 5.0 11.0 3.0 1.0
Tobacco 2.0 2.0 2.0 2.0
Oil-bearing crops 1.0 1.0 .4 .5
Seed crops 80.0 80.0 .3 .5
Miscellaneous crops 5.0 5.0 1.0 1.0

Livestock items 3/ 27.2 31.4 3.2 4.8
Fed cattle : 10.0 18.0 3.0 4.0
Sheep and lambs 2.0 7.0 2.0 3.0
Hogs : .7 1.0 .7 1.0
Fluid grade milk : 95.0 95.0 3.0 3.0
Manufacturing grade milk : 25.0 25.0 2.0 1.0
Eggs : 5.0 20.0 10.0 20.0
Broilers : 93.0 90.0 5.0 7.0
Turkeys 30.0 42.0 4.0 12.0
Miscellaneous 3.0 3.0 1.0 1.0

Total farm output 4/ : 15.1 17.2 3.9 4.8


1/ "Contract production" in farming involves the vertical coordination of
farm production under agreements between farmers and processors, dealers, or
others that usually deal directly with farmers.
2/ "Vertical integration" means the kind of vertical coordination that goes
on within one firm. The production stages that are all coordinated inside that
firm.
3/ The estimates for individual items are based on the informed judgments of
a number of production and marketing specialists in USDA. The totals were
obtained by weighting the individual items by the relative weights used in com-
puting the ESCS index of total farm output.
4/ Totals obtained by combining the total estimates for crops and livestock
after adjusting for double counting of farm-produced feed crops consumed by
livestock. As in the ESCS index of total farm output, crops represent about
two-thirds of the final weight and livestock estimates one-third.

Source: Ronald L. Mighell and William S. Hoofnagle, Contract Production &
Vertical Integration in Farming, 1960 and 1970. ERS-474, U.S. Dept. Agr., 1972.







sugarcane. For livestock, fluid-grade milk and broilers led by far. Contract produc-
tion accounted for over 90 percent in both 1960 and 1970.

Vertical integration was equally important for crops and livestock. Sugarcane,
vegetables for the fresh market, citrus fruits, and potatoes were the only products for
which integrated firms produced more than 25 percent of output. In livestock and poul-
try production, integrated turkey and egg producers accounted for more than 10 percent
of total volume in 1970. Less than 5 percent of the remainder of livestock and poultry
supplies were produced under integrated arrangements, except for broilers (7 percent).
Between 1960 and 1970 the volume of integrated turkey production tripled and that of
egg production doubled.

In conclusion, as with commodity specialization, vertical integration and con-
tracting tended to occur in commodities produced elsewhere than in the 10 States with
restrictive statutes, even before those statutes were enacted. There are exceptions
however. While many of the restricting States are important centers of cattle feeding
and hog production, the integrating and contracting activities in these enterprises
tended to occur in other States. In the 10 States, cattle and hogs are usually pro-
duced by family farm firms and sold in open markets. That arrangement is generally
true also of grain production which is also very important in most of the 10 States
with restrictive statutes.

Federal Data Sources

The data presented above summarize what is available on corporations and vertical
coordination from the census of agriculture and the IRS. Some additional information
on corporate, large, and vertically integrated farms in the United States (and to some
extent in individual States) is available from the following Federal sources. States
that want more detail could obtain it by enacting farm reporting laws.

1. The census of agriculture is taken every 5 years. Two years or more elapse be-
fore the data are available and another year before analytical reports are prepared and
released. To minimize costs, the census is conducted by mail survey. Starting with
the 1969 census, farming corporations were classified and enumerated. However, as
farming becomes more attractive as an investment to nonfarm operators, information
about people who receive income from farming is less complete than in former years.

Special surveys of corporations, partnerships, and contracting are in various
stages of completion. Their results should be available between 1979 and 1981. Such
surveys, however, are not a regular part of the census and therefore may not be re-
peated in the future.

2. The Internal Revenue Service obtains information about the characteristics of bus-
iness organizations in the course of processing each year's tax returns. However, in-
come tax forms are designed to collect revenue due under the Internal Revenue Code and
not to enumerate firms and provide data for studies of structure, organization, or re-
lated analytical purposes. As opposed to census data moreover, which are available on
a State basis and aggregated to a national level, IRS data are available only at the
national level. IRS data are developed from a small sample of Federal income tax re-
turns, and are not available until 3 years or more after filing. The data provide
little detail about the corporate and partnership forms of business organization. The
Commissioner of the Internal Revenue Service is not obligated to provide the informa-
tion. The most recent IRS data were for 1974 and there is no assurance that data for
succeeding years will be made available in the future.

IRS, as with Census, is prohibited by law from identifying individuals and firms
and disclosing individual data. Moreover, the data collected by these agencies gen-
erally are not sufficiently detailed to permit economies of size studies to be made.







3. The Securities and Exchange Commission requires publicly traded firms to file an-
nual reports, quarterly reports, and certain additional information. Privately held
businesses, however, no matter how large, are not required to file such reports.

4. Several private firms have developed manuals that provide additional material on
the firms. The reports, although useful in providing a supplement to other Federal
data, do not provide much detail about farm enterprises or integration.

References

1. Moore, Charles V., and J.H. Snyder. "Statistical Profile of California Corpor-
ation Farms." U. of California Ext. Serv., Giannini Foundation, Exp. Sta., Davis,
Cal., December 1960. Information Series 70-3.

2. Reimund, Donn A. "Farming and Agribusiness Activities of Large Multiunit
Firms." Econ. Res. Serv., U.S. Dept. Agr., March 1975. ERS-591.








STATE RESTRICTIONS ON CORPORATIONS


At the end of 1977, 10 States had statutes that restricted certain corporations
involved in farm real estate ownership, farm production, or vertical integration. In
addition, West Virginia requires corporations to obtain a certificate that authorizes
them to hold land in excess of 10,000 acres; West Virginia, however, is not treated as
a restrictive State in this report. This section describes the restrictions in each
State. The most encompassing statutes are presented first, followed by those with less
scope and inclusiveness.

In most of the 10 States, family farms may be incorporated. Certain other corpor-
ations are permitted to own farmland, to produce farm products, and to engage in verti-
cally integrated activities. In general, the major intent of the statutes is to
exclude large "outside" agribusiness firms and conglomerates from direct farm opera-
tions. Table 9 provides a broad and general summary of the restrictions in each
statute.

North Dakota

The North Dakota Corporate Farming Law (1) is probably the most restrictive State
legislation regulating corporate ownership and operation of farms. The law
rprgbanned; was enacted to protect individual farmers from corporate farm competition.
co-ops allowed. The legislators may also have been influenced by the many foreclosures on
farmland by corporate lenders and life insurance companies. (2) As inter-
preted by the State Supreme Court, the origin and purpose of the Corporate Farm-
ing Law were as follows:

It is a matter of common knowledge that North Dakota is an
agricultural state. Its principal industry is that of farm-
ing. It is also common knowledge that prior to the enactment
of the Corporate Farming Law there were corporations in
existence which were organized and operated for the purpose
of engaging in the business of farming and agriculture. These
corporations farmed huge tracts of land in this State in
competition with individual farmers. It must be presumed that
the people of the State, before enacting the Corporate Farming
Law by initiated measure in 1932, and the legislators, when
they amended the law in 1933, informed themselves and deter-
mined that to prohibit corporate farming as a business, except
for qualified co-operatives, was necessary to protect the
economy of the State and the welfare of its citizens (3)

The law prohibits all corporations, foreign and domestic, from engaging in
farming or agriculture. 11/ The single exception to this prohibition is for "co-
operative corporations, seventy-five percent of whose members or stockholders are
actual farmers residing on farms or depending principally on farming for their
livelihood." (4) However, a corporation may acquire, and farm for 10 years, rural
land that is suitable for farming. After 10 years, the land must be sold or
otherwise disposed of, except for such land "as is reasonably necessary in the
conduct of" the corporation's business. (5)

11/ N.D. Century Code 10-06-01 (1960). About 100 farm corporations were report-
ed in North Dakota in the 1969 Census of Agriculture. Although individual census
reports are not available for analysis, it appears that the 100 corporations oper-
ated under the exceptions and exemptions discussed here.








STATE RESTRICTIONS ON CORPORATIONS


At the end of 1977, 10 States had statutes that restricted certain corporations
involved in farm real estate ownership, farm production, or vertical integration. In
addition, West Virginia requires corporations to obtain a certificate that authorizes
them to hold land in excess of 10,000 acres; West Virginia, however, is not treated as
a restrictive State in this report. This section describes the restrictions in each
State. The most encompassing statutes are presented first, followed by those with less
scope and inclusiveness.

In most of the 10 States, family farms may be incorporated. Certain other corpor-
ations are permitted to own farmland, to produce farm products, and to engage in verti-
cally integrated activities. In general, the major intent of the statutes is to
exclude large "outside" agribusiness firms and conglomerates from direct farm opera-
tions. Table 9 provides a broad and general summary of the restrictions in each
statute.

North Dakota

The North Dakota Corporate Farming Law (1) is probably the most restrictive State
legislation regulating corporate ownership and operation of farms. The law
rprgbanned; was enacted to protect individual farmers from corporate farm competition.
co-ops allowed. The legislators may also have been influenced by the many foreclosures on
farmland by corporate lenders and life insurance companies. (2) As inter-
preted by the State Supreme Court, the origin and purpose of the Corporate Farm-
ing Law were as follows:

It is a matter of common knowledge that North Dakota is an
agricultural state. Its principal industry is that of farm-
ing. It is also common knowledge that prior to the enactment
of the Corporate Farming Law there were corporations in
existence which were organized and operated for the purpose
of engaging in the business of farming and agriculture. These
corporations farmed huge tracts of land in this State in
competition with individual farmers. It must be presumed that
the people of the State, before enacting the Corporate Farming
Law by initiated measure in 1932, and the legislators, when
they amended the law in 1933, informed themselves and deter-
mined that to prohibit corporate farming as a business, except
for qualified co-operatives, was necessary to protect the
economy of the State and the welfare of its citizens (3)

The law prohibits all corporations, foreign and domestic, from engaging in
farming or agriculture. 11/ The single exception to this prohibition is for "co-
operative corporations, seventy-five percent of whose members or stockholders are
actual farmers residing on farms or depending principally on farming for their
livelihood." (4) However, a corporation may acquire, and farm for 10 years, rural
land that is suitable for farming. After 10 years, the land must be sold or
otherwise disposed of, except for such land "as is reasonably necessary in the
conduct of" the corporation's business. (5)

11/ N.D. Century Code 10-06-01 (1960). About 100 farm corporations were report-
ed in North Dakota in the 1969 Census of Agriculture. Although individual census
reports are not available for analysis, it appears that the 100 corporations oper-
ated under the exceptions and exemptions discussed here.










Table 9--Laws on corporate landownership and/or farm operations, vertical integration, by State and year of adoption

: Permits certain types : c Permits certain nonfamily
:Permits :of vertical integration: Permits certain n y c e ld corporate farm operations
State family- Ownership Leasing in or out : In perpetuity
State and year : owned :_:_: Grand- :
law adopted : corpor- : Crops :Livestock randfatherIn per- Grandfather In per- father :Breeding : Cattle
nationss : clause : petuity : clause petuity : clause : farms/ : feedlots
Grnfte: In:::: seed


Iowa:
1975
Kansas:
1931
1973
Minnesota:
1973
1975
Missouri:
1975
Nebraska:
1975
North Dakota:
1932
1933 1/
S Oklahoma:
1971
Oregon:
1977
South Dakota:
1974
Texas:
1955
1961
West Virginia:
1939
Wisconsin:
1974

See footnotes


Yes


:3/ No


Yes

Yes

NA


No

Yes

NA

Yes


Yes

NA

Yes

at end of table.


Yes 6/ Yes


Yes Yes


Yes Yes 4/ NA


Yes In/out


NA NA


Some

Some

NA


No

Yes

NA

No


Yes Yes & No

NA NA

2/ Yes 2/ Yes


Yes Yes Yes


No Yes Yes


No

In/out

NA

In


In/out

NA


Yes Yes Out


Yes Yes 2/ Yes

Continued --









Table 9--Laws on corporate landownership and/or farm operations, vertical integration, by State and year of adoption--Continued

Permits Detailed : Number ot
: physical growth : annual : Prior :shareholders :
Certain : Maximum : reports : approval : permitted : Enforcement provisions
State : nonfamily : Family : acreage : required : required : in an : Suit by
and year : farm : farm : which can : of all : for new :"authorized" : : :private
law adopted : corporations : corporations : be held : corporations : corporations : corporation : Fine Forfeiture :citizens

Iowa:
1975 : No Yes NA Yes No 25 Yes No No
Kansas:
1931
1973 : Yes 3/ No 5,000 Yes No 10 No No No
Minnesota:
1973
1975 : Yes Yes NA Yes No 5 No Yes No
Missouri:
1975 : Yes Yes NA Yes No Unlimited No Yes No
Nebraska:
1975 : NA NA NA Yes NA NA NA NA NA
North Dakota:
1932
1933 : 5/ Yes No NA NA No NA No Yes No
Oklahoma:
1971 : Yes Yes NA No No Unlimited No Yes Yes
Oregon:
1977 : NA NA NA Yes Yes NA NA NA NA
South Dakota:
1974 : Yes Yes NA Yes Yes 10 No Yes No
Texas:
1955
1961 : Yes Yes NA No No Unlimited No Yes No
West Virginia:
1939 : NA NA NA NA 7/ (Yes, if NA NA NA NA
acreage ex-
ceeds 10,000)
Wisconsin:
1974 : Yes Yes NA Yes No 15 Yes Yes No


NA = Not applicable.
1/ Subsequent efforts to repeal the law in 1968 and 1974 were rejected in referenda in North Dakota.
2/ Assuming feedlots do not make use of land "cultivated for the production of agricultural crops." Integration is permissible to the
extent that a corporation's farming comes within Wise. Stat. Ann. 182.001(2)(f), or involves products not specifically excluded by 182.001.
3/ There is an exemption for corporations with 10 or fewer shareholders all of whom are natural persons, but who need not be related.
4/ The Kansas statute regulates corporate farming only, not corporate ownership of farmland.
5/ The single exception to the North Dakota law permits cooperative corporations, 75% of whose members are residing on farms or
dependent primarily on farming for their livelihood. Feedlots and slaughtering and processing plants may be jointly owned; but these
activities may not be combined with raising cattle on the open range.
6/ Processor ownership of feedlots is permitted.
7/ Certificate required if acreage exceeds 10,000 acres.








Thus, a limitation on corporate ownership of rural real estate is imposed in
addition to the prohibition against corporate farming. None of the above provi-
sions prohibits a corporation from acquiring title to farmland. (6) However,
title to land held in violation of these provisions escheats to the State, if a
successful action is brought by the State's Attorney of the county where the land
is situated. (7)

The 10-year grace period afforded by the law and the exemption afforded to
agricultural land "reasonably necessary" in the conduct of a corporation's busi-
ness have been the subject of litigation. In order for a corporation to take ad-
vantage of the 10-year holding period, the corporation must conduct a business
that is authorized by law. A corporation organized expressly to engage in farming
does not qualify for the 10-year exemption. Nor may an agricultural corporation
circumvent the general prohibition by asserting that its land is necessary for the
conduct of its business. The "reasonably necessary" clause applies only to land
held for nonagricultural business of a corporation. (8)

A North Dakota corporation cannot be chartered to conduct farming; and a
foreign corporation, though chartered as a general business corporation in its
State of incorporation, cannot engage in agriculture in North Dakota. (9) Fur-
thermore, the State Supreme Court has indicated that it will interpret the
"reasonably necessary" exemption narrowly, so that ownership of rural real estate
must be necessary to the conduct of the business for which the corporation was
chartered. (10) One permissible use envisioned by the court would be retention of
land for a future plant site. (11)

Apart from such clearly nonagricultural uses, however, the Corporate Farming
Law imposes a formidable barrier to corporate ownership and operation of farms and
farmland in North Dakota. The U.S. Supreme Court rejected challenges to the law
under equal protection and due process and the State Supreme Court has held that
the law does not violate the North Dakota constitutional provision against special
legislation. (12)

The law is not riddled with the exceptions that characterize related statutes
in other States. While the 10-year grace period and "reasonably necessary" exemp-.
tions have created some confusion and possible loopholes, (13) it would otherwise
appear that only farmer cooperative corporations defined in the act may engage in
farming as corporate organizations.

Minnesota, Missouri, South Dakota, and Wisconsin

Since 1973, Minnesota, Missouri, South Dakota, and Wisconsin (14) have en-
acted statutes restricting corporate ownership and operation of farms. The pur-
pose of the South Dakota law, as well as that of the statutes in the other three
States, is similar to that of North Dakota's Corporate Farming Law. The first
section of the South Dakota statute states ". the Legislature recognizes that
the existence of the family farm is threatened by conglomerates in farming." (15)
The statutes are thus intended to protect the traditional family farmer from cor-
porate competitors, or more specifically, conglomerate organizations. Because
the provisions of these statutes are similar, they are discussed together. How-
ever, some significant differences among related provisions in the statutes are
pointed out; these differences may have substantial effects on the operative
scope of the otherwise analogous statutes.







Like North Dakota, the four States restrict both corporate farming activities and
corporate acquisition of interests in agricultural land. (16) The
(Coporate production Minnesota, Missouri, and South Dakota statutes restrict corporate
and land acquisition
restricted. production of "agricultural crops," livestock and livestock pro-
ducts, poultry and poultry products, milk and dairy products, and
fruit and other horticultural products. Forest products are not restricted under
the acts; nor are spraying, harvesting, and similar services provided under con-
tract by processors or distributors of farm products or supplies. (17)

The Wisconsin statute (18) specifically prohibits corporate production of
dairy products (not including processing such dairy products), cattle, hogs,
sheep, wheat, field corn, barley, oats, rye, hay, pasture, soybeans, millet, and
sorghum. While Wisconsin prohibits corporate ownership (presumably in fee simple)
12/ of land on which to carry on the specifically prohibited farming activities,
the other three statutes prohibit ownership or acquisition of any interest in ag-
ricultural land, whether legal, beneficial, or otherwise. (19)

While the prohibitory provisions of the statutes are fairly simple and closely
analogous, the exemptions contained in the statutes are numerous
existing corporations and, though in large measure identical, are to some extend highly
exempted, mayexpand. individualized. Unlike North Dakota, the other States exempt land
owned by corporations up to the effective date of the act. (20) In addition, the
Minnesota, Missouri, and South Dakota statutes exempt land leased by corporations
prior to the effective dates of the statutes. (21)

All the statutes permit "normal expansion" of farm acreage held by corpora-
tions as of the effective date of enactment, at a rate not to exceed 20 percent of
such acreage during any 5-year period, plus any additional acreage necessary to
meet requirements of pollution control regulations. (22) Thus, quite unlike the
North Dakota statute, which requires farm corporations to divest all agricultural
real estate interest within 10 years of the act's passage, these statutes protect
the holdings of existing farm corporations and permit their expansion. Such pro-
visions may enhance any present competitive advantage of existing corporations
over the individual farmer, since corporate competitors cannot now enter the mar-
ket. To that extent, the purpose of the statutes may be undercut by the exemp-
tion.

The statutes also exempt agricultural land held by corporations for nonfarm pur-
poses. The Minnesota, Missouri, and South Dakota statutes limit such
Corporate land holdings to such acreage as may be necessary in the operation of nonfarm
fornonfarm
purposes business. Pending nonfarm use of the land by the corporation, the land
purposes.
may be leased for agricultural purposes to individuals, family farms,
and authorized corporations. (23) The Wisconsin statute permits unlimited corpor-
ate ownership of agricultural land for nonagricultural purposes, and allows cor-
porations to lease such land to individuals, exempted corporations, and other
types of business entities for farming. (24)

Minnesota, Missouri, and South Dakota also exempt the family farm corporation.
The statutory definitions of the family farm vary, however. The Minnesota
Fa,,ilyfarmn statute defines the family farm corporation as the one that is founded for
corporations. the purpose of farming and owning agricultural land, with the majority of
stockholders being persons related within the third degree of kinship. The same
persons must also own the majority of voting stock, and one of them must reside on
or actively operate the farm. No stockholders may be corporations. (25)

12/ Totality or complete ownership rights are recognized by law. Under fee sim-
ple ownership an individual can own property for an indefinite period and has
complete ability to dispose of it during a lifetime or by will at death.







The Missouri and South Dakota statutes are similar, except that they do not
specify that one of the family members must reside on or actively operate the
farm; any stockholder may fulfill this requirement. (26) Thus, a family farm in
these States might actually have no resident or active family members.

In addition to family farms, Minnesota, Missouri, and South Dakota also exempt
"authorized farm corporations." The Minnesota exemption applies to cor-
Exempted portions with five or fewer stockholders, all of whom are natural persons
corporations. or estates and hold the same class of stock, and a majority of whom reside
on the farm or actively engage in farming. The corporation's passive income
(rent, royalties, dividends, interest, and annuities) must not exceed 20 percent
of its gross receipts. (27)

The South Dakota provision is similar to Minnesota's, except that 10 stock-
holders are permitted, none of whom is required to reside on the farm or engage in
farming. (28) This would permit 10 unrelated nonfarmers to own a corporate farm
business, in conjunction with nonfarm businesses, which could include food proces-
sing and marketing operations. The analogous Missouri provision contains no pas-
sive income provision, but requires that two-thirds of the exempted corporation's
income be derived from farming. In Missouri, the only other criterion for the
exemption is that all shareholders be natural persons, estates, or trusts (29);
the number of shareholders is not limited.

The exemptions for authorized farm corporations in Missouri and South Dakota
afford substantial leeway for fairly large and, to some extent, integrated corpor-
ations to engage in farming operations.

The Wisconsin statute contains an exemption that is a hybrid of the family
farm and authorized farm exemptions discussed above. Any corporation with no more
than two classes of stock and with 15 or fewer stockholders who are all natural
persons or estates is exempted. (30) Lineal ancestors and descendants, aunts,
uncles, and first cousins may be grouped as one stockholder; but only one such
grouping is allowed in a single corporation. Thus all 15 stockholders in an
exempted corporation could be unrelated, and one stockholder could actually be
many people. Furthermore, this statute does not require that any stockholder re-
side on the farm or actively engage in its operation. Thus an exempted corpora-
tion could consist of a fairly large number of nonfarmers who presumably could
amass a sufficiently large amount of capital to operate a farm of substantial
size.

While the original proposed family farm act in Wisconsin was patterned close-
ly after that of North Dakota, (31) the present statute is much more permissive
than the North Dakota act, and would appear to be less intended to preserve the
traditional family farm than to limit the size of farm corporations by limiting
the number of stockholders. While the latter limitation may preclude huge con-
glomerates from engaging in agriculture, it would not seem to prevent the develop-
ment of farming corporations bearing little resemblance to the traditional family
farm.

The four statutes have several lesser exemptions in common, including: land
acquired by a corporation by process of law in the collection of debts, or
General held as security; farming operations and land owned by experimental and
exemptions, research farms, provided commercial sales are incidental to research or ex-
perimental work; farms engaged in raising breeding stock for resale to farmers,
or growing seed. (32) In addition, the Minnesota, Missouri, and South Dakota
statutes exempt gifts of agricultural land to nonprofit corporations. (33)







Some exemptions in the statutes appear to be fashioned to particular interests
within the State, and in some cases lessen the impact of the general prohib-
Exemption itory provisions of the statutes. For example, the South Dakota statute re-
differetces.
cites that it was enacted to combat the threat of "conglomerates in farming."
Nevertheless, this statute exempts "agricultural lands acquired by a corporation
solely for the purpose of feeding livestock." (34) This exemption, permitting
vertical integration in the livestock industry, could freeze out the family farmer,
who may be unable to compete with large corporations. (35)

Similarly, the Missouri statute exempts agricultural land producing crops
used exclusively for brewing, winemaking, or distilling. Such corporations thus
need not buy their farm products from the family farmer. The statute also exempts
the production of raw materials for manufacturing pharmaceuticals and processing
chemicals, food additives, and related products. Curiously, production of poultry
and poultry products, although included in the definition of farming in the Mis-
souri Act, is exempted from coverage in a later section of the act. (36)

The amended Minnesota statute, while containing fewer exemptions for particu-
lar products than the South Dakota and Missouri statutes, does exempt:

Agricultural land, either leased or owned, totaling no more than
2,700 acres, acquired after May 20, 1973 for the purpose of re-
placing or expanding asparagus-growing operations, provided that
such corporation had established 2,000 acres of asparagus produc-
tion. (37)

This exemption, limited to a particular product on a particular number of acres in
the original statute, with the limitation expanded in the amendment, was undoubt-
edly tailored for a particular corporation or group of corporations. Thus, the
Minnesota statute, defining more clearly the exempted family farms and authorized
corporations and containing fewer seemingly illogical exemptions than the South
Dakota and Missouri statutes, is not free from quirks.

The Wisconsin statute does not contain exemptions for particular products.
It does, however, exempt farm production "incidental to the principal purpose" of
a nonfarm corporation. (38) It is difficult to assess the ramifications of this
exemption. It appears to be broader that the other three States' exemption for
ownership of agricultural land "reasonably necessary" in the conduct of nonfarming
corporations' business. The Wisconsin provision allows nonfarm corporations to
produce prohibited crops, whereas the other three statutes permit nonfarm corpora-
tions to hold farmland only for nonagricultural purposes. (39) Furthermore,
"incidental" farming operations may be subject to conflicting interpretations.
The provision could conceivably allow large-scale farming by corporations whose
primary purpose is nonagricultural, thereby allowing conglomerate involvement.

The Wisconsin statute imposes a $1,000 fine for each day of violation of the stat-
ute by a corporation. The State district attorneys are authorized to sue to
Ltfjorcement. enjoin probable violations and to request a court order requiring the cor-
poration to divest itself of land held in violation of the statute. (40)
The other three State statutes do not impose fines for violations.

All four States, however, authorize the State attorney general to seek a court
order of divestiture of lands held in violation of the statute. Any land not di-
vested within the prescribed time is to be sold at public auction. Furthermore,
the time limitation for divestiture operates as a covenant in the title to the land
against any corporate grantee, assignee, or successor in interest of the violator,
(41) thus precluding permanent transfer of title to another corporation.








Although Wisconsin has no reporting requirements, Minnesota, Missouri, and South
Reporting. Dakota each require that corporations engaged in farming or proposing to en-
gage in farming file annual reports with the State, disclosing their loca-
tion, real estate owned, and the identities of their officers and boards of
directors. A corporation seeking to qualify as a family farm or authorized cor-
poration must disclose, in addition: the number of shares owned by persons resid-
ing on the farm or actively engaged in farming, or their relatives within the
third degree of kinship; the name, address, and number of shares owned by each
shareholder; for Minnesota and South Dakota, the percentage of gross receipts ob-
tained as passive income; for Missouri, the percentage of gross receipts from non-
agricultural sources. (42)

Only Minnesota requires that the reports list the farm products which the
corporation produces or intends to produce. With the numerous exemptions con-
tained in the Missouri and South Dakota acts, this information would seem to be
pertinent to any inquiry into corporate compliance with the statutes, and would
increase the usefulness of the reports.

Under each statute, failure to file a report or filing of false information
is a misdemeanor. (43) South Dakota, in addition, requires newly formed farm cor-
porations to receive official certification of compliance with the statute before
commencing farm operations. (44)

Oklahoma

In 1971, Oklahoma enacted legislation barring the chartering of domestic corpora-
tions, or the licensing of foreign corporations, for the purpose.of
orporate farms engaging in farming or ranching, or for the purpose of owning or
banned; family
farm corporations leasing any interest in land used for farming or ranching. Domestic
allowed, family farm corporations are exempt. The shareholders of exempted
corporations must be natural persons, estates, or trusts for the ben-
efit of natural persons. The corporation must derive not more than 20 percent of
annual gross receipts from sources other than farming or ranching or allowing
others to extract minerals from corporate lands. In addition, the corporation may
have no more than 10 shareholders who are not related as lineal descendants or by
birth, marriage, or adoption. (45)

Like several of the statutes previously discussed, the Oklahoma act limits
the ownership, leasing, or holding of agricultural lands by a nonfarming corpora-
tion to what is "reasonably necessary to carry out its business purpose." (46)

In contrast with the Iowa statute, aimed primarily at preventing vertical integra-
Integrated tion in the livestock industry, the Oklahoma statute appears designed to
corporations protect such arrangements. The act expressly states that it does not apply
permitted.

to corporations engaging in food canning operations,
food processing or frozen food processing insofar as
such corporations engage in the raising of food products
for aforesaid purposes, (or) where a corporation,
either domestic or foreign, engages in research and/or
feeding arrangements or operations concerned with
the feeding of livestock or poultry (47)

Vertically integrated corporations are thus free to continue and to expand
their businesses. On the other hand, the act appears designed to freeze the ex-
pansion of other corporate farms, since it expressly exempts only property ac-
quired by corporations on or before June 1, 1971. (48)








An unusual enforcement feature of the statute is that divestment proceedings may
be brought against offending corporations by any resident of the county
i(T'ent,,iy in which the corporate land is situated. If the action is successful,
the statute expressly provides that the plaintiff be allowed a reason-
able attorney's fee and that the defendant corporation be assessed all costs. If
the plaintiff loses, however, he is assessed all costs and the defendant's attor-
ney's fee. (49)

It will be interesting to observe whether this provision encourages enforce-
ment proceedings. While the statute authorizes the bringing of actions by those
whom it is intended to protect, the potential liability for a defendant's court
costs and attorney's fees may considerably dampen the ardor of those who might
otherwise be eager to enforce the act.

The statute contains no reporting requirements.

Kansas

Unlike the statutes previously discussed, the Kansas statute (50) does not prohi-
bit corporate ownership of agricultural land. Rather, it prohibits
ostrratie.s reag- corporations from producing directly or indirectly, enumerated pro-
stn tdc .a: creage,-
shareholder limits. ducts. The list of products differs somewhat from that of Wiscon-
sin, (51) primarily in that Kansas does not prohibit livestock
production, except for "milking of cows for dairy purposes." (52)

The Kansas statute specifically prohibits "producing, planting, raising,
harvesting or gathering" wheat, corn, grain sorghum, barley, oats, rye, or pota-
toes, and milking cows for dairy purposes. (53) In barring corporate involvement
in planting and harvesting, the statute is more restrictive than the Minnesota,
Missouri, and South Dakota acts, which exclude contracting for furnishing of har-
vesting, spraying, or other farm services from the definition of farming. (54)

The Kansas statute differs from the Minnesota, Missouri, and South Dakota
statutes in another important respect: it contains only two exemptions. The
first is analogous to the "authorized farm corporation" exemption in the statutes
of the three States. In Kansas, a corporation may engage in farming if it has no
more than 10 stockholders, all of whom are individuals or fiduciaries for indi-
viduals and none of whom own stock in another corporation authorized to produce
any of the prohibited farm products. While incorporators must be Kansas resi-
dents, stockholders need not be. The size of such authorized corporate farms is
limited to 5,000 acres, whether the land is owned, controlled, managed, or super-
vised by such a corporation. (55)

The size limitation is unique among the authorized farm corporation exemp-
tions of the several States, and would appear to be an effective means of pre-
venting large-scale corporate competition against individual, smaller farmers.
However, the limitation is without regard to soil quality and capacity; a 5,000-
acre intensive row crop farm could provide substantial competition for small
farmers, while 5,000 acres of soil suited only for pasture may be too small to
exhaust all possible operating and managerial economies in cattle or sheep ranch-
ing.

The provisions barring a stockholder of one authorized farm corporation from
owning stock in another such corporation afford added assurance that corporations
cannot engage in large-scale farming. However, since the exemption does not re-
quire that any stockholders be related to each other or actively engaged in farm-
ing, it permits corporate farms to be run by unrelated nonfarmers, who, in
addition, need not be State residents.








The only other exemption in the Kansas statute is for coal mining corpora-
tions, which are authorized to farm their own land which has been strip mined for
coal. (56)

While the Kansas statute is thus not as broad in its prohibitory sweep as
some other statutes, since it does not prevent corporate ownership of land usable
for farming and prohibits corporate production of only certain enumerated pro-
ducts, it appears to be stronger than most other statutes because it contains
fewer exemptions. There is no grandfather clause protecting farm corporations in
existence prior to enactment of the statute. 13/

The exemption for authorized corporations appears better calculated to keep
corporate operations small. Furthermore, since the State constitution defines
corporations to include "all associations and joint stock companies having powers
and privileges not possessed by individuals or partnerships," (57) the statute
probably cannot be circumvented by organizing a farm business as a Massachusetts
or business trust--a corporate-like business not requiring a State charter. (58)

Kansas requires that all corporations that own or lease 10 or more acres of
land used or usable for farming must file annual reports with the secretary of
state. (59) Such reports must state, in addition to information required of all
domestic corporations, the acreage and location of land used or usable for farming
which it owns or leases, the purposes for which such land is owned or leased, the
value of its agricultural and nonagricultural assets, and the number of its stock-
holders. (60)

Iowa

In 1975, Iowa enacted a Corporate or Partnership Farming Law, the principal
impact of which is to prohibit vertical integration in the livestock
Verticalintegra- industry. Processors of beef or pork products whose annual wholesale
tion in livestock
prohibited, production is $10 million or more are prohibited from owning, con-
trolling, or operating a feedlot in Iowa in which hogs or cattle are
fed for slaughter. Violators may be fined up to $50,000 and enjoined from further
violation. (61)

The act defines feedlot to include areas used for raising crops or other veg-
etation upon which hogs or cattle fed for slaughter are allowed to feed. Proces-
sors include persons, firms, corporations, (including nonprofit corporations and
cooperatives) and limited partnerships that are engaged in beef or pork process-
ing, or that have a 10 percent or greater interest in another such entity. Pro-
cessors are permitted to contract for the purchase or feeding of hogs, however.
(62)

Nevertheless, the statute clearly requires separate ownership and control of
livestock-feeding and meat-processing operations in Iowa. Any processor or limit-
ed partnership that owned, controlled, or operated a feedlot on the effective date
of the act is required to dispose of it by July 1, 1985. (63)

13/ It should be noted that as early as 1931, Kansas prohibited the chartering of
domestic corporations, or the granting of permission to foreign corporations, to
engage in the same corporate farm production now prohibited by Kan. Stat. Ann. 17-
5901 (1974). L. 1931, ch. 153, 1; Gen. Stat. Kan. (Ann.). 17-202a (1949).








The statute imposed a 1-year moratorium on acquiring (by purchase, lease, or
otherwise) any additional agricultural land by corporations that own or
Land purchases lease agricultural land or engage in farming. (64) In an amendment
restricted.
enacted in 1977, the moratorium was also imposed against trusts and ex-
tended through August 15, 1980. (65) A trust is defined as "a fiduciary relation-
ship with respect to property, subjecting the person by whom the property is held
to equitable duties to deal with the property for the benefit of another person,
which arises as a result of a manifestation of an intention to create it." It
includes a legal entity holding property as trustee, agent, escrow agent, attor-
ney in fact, and in any similar capacity. However, it does not include persons
acting as executors, administrators, personal representatives, guardians, conser-
vators, or receivers, who are grouped separately as operating in a fiduciary ca-
pacity. (66)

Exemptions from the moratorium are made for family farms and authorized farm
corporations, which are roughly equivalent to the similarly named corporations ex-
empted by Minnesota, Missouri, and South Dakota. The 1977 amendment also exempted
family and authorized trusts. These exempted trusts correspond closely to family
and authorized corporations, except that the trusts are defined in terms of bene-
ficiaries rather than in terms of stockholders. However, an authorized trust may
not have income that is exempt from Iowa or Federal taxation. Also exempted are
testamentary trusts, that is, trusts created by devising or bequeathing property
in trust in a will. (67)

The statute imposes numerous reporting requirements. Corporations that.own
or lease farmland or feedlots, or contract to feed poultry or livestock or to
grow agricultural products must file annual reports with the secretary of state.
(68) The information required is similar to that required by the Minnesota stat-
ute. (69) Reports are also required of: limited partnerships that own or lease
agricultural land or engage in farming; fiduciaries or trustees acting on behalf
of corporations, limited partnerships, and nonresident alien beneficiaries identi-
fied in reports filed by the above-named fiduciaries of trustees; and processors
of beef or pork. Failure to file a report, or the willful filing of false infor-
mation is punishable by a fine of up to $1,000. (70)

The Iowa law appears to be most significant in its forceful separation of
feedlot and meat-processing operations, and its unique recognition, at least in
its reporting requirements, that limited partnerships are in large measure cap-
able of the same undertakings as corporations, and thus ought to be subject to
the same regulations. Limited partnerships, however, are not subject to the mor-
atorium on new acquisitions of farmland. (71)

A second significant feature of the Iowa statute is the explicit, detailed
definition of the entities to which the statute applies: corporations are expli-
citly defined to include cooperatives; trusts are brought within the ambit of the
statute, and are clearly defined to include certain fiduciaries and exclude
others; and exempted entities are clearly defined.

While the moratorium provision is temporary, its breadth of application and
its definitional clarity are extraordinary when compared with most other State
statutes.

Texas

Texas statutes limiting corporate ownership and operation of farms and farmland
are very specific and affect only a limited part of Texas agriculture.
Livestock One statute prohibits a corporation from doing business in the State if
limitations. i i ii
the corporate purpose is to combine raising cattle and owning land for








that purpose and also operating stockyards and slaughtering, refrigerating, can-
ning, curing, or packing meat. (72) Any combination of the two businesses is pro-
hibited. The statute is apparently intended to separate open range cattle or
yardage, and slaughtering, processing, and storing meat. However, the statute
does not prohibit an incorporated packing or stockyard firm from owning and oper-
ating feedlots and from feeding cattle.

The other relevant Texas statute requires corporations to dispose of land not nec-
Disposalof essary to their business within 15 years from the date of its acquisition.
unnecessary A corporation may not have real estate holdings as one if its purposes, ex-
land. cept a "town lot" corporation, operating in or near a city. (73) This pro-
vision appears similar to provisions in farm legislation of other States and
apparently is directed at passive investment in land.

Nebraska

In 1975, Nebraska enacted reporting requirements applicable to corporations that
hold fee title, leasehold interests, or any intermediate forms of interest in
Reporting agricultural land in the State. (74) The information required is similar to
require that required in reporting statutes of other States. This statute imposes no
restrictions on corporate ownership or operation of farms.

Another provision (75) bars corporations not organized in the State from
owning or leasing land in the State for more than 5 years, subject to certain ex-
ceptions which do not include use of land for farming or ranching.

Oregon

In 1977, Oregon enacted reporting requirements applicable to business corpora-
tions, nonprofit corporations, and cooperative corporations that engage in
Reporting farming (including raising or producing any farm product) or own or lease any
required parcel of land containing more than 40 acres of farmland. (76) The reports
must be submitted annually to the State's corporation commissioner and must in-
clude: the name of each county in Oregon in which the corporation farms or owns
or leases farmland, and the primary farm products produced; States, other than
Oregon, and foreign countries, in which it farms or owns or leases farmland; the
name and address of each corporate director; and the name and address of each in-
dividual or business entity that owns or controls 10 percent or more of the vot-
ing rights or shares. The act took effect on January 1, 1978, and is repealed by
its own terms on July 1, 1981.

West Virginia

In West Virginia, in order for a corporation to hold more than 10,000 acres
of land, it must obtain a certificate from the secretary of state, authorizing
all landholdings above 10,000 acres. Certificates are issued on payment of a tax
of 5 cents per acre on all excess acreage. (77)

Legal Conclusions

The Nebraska Legislature, in enacting that State's reporting requirements for
farm corporations, declared that its intent was

to nurture the free enterprise system to provide for the
continued existence of the family farm against potential monop-
olization of the agricultural industry, and (to pursue)
documented evidence of any anticompetitive forces at work within
the agricultural industry in Nebraska (78)








That appears to be the intent behind most State legislation restricting corporate
ownership and operations of farms. State legislatures have responded to the family
farmers' perceived threat to their well being, namely, that competition from large
agribusiness organizations may result in the extinction of the family farm.

While the statutes impose substantial limits on corporate farming, they do not
insulate the family farmer from large farm enterprises, either corporate or otherwise.
It is important to note that the statutes uniformly attack the problem by restricting
corporate involvement in agriculture. None of the statutes prohibits farming opera-
tions conducted by other business organizations such as business trusts or partner-
ships. Such organizations are free to engage in the activities that are barred to cor-
porations. (79)

Some of the statutes are probably effective in prohibiting corporations from own-
ing farmland through noncorporate intermediaries. At least, the wording of the stat-
utes that prohibit corporations from owning any interest in farmland, "directly or
indirectly whether legal, beneficial or otherwise," (80) indicates a legislative
intent to prevent circumvention of the statutes in this manner. In the absence of such
language, however, a corporation may be able to own land through a partnership or trus-
tee. (81)

In addition to restricting corporate ownership of farmland, many statutes also
prohibit corporate operation of farms. Such provisions appear to be intended as an
additional guard against vertical integration in the food industry. Food-processing
corporations, however, are still free to contract with farmers for their production.
Since the processor is often in a strong bargaining position, such contracts may be
very favorable to the processor and impose relatively harsh conditions on the individu-
al farmer. (82) The corporate farm legislation does not provide a remedy for the
inferior bargaining position of the family farmer. Nevertheless, the statutes in vary-
ing degrees do seek to preserve a place in the chain of production for the independent
farmer and, to that extent, provide protection for the family farmer.

Not every farmer is assured of a protected position from corporations, however.
The degree of protection depends on the type of product produced and the State in which
the farm is located. With the exception of North Dakota, none of the States prohibit
corporate production of all agricultural, dairy, and livestock products. The Texas
statute limits only vertical integration in the cattle industry. Similarly, the per-
manent provisions of the Iowa act prohibit only certain beef and pork processors from
also engaging in the feeding of livestock.

On the other hand, the Oklahoma statute exempts corporations engaged in livestock
and poultry feeding, food processing, and food canning from the general prohibition im-
posed on corporate farming and ranching. Wisconsin and Kansas have enumerated specific
products that corporations are forbidden to raise; other production is not regulated.
Minnesota, Missouri, and South Dakota have enacted broad prohibitions, but have also
provided numerous exemptions for certain producers.

Only the North Dakota act appears applicable across the entire range of farm pro-
duction; even here, certain farmer cooperative corporations are exempted. Given the
differences among the various statutes, it is likely that a particular corporation may
find that its activities are proscribed in a few States but allowed in many others.

Most of the statutes permit the independent farmer to incorporate under the family
and authorized farm exemptions. Such exemptions vary from State to State, however, and
the character of the corporations permitted under these exemptions may bear little re-
semblance to the traditional family farm. Minnesota's family farm exemption is prob-
ably one of the best in exempting only true family-run corporations by its requirement
that at least one family member reside on or actively operate the farm.







The corporate farming acts do not protect the individual farmer either from poten-
tially large noncorporate business organizations or from all corporate farm businesses.
However, the acts do not appear to be unconstitutional even though they prohibit cor-
porations from doing what individuals, partnerships, and limited partnerships are per-
mitted to do. There is probably a reasonable relation between the restriction on
corporations and the acts' objective, which is to preserve competitive conditions in
the farming industry. It is probable that in the States that have passed corporate
farm legislation, corporations are the most prevalent large business organizations, and
that corporations, more than other business organizations, have in fact presented the
greatest threat to competitive conditions in agriculture in those States. That a stat-
ute burdens corporations but not individuals, partnerships, or associations is not a
denial of equal protection if there is a real and substantial distinction, having a
just relation to the legislative object, between corporations and other entities. (83)

The statutes not only discriminate between corporate and noncorporate businesses,
but also among different types of farm corporations. Existing corporate farms, family
and authorized corporate farms, and producers and processors of particular products are
frequently exempted. The exemptions for food processors, in particular, appear to
undercut the prevention of vertical integration, one of the main purposes of the acts.
Furthermore, certain highly particular exemptions, such as that for certain asparagus
growers in Minnesota, might be thought arbitrary, and subject to attack on equal protec-
tion grounds. (84)

However, in challenging any exemption, the burden of proof is on the plaintiff to
show that the exemption does not rest on a reasonable basis, but is arbitrary. (85)
Given a genuine difference between corporations that are exempted and those that are
not, the discrimination between the two is presumed relevant to a permissible legisla-
tive purpose, and will not be deemed a denial of equal protection if any state of facts
can be conceived to support it. (86)

States are accorded wide latitude in regulating their local economies under their
police powers, and rational distinctions may be made with less than mathematical exact-
itude. (87) An attack on the statutes by nonexempt corporations on the basis of dis-
criminatory exemptions would thus, in most instances, be unlikely to succeed.

References

1. N.D. Century Code ch. 10-06 (1960), effective June 29, 1932.

2. T.P. McElroy. "North Dakota's Anti-Corporate Farming Act," North Dakota Law
Review 36 (1960).

3. Coal Harbor Stock Farm, Inc. v. Meier, 191 N.W. 2d 591, (N.D. 1971).

4. N.D. Century Code 10-06-04 (1960).

5. N.D. Century Code 10-06-02, 10-06-03 (1960).

6. N.D. Century Code 10-06-05 (1960); see also Loy v. Kessler, 76 N.D. 738, 39
N.W. 2d 260 (1949).

7. N.D. Century Code 10-06-06 (1960); see also Loy v. Kessler, 260 272.

8. Coal Harbor Stock Farm, Inc. v. Meier, 191 N.W. 2d 583, 588 590-592 (N.D.
1971).

9. Ibid. at 592.







10. Asbury Hospital v. Cass County, 72 N.D. 359, 7 N.W. 2d 438, 449 (1943), aff'd.,
326 U.S. 207 (1945).

11. Coal Harbor, 583, 592.

12. Asbury Hospital; Coal Harbor, 583, 589-592.

13. Two unreported lower state court decisions, Baldwin Corp. v. Dickey County, (D.
Ct. of Dickey Co., N.D., Oct. 26, 1942), and Northwestern Improvement Co. v. Morton
County (D. Ct. of Morton Co., N.D., Feb. 24, 1942), as cited in McElroy, op. cit., held
that the Corporate Farming Law does not apply to corporations chartered to engage in
real estate transactions, because owning land was "reasonably necessary" in their busi-
ness. These decisions were not appealed.

14. Ch. 324, Minn. Stat. 1975, amending Minn. Stat. Ann. 500.24 (Supp. 1974); Mo.
Acts No. 114 (1975) (Vernon's Mo. Leg. Serv. 260-262, 1975, No. 2); S.D. Compiled Laws
Ann. Ch. 47-9A (Supp. 1974); Wis. Stat. Ann. 182.001 (Supp. 1975-76).

15. S.D. Compiled Laws Ann. 47-9A-1 (Supp. 1974).

16. Minn. Stat. Ann. 500.24(2), as amended (1975); Mo. Acts No. 114, 2 (1975); S.D.
Compiled Laws Ann. 47-9A-3 (Supp. 1974); Wis. Stat. Ann. 182.001(1) (Supp. 1975-76).

17. Minn. Stat. Ann. 500.24(1) (a) (1975); Mo. Acts. No. 114, 1 (1), 2(5) (1975);
S.D. Compiled Laws Ann. 47-9A-2(2) (Supp. 1974).

18. Wis. Stat. Ann. 182.001(3) (Supp. 1975-76).

19. Minn. Stat. Ann. 500.24(2) (1975); Mo. Acts No. 114, 2 (1975); S.D. Compiled
Laws Ann. 47-9A-3 (Supp. 1974).

20. Minn. Stat. Ann. 500.24(2)(c) (1975); Mo, Acts. No. 114, 2(3) (1975); S.D. Com-
piled Laws Ann. 47-9A-5 (Supp. 1974); Wis. Stat. Ann. 182.001(2)(c) (1) (Supp. 1975-
76).

21. Minn. Stat. Ann. 500.24(2) (f) (1975); Mo. Acts No. 114, 2(3) (1975); S.D. Com-
piled Laws 47-9A-5 (Supp. 1974).

22. Minn. Stat. Ann. 500.24(2) (c) (1975); Mo. Acts. No. 114, 2(3) (1975); S.D.
Compiled Laws 47-9A-5 (Supp. 1974); Wis. Stat. Ann. 182.001 (2) (c) (2, 3) (Supp. 1975-
76).

23. Minn. Stat. Ann. 500.24(2) (h) (1975); Mo. Acts. No. 114, 2 (8) (1975); S.D.
Compiled Laws 47-9A-12 (Supp. 1974).

24. Wis. Stat. Ann. 182.001(2) (e) (Supp. 1975-76).

25. Minn. Stat. Ann. 500.24(1) (c) (1975).

26. Mo. Acts. No. 114, 1(3) (1975); S.D. Compiled Laws 47-9A-14 (Supp. 1974).

27. Minn. Stat. Ann. 500.24(1) (d) (1975).

28. S.D. Compiled Laws 47-9A-15 (Supp. 1974).

29. Mo. Acts No. 114, 1 (4) (1975).

30. Wis. Stat. Ann. 182.001(1) (Supp. 1975-76).







31. Wis. Assembly Bill 244 (1969).

32. Minn. Stat. Ann. 500.24(2) (a), (d), (e), (i) (1975); Mo. Acts. No. 114, 2(1),
(4), (5), (9) (1975); S.D. Compiled Laws 47-9A-6, 7, 9, 10 (Supp. 1975); Wis. Stat.
Ann. 182.001(2) (a), (d) (Supp. 1975-76). Each statute requires that the corporation
dispose of such land within 10 years (5 years in Wisconsin). All but Wisconsin permit
the corporation to lease the land for farming to individuals, family farm corporations,
and authorized farm corporations, but otherwise forbid use of the land for farming.

33. Minn. Stat. Ann. 500.24(2) (g) (1975); Mo. Acts No. 114, 2 (7) (1975); S.D.
Compiled Laws 47-9A-8 (Supp. 1975).

34. S.D. Compiled Laws 47-9A-11 (Supp. 1975).

35. Curtis S. Jensen, "The South Dakota Family Farm Act of 1974: Salvation or Frus-
tration for the Family Farmer?" 20 South Dakota Law Review (1975).

36. Mo. Acts No. 114, 2(5) (1975).

37. Minn. Stat. Ann. 500.24(2) (k) (1975).

38. Wis. Stat. Ann. 182.001(2) (f) (Supp. 1975-76).

39. Coal Harbor interprets a similar provision in the North Dakota statute.

40. Wis. Stat. Ann. 182.001(4) (Supp. 1975-76).

41. Minn. Stat. Ann. 500.24(4) (1975); Mo. Acts. No. 114, 4 (1975); S.D. Compiled
Laws 47-9A-21, 22 (Supp. 1975).

42. Minn. Stat. Ann. 500.24(3) (1975); Mo. Acts No. 114, 3 (1975); S.D. Compiled
Laws 47-9A-16, 17, 19 (Supp. 1975).

43. Minn. Stat. Ann. 500.24(3) (e) (1975); Mo. Acts No. 114, 3(5) (1975); S.D.
Compiled Laws, 47-9A-15 (Supp. 1975).

44. S.D. Compiled Laws 47-9A-18 (Supp. 1975).

45. 18 Okla. Stat. Ann. 951-954. (Cum. Supp. 1974-75).

46. 18 Okla. Stat. Ann. 953(A) (Cum. Supp. 1974-75).

47. 18 Okla. Stat. Ann. 953(C), 954 (Cum. Supp. 1974-75).

48. 18 Okla. Stat. Ann. 952(D) (Cum. Supp. 1974-75).

49. 18 Okla. Stat. Ann. 953(B) (Cum. Supp. 1974-75).

50. Kan. Stat. Ann. 17-5901 (1974).

51. Wis. Stat. Ann. 182.001(3) (Supp. 1975-76).

52. Kan. Stat. Ann. 17-5901(a) (1974).

53. Ibid.

54. Minn. Stat. Ann. 500.24(1)(a) (1975). This statute, like the Missouri and
South Dakota acts, excludes from the definition of farming, "a contract whereby a








processor or distributor of farm products or supplies provides spraying, harvesting or
other farm services"; Mo. Acts No. 114, 1(1) (1975); S.D. Compiled Laws 47-9A-2(2)
(Supp. 1975).

55. Kan. Stat. Ann. 17-5901(a) (1974).

56. Ibid.

57. Kan. Const. art. 12, 6.

58. State v. United Royalty Co., 188 Kan. 443, 363 P. 2d 397 (1961).

59. Kan. Stat. Ann. 17-5902(a) (1974).

60. Kan. Stat. Ann. 17-7503(b). 17-7504(b), 17-7505(b) (1974).

61. Iowa Code Ann. 172C.2, 172C.3. (Supp. 1976).

62. Iowa Code Ann. 172C.1(4), (3), 172C.2 (Supp. 1976) and S.F. 231, 1(1) (1977),
amending Iowa Code Ann. 1972C.1.

63. Iowa Code Ann. 172C.2 (Supp. 1976).

64. Ibid., 172C.4.

65. S.F. 231, 2 (1977), amending Iowa Code Ann. 172C.1.

66. S.F. 231, 1, 2 (1977) amending Iowa Code Ann. 172C.1.

67. S.F. 231, 2 (1977), amending Iowa Code Ann. 172C.1.

68. Iowa Code Ann. 172C.5.

69. Minn. Stat. Ann. 500.24(3) (1975).

70. Iowa Code Ann. 172C.6, 9, 11, 172C.7, as amended by S.F. 231, 8 (1977), and
172C.8, as amended by S.F. 231, 15 (1977), 172C.9, and 172C.11.

71. Iowa Code Ann. 172C.4.

72. Vernon's Ann. Civ. Stat. Bus. Corp. Act., art. 2.01(B) (3) (a) (1955), art.
1302-4.02 (1961).

73. Ibid., art. 1302-4.02, 4.04, 4.05 (1961).

74. Neb. Rev. Stat. 76-1501 et seq. (1975 Supp.). Presumably the statutory lan-
guage, "or any greater interest less than fee" denotes estates in land involving joint
ownership or a future interest.

75. Neb. Rev. Stat. 76-402 (1939). See discussion of this provision in the appen-
dix.

76. 1977 Oregon Laws, ch. 49.

77. W. Va. Code 11-12-75 (1974 Repl. Vol.), effective 1939.

78. Neb. Rev. Stat. 76-1501 (1975 Supp.).








79. Some States, however, restrict business trusts, which in Kansas, for example,
are viewed as subject to the same regulatory provisions as corporations. See State v.
United Royalty Co., 188 Kan. 443, 363 P. 2d 397 (1961).

80. Minn. Stat. Ann. 500.24(2) (1975); Mo. Acts No. 114, 2 (1975); S.D. Compiled
Laws 47-9A-3 (Supp. 1975).

81. Fred L. Morrison, "State Corporate Farm Legislation," 7 Toledo Law Review
(1976). But in Coleman v. San Rafael Turnpike Co., 49 Cal. 517, 522 (1875), it was
ruled that whenever a corporation cannot take legal title to land, it cannot take a
beneficial interest in it.

82. For an example of such a contract, see Campbell Soup Co. v. Wentz, 172 F.2d
80, 83 (3d Cir. 1948).

83. Mallinckrodt Chemical Works v. Missouri, 238 U.S. 41, 55 (1915); also
Crescent Oil Co. v. Mississippi, 257 U.S. 129, 139 (1921).

84. In this regard, Morey v. Doud, 354 U.S. 475 (1957), appeared to provide a
precedent for such an attack. However, the decision in that case was recently over-
ruled in City of New Orleans v. Dukes, 427 U.S. 297 (1976).

85. Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-79 (1911).

86. City of New Orleans v. Dukes; also, Asbury Hospital v. Cass County.

87. City of New Orleans v. Dukes. On the Other hand, the Supreme Court has
noted that "very different principles govern even economic regulation when constitu-
tional provisions such as the Commerce Clause are implicated ." ibid. It has
been suggested that the corporate farm statutes may be subject to challenge under
the Commerce Clause. See Morrison, op. cit., and Comment, "Proposed Anticorporate
Farm Legislation," 1972 Wisconsin Law Review, 1189, 1211-1212.







APPENDIX:
State Restrictions on Ownership
of Real Estate by Alien Corporations

Concern about alien investment in U.S. agriculture has been associated with the
large surplus of investable funds of certain oil-exporting nations and the possibility
that they might invest in farmland, farming operations, and other parts of the U.S.
food and fiber system. Such investment has apparently not occurred to any noticeable
extent; more commonly, West European investors buy U.S. farmland. These investments
may be made for various reasons, such as the stability of the U.S. economy, the in-
creasing demand for farm products, and prospects for real estate appreciation in value.
In addition, farm real estate is easily managed by U.S. management companies at rela-
tively low costs.

The following discussion is confined to State statutes applicable to alien corpor-
ations. State legislation restricting ownership of real estate by alien individuals is
discussed by Fred Morrison and Kenneth Krause. (1) Other articles (2) address Federal
issues and restrictions on aliens.

The provisions of the corporation statutes of the 10 States are applicable to both
domestic and foreign corporations. In addition, however, several statutes in the 10
States, and South Carolina, contain provisions regulating ownership of real estate by
corporations organized in foreign countries or owned by aliens. 1/

Two States limit the acreage that may be held by alien corporations. In South
Carolina, the limit is 500,000 acres; in Wisconsin, 640 acres. (3) However, the stat-
utes vary in their definitions of the alien corporations so restricted. The South
Carolina act applies to corporations in which more than half the stock is owned by
aliens. The Wisconsin provision applies to corporations in which more than 20 percent
of the stock is owned by nonresident aliens.

Minnesota prohibits a business entity from acquiring any interest in farmland,
legal or beneficial, including leaseholds, unless at least 80 percent of each class of
stock issued and outstanding or 80 percent of the ultimate beneficial interest of the
entity is held directly or indirectly by U.S. citizens or permanent resident aliens.
(4) This restriction is in addition to those imposed by the corporate farming law;
however, the alien restrictions also include some of the exemptions contained in that
statute. A grandfather clause exempts land acquired prior to May 27, 1977, but such
holdings are subject to a reporting requirement. Land held in violation of the statute
is subject to divestiture, and failure to report lands held under the grandfather
clause is a gross misdemeanor. (5)

Iowa and Nebraska have the most restrictive legislation on the ownership of real
estate by alien corporations. In Iowa, apart from the corporation's right to enforce
\iens and judgments and to purchase real estate at a sale by virtue of a lien or judg-
ment, corporations organized abroad or in which one-half of the stock is owned or con-
trolled by nonresident aliens are prohibited from obtaining title to or holding real
estate. Any real estate obtained in satisfaction of a lien or judgment, or by purchase
at a sale pursuant to a lien or judgment, must be sold within 10 years, or title to it
escheats to the State. (6)

Nebraska, like Iowa, permits an alien corporation to obtain title to land upon
which it holds a lien, subject to resale within 10 years. Alien corporations may also
hold land necessary for manufacturing or industrial establishments, and for the conduct
of business. Landholding restrictions do not apply to alien corporations that operate

1/ Arizona formerly forbade corporations organized abroad from owning or holding land
in the State, Ariz. Rev. Stat. Ann. 10-484(D). The prohibition was repealed, however,
by Ariz. Laws, Ch. 69, 1 (1975), effective July 1, 1976.








as producers, distributors, and retailers of oil and gas, railroads, public utilities,
or common carriers. Land in cities and villages, or within 3 miles thereof, may also
be held by alien corporations. But apart from the above, corporations whose executive
officers or managers are aliens, or the majority of whose directors are aliens, or the
majority of whose stock is owned by aliens, may not own or hold any land in Nebraska.
In addition, American corporations not incorporated within Nebraska may not acquire
title to Nebraska land, nor lease such land for more than 5 years. (7)

The reporting requirements of both Iowa and Nebraska require disclosure of stock-
holders who are aliens, and, in Nebraska, of directors, executive officers, and mana-
gers who are aliens. (8)

A good perspective on the issue of alien investment is afforded in a publication
recently released by the U.S. General Accounting Office, Report by the Comptroller
General of the United States, "Foreign Ownership of U.S. Farmland--Much Concern,
Little Data," CED-78-132, 1978.











References

1. Fred L. Morrison and Kenneth R. Krause, State and Federal Legal Regulation of
Alien and Corporate Land Ownership and Farm Operations, U.S. Dept. Agr., AER-284
(1975).

2. Fred L. Morrison, "Legal Regulation of Alien Land Ownership in the United
States," Report to the Congress, Foreign Direct Investment in the United States, Vol.
8, appendix M. U.S. Dept. of Commerce, April 1976. "Limitations on Alien Investment
in American Real Estate," Minnesota Law Review, 60, No. 4, April 1976.

3. S.C. Code Ann. 57-103; Wis. Stat. Ann. 710.02.

4. Minn. Stat. Ann. 500.221, subd. to (1977).

5. Ibid., subd. 3, 4, and 5.

6. Iowa Code Ann. 491.67, 567.1, 567.2.

7. Neb. Rev. Stat. 76-402, 404, 406, 411, 412, 413, 414.

8. Iowa Code Ann. 127C.5(8); Legislative Bill 201 (1975), Laws of Nebraska, 84
Leg., 1st Sess. 393, 3 (5, 6, 7).


A U.S. GOVERNMENT PRINTING OFFICE: 1979 -622-714/580










ADDITIONAL READING


Bailey, Warren R. "The One-Man Farm." Econ. Res. Serv., U.S. Dept. Agr., August 1973.
ERS-519.

Dietrich, R.A., J.R. Martin, and P.W. Ljungdahl. "The Capital Structure and Financial
Management Practices of the Texas Cattle Feeding Industry." College Station,
Texas Agr. Exp. Sta., December 1972. B-1128.

S"Custom Feeding Clients Using Texas Feedlots--Operational Character-
istics, Management Practices, and Feeding Strategies." College Station, Texas
Agr. Exp. Sta., October 1974. B-1148.

Drache, Hiram M. "Midwest Agriculture: Changing with Technology," in Beyond the
Furrow. Danville, Ill.: Interstate Printers and Publishers, 1976.

Gulley, James L. "Beliefs and Values in American Farming." Ed. Ronald L. Mighell.
Econ. Res. Serv., U.S. Dept. Agr., August 1974.

Harl, Neil E. "Farm Corporations--Present and Proposed Restrictive Legislation."
The Business Lawyer, April 1970.

Krause, Kenneth R., and Leonard R. Kyle. "Midwestern Corn Farms: Economic Status and
the Potential for Large and Family-Sized Units." Econ. Res. Serv., U.S. Dept.
Agr., November 1971. AER-216.

Krenz, Ronald D., Walter G. Held, Jr., and Harry Sitler. "Economics of Large Wheat
Farms in the Great Plains." Econ. Res. Serv., U.S. Dept. Agr., July 1974. AER-
264.

Madden, J. Patrick. "Economies of Size in Farming." Econ. Res. Serv., U.S. Dept.
Agr., February 1967. AER-107.

Matthews, Stephan F., and V. James Rhodes. "The Use of Public Limited Partnerships in
Financing in Agriculture." College of Agr. and Life Sciences, U. of Wisconsin,
Madison, July 1975. NC-117, Monograph 1, North Central Regional Research Publi-
cation 223.

A Philosopher Among Economists: Selected Works of John M. Brewster. Ed. J. Patrick
Madden and David Brewster. Philadelphia: J.T. Murphy Co., Inc., 1970.




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