Abstract: This is an article entitled Two issues in Corporate Agriculture - Anti corporate Farming Statutes and Production Contracts. It is published by Keith D. Haroldson in Johnston, Iowa. The article concerns the anti corporate farming statutes and laws restricting production contracts.

I. INTRODUCTION

II. COMPETITION FOR AGRICULTURAL LAND

A. FEDERAL REGULATION OF FOREIGN INVESTMENT

B. STATE REGULATION OF CORPORATE INVESTMENT

III. THE FAMILY FARM - TWO VIEWPOINTS

A. ECONOMIC

B. AGRARIAN

IV. ANTI-CORPORATE FARMING STATUTES IN THE UNITED STATES

A. WHERE DO ANTI-CORPORATE FARMING LAWS EXIST?

B. WHAT ARE THE FAMILY FARMS BEING PROTECTED FROM?

C. HOW DO THESE LAWS ACCOMPLISH THEIR GOALS?

D. ENFORCEMENT

E. JUDICIAL INTERPRETATION

V. ANTI-CORPORATE FARMING LAWS AND THE PRODUCTION OF AGRICULTURAL COMMODITIES

A. CONTROLLING VERTICAL INTEGRATION BY LIVESTOCK PROCESSORS

VI. CONTROLLING CONTRACT FEEDING; A NEW AGENDA IN ANTI-CORPORATE FARMING LAW?

A. THE PRODUCTION CONTRACT

B. PRODUCTION CONTRACTS - FAIRNESS OR FEUDALISM?

1. Moving Toward Fairness - The Contract

2. Moving Toward Fairness - Legislation

VII. SUMMARY

I. INTRODUCTION

The title of a recently published book asks the question: is there a moral obligation to save the family farm? ¹ The fact that this question has to be asked is indicative of the continuously changing structure of American agriculture. It is no longer a foregone conclusion that the ownership of land and production of agricultural commodities will be solely in the hands of the individual family producers who reside on the land where they make their living.

Land ownership is but one part in the parcel which makes up the concept of the family farm. Two players in the land market which compete directly, some would say unfairly, with the family farmer are foreign investors and corporations. This article will begin with a discussion of these two competitors as it relates to the ownership of agricultural land.

The discussion will continue with a review of the differing viewpoints on the family farm. There are two general schools of thought on the value of the family farm. The family farm can be looked at from either an economic or agrarian viewpoint. The survival of the family farm may well be dependant upon which of these viewpoints prevail when policy decisions are being made.

The next part of this article will focus on a review of the statutes of the States which regulate the entry of corporate America into agriculture. Currently, a minority of States limit corporate involvement in agriculture. The regulations include the prohibition of corporate land ownership, as well as a prohibition of corporate production of agricultural commodities. This part of the article will compare the language of the various statutes, review the enforcement procedures, and discuss the judicial interpretation of the statutes of selected states.

The focus of the article will then turn to a discussion of the use of contract production of agricultural commodities, specifically, the contract feeding of livestock.

II. COMPETITION FOR AGRICULTURAL LAND

One of the articles of the agricultural creed provides that "The land should be owned by the man who tills it."² The difficulty in realizing this ideal was noted by Professors Harris and Hines when in writing about the use of the installment land contract as an alternative method of financing they noted:

Ownership of a farm of his own has been an objective of the American farmer since earliest times. Until about the time of World War I, the aspiring young couple could go west and preempt, homestead or buy with little or no cash a family sized farm of their own. As the West became settled and competition for land became keen, young farmers found it increasingly difficult to attain ownership . . . . The chief ways to become a farm owner were to be born or marry into the right family, or to progress up the agricultural ladder from laborer to tenant to owner. Regardless of which procedure was used, credit became an essential element in the acquiring of control over farmland.³

Today credit is still an essential element in the acquisition of farmland. However, for those seeking ownership of their own farm, the level of competition for land, and thus credit, has increased. Two entrants into the agricultural land ownership market which create concern are the foreign investor and the corporation.⁴ Those concerned with the investment by these parties in agriculture have sought to exclude them from the market.

A. FEDERAL REGULATION OF FOREIGN INVESTMENT

The primary reason behind the discouragement of foreign investment in agricultural land is the public policy against the ownership of American real estate by aliens.⁵ In the late 1970's there was a perception that foreign investors were gobbling up U.S. farmland.⁶ This perceived threat prompted Congress to enact the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA).⁷ The data compiled under this Act has shown that, in reality, the amount of foreign- owned U.S. farmland is too small to measure any impact at the national level.⁸ "Foreign investors own 12.5 million acres of U.S. agricultural land, that is, farm and forest land -- slightly less than one percent of the 1.29 billion acres of privately owned U.S. agricultural land, and 0.5 percent of the 2.27 billion acres that comprise the United States."⁹

This data lessened the sense of urgency for passing federal legislation which would limit foreign investment. It may well have contributed to a lessened federal involvement in the area of protecting family farmers from corporate competition.

In contrast to the regulation of foreign investment, placing limitations on domestic corporate ownership of agricultural land is not a federal concern. This is due, in part, to the fact that property ownership has historically been a matter of State law, as provided by the Tenth Amendment's reservation of power to the States of all powers not specifically granted to Congress.¹⁰ Accordingly, the regulation of corporate involvement in agriculture is undertaken almost exclusively by the individual states.¹¹ The federal involvement in this area has been concentrated in controlling production, and providing price supports through federal farm programs to promote the family system of farming.

B. STATE REGULATION OF CORPORATE INVESTMENT

The prospect of corporate interests from other states acquiring ownership of agricultural land, and competing in agricultural production, provides the inducement for a state legislature to balance the benefits and burdens in favor of its own citizens. However, a law which would prohibit only non-resident corporations from owning agricultural land would certainly be subject to Constitutional challenge,¹² so the laws are generally written to protect the citizens of the state from the competitive forces of in-state, as well as out-of-state corporations.

In those situations where the corporation is an in-state corporation, and, as such, qualifies as a citizen of the state, the legislature is faced with the delicate issue of balancing the interests of citizens from the same state. The decision boils down to balancing the interest of one citizen - the corporation, against that of another citizen - the family farmer.

III. THE FAMILY FARM - TWO VIEWPOINTS

Two questions come to mind when the alarm is sounded to "save the family farm". The first is: who is in need of saving?, or who is in need of protection? This naturally leads to the second question: are they deserving of protection? Of the two, the former is more easily answered than the later.

"[A] family farm [can be defined as] an agricultural operation that is owned by a family or family corporation, has gross annual sales of between forty thousand dollars and two hundred thousand dollars per year, and does not hire more than 1.5 person-years of labor."¹³ This definition views the family farm from an income producing standpoint. Using this definition, opinions on the question: are they deserving of protection?, will vary according to the importance the opinion holder places on defining the family farm as an economic unit.

A. ECONOMIC

From an economic point of view, there is little evidence that the family farm is the most cost effective structural framework in which to produce agricultural commodities. The family farm may be shown to be more economically efficient, but this is only because the owner-operator is not fully compensated for his managerial contribution.¹⁴ Rather, a part of the owner-operator's compensation comes in the form of increased investment value, and increased income production. When the full cost for management compensation is factored in, the family farm form of operation ends up on a more equal footing with the other forms of operation.¹⁵

The family farm is not more financially stable than the non- family operation.¹⁶ An increase in the interest rate is not selective. Any operation that is highly leveraged¹⁷ will suffer financially regardless of its structural framework. All operations face the same financial risks; and while both family and non-family operations may be able to adjust to small financial reversals, non-family operations, which may be more diversified,¹⁸ will be better able to withstand a large financial crisis.¹⁹

There is also little evidence that the family farm holds any distinct advantage in the area of resource conservation.²⁰ Proponents of the family farm claim, "family farmers are the best stewards of the soil."²¹ However, as one commentator has noted: "it appears that a combination of tax rules, cost-sharing arrangements, and legal constraints have provided adequate incentives for landlords and investors to adopt conservation practices so that differences between owner-operators and landlord-tenant operated property in the adoption of conservation practices do not exist."²²

Finally, the family farmer's claim to an ability to quickly adapt to a new technology has also not been borne out.²³ This ability involves the access to information and the availability of additional capital rather than any inherent advantage of the family farm. Either operation, whether family or non-family, will adopt a new technology as it proves itself to be economically advantageous if the capital is available.

B. AGRARIAN

Based on an economic analysis, there appears to be little justification for protecting the family farm. However, proponents of the family farm believe the definition of the family farm should involve more than economics.²⁴ The opposing viewpoint, an agrarian viewpoint, has European roots and was made a part of the American heritage beginning with the colonization of America.²⁵ "This heritage maintained that farming was the best way of life and the most important economic activity, that it conferred psychological as well as economic benefits, and that it produced the best citizens . . . ."²⁶ The agrarian view is the basis of many of the tenants of the agricultural creed,²⁷ and "define[s] a world to be lived in by human beings, not a world to be exploited by managers, stockholders, and experts."²⁸ This traditional philosophy is difficult to quantify and plot on a supply and demand curve. Proponents of the family farm believe that "the family farmers can feed us better than the corporations can, unless agribusiness and its friends in government drive them off the land."²⁹ And it is here, within the agrarian viewpoint, that the justifications for regulating corporate ownership of agricultural land can be found.

Admitting that there is more to the justification for protecting the family farms than solely an economic decision does not answer the question: Are they deserving of protection? Perhaps this question will never be answered to everyone's satisfaction. It may suffice to say that any answer depends on whether one approaches the question with an economic, or an agrarian view. One either believes the family farm should be protected, or that it should give way to newer form of farm operation. One thing is certain; there is not much grey area in the debate. The "top barb" is strung too high to allow anyone to straddle the fence on this issue.

Another question which comes to mind is: how can a group of individuals, who make up such a small percentage of the population, generate the interest necessary to induce legislatures in to action on their behalf? About three percent of the population of the United States live and work on family farms.³⁰ Such a small percentage does not translate into political clout. Yet, laws have been proposed and passed.³¹ The explanation for this anomaly goes deeper than simply saying everyone is interested in agriculture because we all have to eat. The explanation is based, in part, on the history of the country. It has been written that "the United States was born in the country, and moved to the city."³² Since the 1940's more than thirty million people made this move.³³ However, while these moves were made, very often the ties to agricultural remained. For some, the parents remained, or a brother or sister took over the farm. If no relatives were on the homeplace, there still may be friends and neighbors who had lived nearby to be remembered. If not, there were always the memories of growing up on a farm. As a result, even though the move to the city had been made, a sense of "connectedness" with agriculture remained. Thus, while a small percentage of persons remained on the farms, a larger percentage of the population shared a common experience in agriculture. This larger percentage included policy makers and legislators who formulated and voted for laws which favored the family farm they fondly remembered.

The same should not be expected for the future. Time is pruning away the roots in agriculture. Today, entire generations of people have lived their lives in the city. Fewer and fewer people feel any connectedness with agriculture. It may safely be predicted that laws which protect the family farmer will receive less attention than they once would.

IV. ANTI-CORPORATE FARMING STATUTES IN THE UNITED STATES

The foregoing discussed the "who" question in this analysis. It also touched on "why". Having identified the family farm as the beneficiary of the regulation of corporate involvement in agriculture, and having abandoned to the philosophers the question of whether the family farm is the proper recipient of this protection, the next areas to be discussed are "where", "what", and "how" questions. Specifically, where do anti-corporate laws exist?; what are the family farms being protected from?; and how do these laws accomplish their goals

A. WHERE DO ANTI-CORPORATE FARMING LAWS EXIST?

Currently, nine states have enacted laws regulating corporate³⁴ agricultural land ownership, and the production of agricultural commodities.³⁵ The nine states, Iowa, Kansas, Minnesota, Missouri, North Dakota, Oklahoma, South Dakota, and Wisconsin, form a contiguous land mass in the northern Great Plains lying, for the most part, between the Mississippi River and the Rocky Mountains.³⁶ Not coincidentally, these states contribute to a significant part of agricultural production in the United States.³⁷ Corporations considering investment in this block of states could easily consider this area to be the anti-corporate farming zone.

B. WHAT ARE THE FAMILY FARMS BEING PROTECTED FROM?

The popularity and proliferation of the corporate form of business has had a significant impact on agriculture.³⁸ This includes not only corporate land ownership, but also corporate involvement in the production of commodities.³⁹ Thus, anti-corporate farming statutes are generally written to reach these two activities.

The corporate form of business offers the advantages of continuity, centralized management, ease of transferability of ownership, limited liability, and flexibility in financing.⁴⁰ Of these advantages, the last two - limited liability and flexibility in financing - are the principle non-tax advantages of the of corporate form.⁴¹ And, of these two, the flexibility in financing that a corporation may enjoy is a significant reason why anti-corporate farming statutes exist.

A corporation has additional sources of funds open to it through the use of equity and debt financing.⁴² Additionally, a diversified corporation may be able to transfer funds in from other operations to support its entry into, or continued operation in agriculture.⁴³ The private individuals do not normally have these options open to them when they are financing their operation.⁴⁴ This results in the corporation possessing an unequal economic advantage over private individuals.

The advantage of flexibility in financing which the corporation enjoys is not by any means the only factor contributing to an unequal or unfair economic imbalance. In addition, corporations may also find it easier to acquire financing through traditional means.⁴⁵ Lenders may feel more secure loaning the large amount of capital necessary for an agricultural operation to a corporation which has vastly more resources than a private individual. In this area, the other advantages of the corporate form of business such as continuity, centralized management, ease of transferability of ownership, and limited liability also play a role in the corporation receiving preferential borrower status.⁴⁶

The advantages of the corporate form of business operation undoubtedly results in economic benefits to society in general. In fact, some may say the burdens caused by this increased competition are outweighed by the social benefits of encouraging the corporate form of business. This point should be kept in mind when the statutes within the anti-corporate farming zone are reviewed as most of the statutes do not completely foreclose all types of corporate activity in agriculture. It is also important to note how the goals of the statutes are furthered, or limited, through both enforcement provisions and judicial interpretation.

C. HOW DO THESE LAWS ACCOMPLISH THEIR GOALS?

One of the methods used by these states in "leveling the playing field" in favor of their own citizens is to ban corporate ownership of agricultural land. Seven of the states, Iowa, Kansas, Minnesota, Missouri, South Dakota, North Dakota, and Wisconsin, ban corporate land ownership via statute.⁴⁷ The remaining two, Nebraska and Oklahoma, accomplish their goal through constitutional provisions.⁴⁸

What is most notable about these prohibitions is that, while on one hand, the states are seeking to discourage corporate control of agricultural land, on the other, they also recognize the advantages of the corporate form of business and encourage its use by the citizens of the state.⁴⁹ Each state flatly prohibits the ownership of agricultural land by corporations;⁵⁰ yet each prohibition is qualified by a list of exceptions.⁵¹ Some of the exceptions are so extensive that the prohibition has a very limited effect.

In six of the nine states, Iowa, Kansas, Minnesota, Missouri, Nebraska, and South Dakota, a corporation may be excepted from the prohibition of ownership of agricultural land if the corporation can bring itself within the definition of a family farm corporation.⁵²

The most common element which must be present so that a family farm corporation status can be achieved is that the shareholders are related in some form of consanguineal or affinal relationship.⁵³ The second most common element which all of the states, except Iowa, require is that at least one of the shareholders of the corporation resides, or is actively engaged in the day-today labor and management of the operation.⁵⁴ Another common element in these statutes is that another corporation may not be a shareholder in the family farm corporation.⁵⁵ This requirement is either written in language which states that no corporation may be a shareholder, or that only natural persons may be shareholders.⁵⁶ Finally, in Iowa only, the family farm corporation is limited in the percentage of gross revenue it may receive outside of farming.⁵⁷

While the North Dakota and Oklahoma statutes do not specifically mention or define the family farm corporation, a corporation meeting most of the above-mentioned elements will also be excepted from the prohibition;⁵⁸ thus, North Dakota and Oklahoma are impliedly within the group of states which provide a family farm corporation exception. Therefore, in all of the states, except Wisconsin, if a corporation meets the requirements necessary to be a family farm corporation, it is not prohibited from owning agricultural land and it may enjoy the advantages of the corporate form when conducting business.

The states also carve out another exception so that persons who are not related may form a corporation to own agricultural land. This corporate form is commonly designated an authorized farm corporation. This exception would all but open the ownership of agricultural land to all corporations if it were not for one limitation. In the states which provide for the ownership of agricultural land by a corporation whose members are not related, there is a limitation on the number of persons who may be stockholders of the corporation.⁵⁹ The limitation varies from a low of five in Minnesota, to a high of twenty-five in Iowa.⁶⁰ Missouri does not limit the number of stockholders a corporation may have, instead it places a limitation on agricultural land ownership to a corporation which receives two- thirds or more of its net income from farming.⁶¹ Nebraska, North Dakota, and Oklahoma do not make provisions for an authorized farm corporation.

Another common element in the qualification of the authorized farm corporation is one similar to an element of the family farm corporation -- that all stockholders be natural persons.⁶²

There are also many exceptions within the statutes and constitutional provisions other than the family farm and authorized farm corporation exceptions. A general survey of these exceptions which provide special situations in which a corporation is not prohibited from owning or taking an interest in agricultural land includes the following:

1) When creating a bona fide encumbrance taken for the purpose of security;⁶³

2) For use by an agribusiness in the research and development or production of plants, seeds, or animals for the sale or resale to farmers;⁶⁴

3) The ownership by a non-profit or religious corporation;⁶⁵

4) When acquired for a non-farming use;⁶⁶

5) When acquired in a debt collecting proceeding;⁶⁷

6) When acquired by a municipal corporation;⁶⁸

7) Acquired when acting as a trustee;⁶⁹

8) Ownership or an interest in a lease entered into prior to the enactment of the statute;⁷⁰

9) The normal expansion of prior ownership; and,⁷¹

10) Special uses for which agricultural land may be used.⁷²

The exceptions which the statutes provides make it clear that the intention of the statutes is not to per se prohibit the corporate ownership of agricultural land. The availability of the family farm and authorized farm corporation exceptions are evidence that the states recognize the advantages which the corporate form of business offers. What these statutes are written to generally prohibit is the ownership of agricultural land by General Motors, General Electric, and General Dynamics, Incorporated.

D. ENFORCEMENT

One limitation on the effectiveness of these anti-corporate farming statutes would be their enforcement. Most of the statutes require a business organized for the purpose of engaging in agriculture to make annual reports regarding that involvement. ⁷³ Failure to report, or the violation of any of the statutory provisions will subject the business to penalties. The Attorney General in each state is empowered to bring actions to enforce the regulations.⁷⁴ Only Oklahoma allows a private citizen to bring an action.⁷⁵

Under the enforcement scheme provided by these statutes, where the corporation has an affirmative duty to report its own abuses, a question that arises is whether all corporate activity is being reported. Of course, the alternative to reports being sent in would require the state to send someone out to gather the information and prepare the report. When the time and expense of this alternative is taken into consideration, the method of self- reporting seems more feasible. It would be predictable that before any changes in the reporting method will occur, a showing will need to be made that abuses are not being reported.

E. JUDICIAL INTERPRETATION

The constitutionality of anti-corporate farming statutes appears to be a settled issue. The power to regulate corporate farming has not been litigated in all the states.⁷⁶ However, the results from cases in North Dakota, Nebraska, and Missouri would undoubtedly provide some precedential guidance in the other states. One of the first challenges to these anti- corporate farming statutes occurred in North Dakota.⁷⁷ In the Asbury Hospital v. Cass County case the Asbury Hospital (Hospital) challenged a North Dakota statute which stated, in part:

That any corporation, either domestic or foreign, that acquires any rural real estate, used or usable, for farming or agriculture, by judicial process or operation of law, hereafter, except such as is reasonably necessary in the conduct of its business, shall dispose of such real estate within ten years from the date that it is so acquired; . . . .

The Asbury Hospital case was cited in a later case from Nebraska -- Omaha National Bank v. Spire.⁸³ In this case, the law which was challenged was an amendment to the Nebraska Constitution, rather than a legislative statute.⁸⁴ The voters of Nebraska had adopted a constitutional amendment which provided:

No corporation or syndicate shall acquire, or otherwise obtain an interest, whether legal, beneficial, or otherwise, in any title to real estate used for farming or ranching in this state, or engage in farming or ranching.

The Nebraska Supreme Court first determined that the amendment had been validly adopted, and that it was applicable to a national bank doing business in the state.⁸⁷

The Court then discussed the alleged constitutional infringement. The Court noted that in matters relating to economic issues, the United States Supreme Court has, in effect, stated it will "defer to legislative determinations as to the desirability of particular statutory discriminations."⁸⁸ Unless a fundamental right is involved a discriminatory classification within a statute -- or in this case, constitutional amendment - need only "be rationally related to a legitimate state interest."⁸⁹

The Nebraska court found that the amendment addressed a legitimate state interest.⁹⁰ From the time of the American Revolution, it has been thought that actions which are taken to "eradicate the feudal incidents" resulting from the ownership of large landowners serve a public purpose.⁹¹ The Court further cited the Asbury Hospital case for the principle that prohibiting a corporation from owning agricultural land does not "'deny any right guaranteed to it by the several provisions of the Constitution of the United States and the [State Constitution] . . . .'"⁹²

A more recent challenge occurred in Missouri.⁹³ In State ex rel. Webster v. Lehndorff Geneva, the Missouri Supreme Court upheld the state's restriction on corporate land ownership using a rational basis test.⁹⁴ In reaching this conclusion the Missouri Court eloquently made the case for anti- corporate farming statutes by stating:

The effect of the statute, which forms a rational basis for the classification established, is to prevent the concentration of agricultural land, and the production of food therefrom, in the hands of business corporations to the detriment of traditional family units and corporate aggregations of natural persons primarily engaged in farming. Thus, large publicly held corporations are prevented from acquiring and operating large tracts of farmland. The legislature apparently believed that the superior financial and other business resources of these corporations would have a detrimental effect on traditional farming entities. This is because the cyclical nature of the farming industry periodically causes depressed markets and losses which large diversified corporations are better able to sustain. Thus, the traditional farming entities would operate at a competitive disadvantage. The statute also has the effect of prohibiting large corporations, already controlling much of the processing and distribution of agricultural commodities, from buying large tracts of land for production of the commodity in which they deal, so as to vertically integrate an industry to the competitive exclusion of traditional farming entities. It is within the provence of the legislature to enact a statute which regulates the balance of competitive economic forces in the field of agricultural production and commerce, thereby protecting the welfare of its citizens comprising the traditional farming community, and such statute is rationally related to a legitimate state interest.

V. ANTI-CORPORATE FARMING LAWS AND THE PRODUCTION OF AGRICULTURAL COMMODITIES

Up to this point, this article has focused on controlling land ownership as a method of protecting the family farmer. As the threat of increased competition from foreign investors has proven to be illusory, the primary area of activity has been in controlling competition from corporations; and as previously discussed, this regulation has been undertaken exclusively by the individual states.

However, agriculture in general, and farming specifically involves much more than simply land ownership. In order to remain profitable, the farmer must maximize his labor, capital, and management resources in the production of the products which he markets. In this regard, land is a resource, not the ultimate product of a farming operation. The farmer's product include livestock, the produce from livestock (ie. milk, eggs, wool), and the foodstuffs and feed grains grown on the land which the farmer controls.

This article will now turn its focus to corporate involvement in the production of agricultural commodities by looking at the methods of control, and considering a new issue for the future.

The enactment of statutes prohibiting the ownership, or lease, of agricultural land by corporations limits a significant portion of potential corporate involvement in agriculture. Not only is the corporation prohibited from acquiring and holding agricultural land, it is also denied control of an important input in the production of agricultural commodities.

The language of the statutes of seven of the states, Minnesota, Missouri Nebraska, Oklahoma, North Dakota, South Dakota, and Wisconsin also provides further discouragement to any corporate involvement in agriculture by prohibiting a corporation from engaging in farming.⁹⁶ In the statutes, farming is generally defined as: "cultivating land for the production of agricultural crops or livestock, or the raising or producing of livestock or livestock products, poultry or poultry products, milk or dairy products, or fruit or horticultural products. It does not include production of timber or forest products, nor does it include a contract whereby a processor or a distributor of farm products supplies or provides grain, harvesting, or other farm services."⁹⁷ In these states which include this additional language prohibiting a corporation from engaging in farming, many of the inputs in the production of agricultural commodities are removed from corporate control. The result is a fairly comprehensive prohibition on corporate control of land, labor, and livestock which encourages the corporation to invest its capital in other activities.

Iowa and Kansas have yet to enact a provision containing language prohibiting a corporation from engaging in farming. As previously noted, these states prohibit a corporation from taking an interest in agricultural land, however, engaging in agriculture can involve more than the ownership of land. An example of an agricultural activity which is not incident to the ownership of land would be a farming arrangement in which the corporation could contract to provide the equipment and other inputs needed to produce a crop on agricultural land owned by another. Engaging in agriculture could also involve the production of livestock. In this situation, while the corporation may not be able to own the agricultural land on which the livestock is produced, it would not be prohibited from owning the livestock which could be raised on the land of a person or entity not prohibited from owning agricultural land.

Iowa and Kansas do have statutes which contain similar language. Conceivably, some borrowing was done between the two states when the statues were originally enacted.⁹⁸ Yet, neither state borrowed language from the other seven states within the anti-corporate farming zone. Interestingly, the statutes from both states define farming,⁹⁹ and the definitions are similar to the definitions used by the other seven states. However, the statutes do not continue on to prohibit a corporation from engaging in farming as so defined. Perhaps the definition of farming was included in these statutes to complement the definition of a family farm corporation in that a family farm corporation is "founded for the purpose of farming."¹⁰⁰ As a result, in Iowa and Kansas, it is not necessary that a corporation qualify as a family farm corporation, or an authorized farm corporation before it may engage in farming and the production of agricultural commodities.

A. CONTROLLING VERTICAL INTEGRATION BY LIVESTOCK PROCESSORS

As was previously discussed, two of the states within the anti-corporate farming zone, Iowa and Kansas, do not prohibit a corporation from engaging in farming. This "loophole" was utilized by livestock processors who wished to vertically integrate their operations by owning the livestock they processed. When "a company involved in one phase of a business absorbs or joins a company involved in another phase in order to guarantee a supplier or a customer,"¹⁰¹ its is said to be vertically integrated. Owning or controlling the raw materials, or in this case, the livestock used in the production of a product is also a form of vertical integration.¹⁰² Vertical integration is advantageous because it gives a business the ability:

1) To closely ally with a particular market outlet to assure future market access;

2) to become tied more closely with a particular source of raw product, . . . that is not available on the open market, and that might improve profitability;

3) to acquire marketing and supervisory skills in order to better coordinate production to market specifications;

4) to obtain better financing through vertical coordination.¹⁰³ In other words, vertical integration ultimately results in a power to affect the market.

This practice was viewed as an unfair burden on the individual producer. Not only could the processor control the production of the livestock which it slaughtered, but it could do so in direct competition with individual producers. The processor could enjoy the advantages of vertical integration, while the individual producer would lose a buyer for his livestock. This situation was certainly not intended when the anti-corporate farming statutes were enacted. The statutes which denied ownership of agricultural land, and thus, the ownership of agricultural feedlots had been enacted for the express purpose of "preserv[ing] free and private enterprise, preventing monopoly and protecting consumers."¹⁰⁴

Iowa and Kansas each responded to the deficiency in their respective statutes by enacting amendments prohibiting vertical integration by processors.¹⁰⁵ However, while these states may have borrowed from one another when adopting statutory language in the past, they chose different approaches in this area. Iowa prohibits processor "own[ership], control, or operat[ion] of a feedlot in Iowa where hogs or cattle are fed for slaughter."¹⁰⁶ Kansas prohibits the "ownership of hogs by a processor. The Kansas statute also prohibits a processor from "contracting for the production of hogs."¹⁰⁷

Upon comparison, the Kansas statute was clearly superior in accomplishing the goal of limiting vertical integration by the processor. The Iowa statute would still allow for the ownership of cattle and hogs by the processor; and while the processor could not own the feedlots, they could control the production of livestock through the use of contract feeding.

The Iowa legislature responded with an amendment to the statute. The most recent amendment prohibits a processor from "control[ing] the manufacturing, processing , or preparation for the sale of pork products derived from swine if the processor contracted for the care and feeding of the swine in this state."¹⁰⁸ This provision does not completely foreclose the use of contract feeding by a processor. Hogs can still be fed under contract in neighboring states and then be transported into Iowa to be processed. Similarly, the processor could enter into a contract feeding agreement in Iowa for hogs which will be transported outside the state to be processed. However, neither of these options may be economically feasible, so the statute may have the effect of limiting the use of contract feeding of hogs by livestock processors.

The recent legislative reactions in Iowa and Kansas have moved these states closer in line with the statutes of other states in the anti-corporate farming zone which prohibit the production of agricultural commodities by a non-qualifying corporation. Yet, while the step was taken, it may prove to be one that was too short, as a corporation which is not a processor may still own livestock within these two states, or enter into contracts for the care and feeding of the animals.

Additionally, and possibly of greater importance, the statutory language of the remaining seven states which prohibit a corporation from engaging in agriculture may be interpreted as not reaching contract feeding. Or perhaps, the statutes will simply not be enforced. Such a result will render the control of contract feeding an important topic in all the states within the anti- corporate farming zone.

VI. CONTROLLING CONTRACT FEEDING; A NEW AGENDA IN ANTI-CORPORATE FARMING LAW?

A. THE PRODUCTION CONTRACT

Farming is an enterprise for entrepreneurs willing to invest time and money into an enterprise while shouldering the risk of production and risk of the market with the hope of making a profit to compensate them for their investment and management skill.

The contract feeding arrangement splits the traditional livestock production process under which the person who owned the livestock also fed and cared for them throughout the growing period. When contract feeding is used, a party who owns livestock will enter into an agreement for their care and feeding with a party who owns the production facilities (feedlots). The parties will typically agree that the owner of the feedlot will furnish the facilities and his labor in exchange for payment for the care and feeding of the livestock. The owner of the livestock will, in turn, agree to make payments during the time, or upon completion of the time, that the care and feeding is being rendered. The parties may also include agreements regarding who will bear the costs of production such as feed, medication, and utilities.

What is most notable about the use of contract feeding is that by splitting the traditional production process, and thereby splitting the risks, some of the elements of entrepreneurship associated with farming are shifted away from the individual producer.¹⁰⁹

The producer who enters into a production contract should realize that by gaining a person or entity with whom to share his risk, he is giving up two important characteristics of entrepreneurship - ownership and control. In the area of ownership, one commentator has written:

The farmer's entrepreneurial position is weakened substantially by never gaining ownership of the final product. Among other things, he cannot pledge the product as security for a loan, he must follow meticulous care instructions of the [owner] in growing the product, and it is not his [option] to hold for a better price or to sell elsewhere

The transfer of ownership and control also creates a loss of identity for the producer. Outwardly the producer conducts business in the same or similar manner as other producers, while unknown to an innocent observer, many of the rights of ownership and control have been shifted away.¹¹² Lenders, suppliers, and others who are unaware of the underlying production contract may be misled as to their rights and security in the producer's operation.

As the producer looses identity as a sole proprietor, questions arise as to what the producer becomes. "Is the [producer] an agent, an independent contractor, a partner, a joint venturer, a borrower, a bailee, or is there some other form of business relationship?"¹¹³ If producers shift rights and control, do they then become a employee of the owner? If this is not the result desired by the producer, nor the owner, what amount of ownership and control should be shifted, and what amount retained? These questions should be answered within the production contract along with the other provisions discussed below.

B. PRODUCTION CONTRACTS - FAIRNESS OR FEUDALISM?

There is a danger when the producer contracts away too much of the right to control the production process. Given the unequal bargaining position from which many individual producers operate, production contracts have the potential of transforming the independent farmer into a serf on his own land.¹¹⁴

In most situations, the contracting parties will not possess equal bargaining power. Typically, an individual producer is provided a contract which has been drafted by an agribusiness corporation. The corporation is looking to vertically integrate its operation; usually the processing or marketing of some agricultural product. As the success or failure of the integration depends on strict control of a corporation's costs, there is usually little room for negotiation on many of the provisions of the contract.

Some of the inequities may be attributable to cultural differences. Community standards and traditions may incorporate the implied covenant of good faith and fair dealing¹¹⁵into an individual producer's day-to-day business dealings. The producer may be accustomed to operating under verbal agreements when dealing with neighbors and local merchants. In these situations a precise written contract outlining specific duties may be unnecessary. Community standards may not affect the corporate consciousness in the same manner.

Economic differences between the parties also affect the bargaining position of the parties.¹¹⁶ Finally, differences in educational levels may play a part. However, even sophisticated producers are subject to unfair treatment when their option upon entering into a contract is "take it", or "leave it."

The provisions which are presented as "take it, or leave it" provisions include the owner's control over when animals are placed at the producer's facilities, and when they are removed or marketed; control of the feeding decisions; and control of medications.¹¹⁷ The contract will usually provide the owner with control over the timing, method, and rate of payment.¹¹⁸ The contract may also provide for a reduction of the producer's payment if production goals are not met, or expenses or death losses exceed certain levels.¹¹⁹ On rare occasions, there may be bonus provisions if the producer reduces expenses below anticipated levels, or reduces death losses.

The concept of contract feeding of livestock is not new. The broiler chicken industry has utilized contracting for many years.¹²⁰ Contract feeding has subsequently expanded into the entire poultry industry (ie. egg production, turkeys).¹²¹ Thus, the poultry industry provided the testing ground where production contracts developed. The poultry industry also provides examples of the inherent dangers involved when a producer enters into a contract under which the right of ownership and control is transferred away.

A case out of the United States District Court for Alabama illustrates this point.¹²² The case of Braswell v. Conagra, Inc., a class action suit, was brought on behalf of producers who had contracted with the agribusiness firm Conagra Inc. ("Company") to grow out broiler chickens during the eight-year period from June 1, 1977 to April 4, 1985.¹²³

Under the provisions of the standard form contract, the Company provided the producer with chickens, feed, and medicine; the producer provided the housing and day-to-day care.¹²⁴ The Company set minimum standards under which the chickens were to be raised.¹²⁵ The Company decided the time when the chickens would be removed from the producer's facilities.¹²⁶ The Company dictated the process under which the producer's payment were to be determined.¹²⁷ This final element - the determination of payment - proved to be an area in which the producers were defrauded and underpaid.

The Company's procedure in determining payment, at the end of a growing period, began with the delivery of an empty truck to the producer's farm, onto which chickens were loaded and the transported to the Company's facilities.¹²⁸ Once at the Company's plant, the truck was weighed, unloaded, and weighed again empty. The difference between the weight of the truck when it arrived full (gross weight) and the weight once it had been unloaded (tare weight) was recorded as a net weight.¹²⁹ This net weight was used to determine the producer's payment. Payment was based upon a formula keyed to the number of pounds of live broiler chickens produced (net weight) taking into account a ratio between weight gained and feed consumed.¹³⁰

According to the evidence at trial in this case, Company employees participated in a systematic program of misweighing where the tare weight of an unloaded truck was inflated and recorded at a weight which was greater than a true weight. As a result of the falsification of the empty weight, the total number of pounds of chicken produced by a producer would be less yielding a smaller payment. Some of the methods included, switching trucks so that a lighter truck was used to determine the gross weight and a heavier truck was used to determine the tare weight.¹³¹ In some instance, the fuel tanks of the truck would be refilled prior to the second weighing for tare weight.¹³² Less imaginative actions included loading the truck with steel grates prior to reweighing, or simply allowing two or three persons to stand on the scale while the truck was weighed following unloading.¹³³

The plaintiffs in the Braswell case prevailed at the trial court level on claims of breach of contract and fraud.¹³⁴ However, the plaintiffs would have been equally well served by a contract with a provision protecting their interests when the chickens were weighed and contract payments determined. Because of the apparent inequities in the contract which the plaintiffs executed with Conagra they were required to resort to bringing suit to enforce their rights.

An equitable provision could have required the Company to weigh a truck, with fuel tanks full, prior to departure for a producer's facilities. The producer would then be provided with a copy of the scale ticket indicating the empty (tare) weight when the truck arrived at the producer's farm. once loaded, and upon arrival at the Company's plant, the fuel tanks would be refilled, and the loaded truck would be weighed to determine the full (gross) weight. The producer would receive a second copy of the scale ticket indicating the gross weight. The difference between the weights on the two tickets (net weight) would provide the producer and Company with a true measure of the number of pounds of live chickens produced. A procedure similar to the foregoing would help eliminate all but the more blatant fraudulent activities undertaken by the Company's employees. Eliminating false weights which resulted from allowing extra people to stand on the scale during weighing would require more modification to the contract. The contract could require that trucks weights, both empty and full, would be determined at an independent scale and not at the Company's facilities.

1. Moving Toward Fairness - The Contract.

There are many provisions to a production contract. The Braswell case provides but one example of an instance where a producer may suffer as a result of an unequal bargaining position.

A provision addresing the relationship of the parties will eliminate potential problems, discussed previously, regarding whether the producer is an independent contractor, or an agent of the owner.¹³⁵ Other areas where adequate provisions should be made to protect the individual producer include provisions addressing:

1) the duration, or length, of the contract period,

2) the timing of the delivery and removal of the animals,

3) the feed consumption goals,

4) the death loss tolerances,

5) the determination of payments,

6) the provision as to which party has the risk of loss of the animals while at the producer's facilities and while in transit,

7) the provision as to dispute resolution, and

8) contract termination, with, or without, default by either party.

While all of these items should be given consideration at the time a production contract is executed, each individual producer may place these items in a different order of priority depending upon the circumstance of their operation. As an example, a producer who is dependent upon a guaranteed number of contract payments to repay a loan which financed the construction, or remodeling, of facilities would place a high priority on contract length. In this area, it is important to note, production contracts have been vital to the expansion of many producer's facilities. The payments under a production contract provides the security necessary in many lender's loan documentation requirements.

2. Moving Toward Fairness - Legislation.

The question whether the states should move to limit the use of contract feeding by a corporation is in some ways analogous to the question about controlling corporate ownership of agricultural land. As the caselaw indicates, there is a legitimate state interest in protecting the citizens of a state from unfair competition.¹³⁶ Even so, controlling corporate contract feeding may be distinguished from controlling corporate ownership of agricultural land.

When corporations compete with the family farm for land ownership, the only possible benefit which family farmers may realize is an increase in the value of the land they already own, because increased competition will drive up the price of land. This benefit has little actual value however unless the family farmer is in a position to sell his farm.¹³⁷ Conversely, when a corporation enters into a contract feeding agreement, the family farm may receive a direct benefit. Rather than being squeezed out because of competition, the family farmer could take advantage of the situation. The corporation will be in need of a facility where the livestock can be raised and the family farmer could fill this need. Contract feeding could allow the individual to continue farming through the sharing of risk in a livestock production enterprise with the corporate owner of livestock.

The goal of actions taken to control contract feeding should not be aimed at eliminating the corporation from the production contract process in the same way the corporation is limited from owning agricultural land. Rather, the goal of controls placed on livestock production contracts should be aimed at promoting the family farm while eliminating the inequities of market power which exists between the corporation and the individual producer. Laws which prohibit corporate ownership of livestock may protect the producer within a state from competition; however, such a law may also eliminate an opportunity for some producers expand their business, or enter into new operations.

One step in the process would be to allow the corporate ownership of livestock raised under contract within a state if the at least one of the contracting parties is either an individual farmer, family farm corporation, or authorized farm corporation. In this way, the family farmer could be protected from the competitive forces of corporations producing agricultural commodities, and yet they would be able to take advantage of the option of entering into production contracts. If this approach is undertaken, it would be advisable for the states to pay close attention to the definition of an authorized farm corporation. Otherwise, such a provision may encourage the formation of authorized farming corporations by non-farm individuals solely for the purpose of operating as contract caregivers for a sister corporation which owns the livestock.

This would be only one step; provision would still need to be made regarding the issue of fairness in the contracts.

VII. SUMMARY

Agriculture and farming abound with risks and competitive forces. Of the two sources of competition for ownership of agricultural land - the foreign investor and the corporation - the threat of the former has proven to be illusory while the threat of the later remains real. "[N]o other [business] form has approached the success of the corporation in bringing together money, resources, and talent; in accumulating assets; and in creating wealth."¹³⁸ Without some regulation of corporate involvement in agriculture, the individual producer is distinctly disadvantaged. Nine states forming a contiguous block in the Upper Midwestern United States have responded by enacting anti-corporate farming statutes. The nine states provide protection to the individual producer from the competitive forces of publicly held corporations in the agricultural land market. Although it is not as comprehensive, the nine states also provide protection for the individual producing agricultural commodities. Perhaps the farming practices, climatic conditions, land ownership laws, land transfer laws, population characteristics and culture which make this section of the country unique explains why the laws which these states have enacted have not been duplicated in other sections of the country.¹³⁹ If so, then anti-corporate farming statutes will remain law which is uniquely Midwestern.

Agricultural production contracts may provide an exception. Producers of agricultural commodities from Alabama to California, and from Minnesota to Texas are subject to unfair contract provisions and practices regardless of whether a state has enacted an anti-corporate farming statute. Producers, or their legal counsel, should carefully review the provisions of a production contract prior to its execution. Even if certain provisions are non-negotiable, the producer should be made aware of the potential effect of each provision.

The regulation of agricultural production contracts may make up a part of a new agenda in anti-corporate farming law. In the event the legislatures from the states inside, as well as outside, the anti-corporate farming zone seek to regulate these contracts, it should be remembered statutes can be written to both prohibit and promote. Legislatures could promote the family farm while regulating agricultural production contracts by requiring that one of the contracting parties must be a family farmer. This would insure the producer of a place in the production process rather than squeezing them out.

If the goal of promoting production contracts while protecting the individual producer from unfair contract provisions and practices is adopted; perhaps, in the future we won't be asking whether there is a moral obligation to save the family farm. If action can be taken which both protects and promotes - the family farmers may be able to save themselves.

Incorporation of a farm or ranch business creates additional and interesting possibilities for financing the operation. Farmers operating their businesses as sole proprietorships contribute all of the equity capital used in the business. Debt capital is obtained from outside lenders, usually in arm' s length transactions. Sole proprietors may not be creditors with respect to their business.

No corporation or trust, other than a family farm corporation, authorized farm corporation, family trust, authorized trust or testamentary trust shall, either directly or indirectly, acquire or otherwise obtain or lease any agricultural land in this state.

No corporation, trust, limited partnership or corporate partnership, other than a family farm corporation, authorized farm corporation, limited agricultural partnership, family trust, authorized trust or testamentary trust shall, either directly or indirectly, own, acquire or otherwise obtain or lease any agricultural land in this state.

No corporation, pension or investment fund, or limited partnership shall engage in farming; nor shall any corporation, pension or investment fund, or limited partnership, directly or indirectly, own, acquire, or otherwise obtain an interest, whether legal, beneficial or otherwise, in any title to real estate used for farming or capable of being used for farming in this state.

After September 28, 1975, no corporation not already engaged in farming shall engage in farming; nor shall any corporation, directly or indirectly, acquire, or otherwise obtain an interest, whether legal, beneficial or otherwise, in any title to agricultural land in this state . . . .

No corporation shall engage in farming; nor shall any corporation, directly or indirectly, own, acquire, or otherwise obtain an interest, whether legal, beneficial or otherwise, in any title to real estate used for farming or capable of being used for farming in this state.

All corporations, except as otherwise provided in this chapter, are prohibited from owning or leasing land used for farming or ranching and from engaging in the business of farming or ranching.

No corporation or trust may own land on which to carry on farming operations . . . .

No corporation or syndicate shall acquire, or otherwise obtain an interest, whether legal beneficial, or otherwise, in any title to real estate used for farming or ranching in this state, or engage in farming or ranching.

No corporation shall be created or licensed in this State for the purpose of buying, acquiring, trading, or dealing in real estate . . . .

a. Founded for the purpose of farming and the ownership of agricultural land in which the majority of the voting stock is held by and the majority of the stockholders are persons related to each other as spouse, parent, grandparent, lineal ascendants of grandparents or their spouses and other lineal descendants of the grandparents or their spouses, or persons acting in a fiduciary capacity for persons so related;
b. All of its stockholders are natural persons or persons acting in a fiduciary capacity for the benefit of natural persons or family trusts as defined in subsection 11 of this section; and c. Sixty percent of the gross revenues of the corporation over the last consecutive three-year period comes from farming.

(l) Founded for the purpose of farming and the ownership of agricultural land in which the majority of the voting stock is held by and the majority of the stockholders are persons related to each other, all of whom have a common ancestor within the third degree of relationship, by (2) all of its stockholders are natural persons or persons acting in a fiduciary capacity for the benefit of natural persons; and (3) at least one of the stockholders is a person residing on the farm or actively engaged in the labor or management of the farming operation. A stockholder who is an officer of any corporation referred to in this subsection and who is one of the related stockholders holding a majority of the voting stock shall be deemed to be actively engaged in the management of the farming corporation. If only one stockholder is meeting the requirement of this provision and such stockholder dies, the requirement of this provision does not apply for the period of time that the stockholder's estate is being administered in any district court in Kansas.

"Family farm corporation" means a corporation founded for the purpose of farming and the ownership of agricultural land in which the majority of the voting stock is held by and the majority of the stockholders are persons or the spouses of persons related to each otherwithin the third degree of kindred according to the rules of the civil law, and at least one of said related persons is residing on or actively operating the farm, and none of whose stockholders are corporations; provided that a family farm corporation shall not cease to qualify as such hereunder by reason of any devise or bequest of shares of voting stock

"Family Farm corporation" means a corporation incorporated for the purpose of farming and the ownership of agricultural land in which at least one-half of the voting stock is held by and at least one-half of the stockholders are members of a family related to each other within the third degree of consanguinity or affinity including the spouses, sons-in-law and daughters-in-law of any such family member according to the rules of the common law, and at least one of whose stockholders is a person residing on or actively operating the farm, and none of whose stockholders are a corporation prohibited by section 350.015 from entering into farming, or any corporation which is subject to the controlled expansion provisions of section 350.015; provided that a family farm corporation shall not cease to qualify as such hereunder by reason of any gift, devise or bequest of shares of voting stock. A person actively operating a farm shall include, but not be limited to, a person who has an ownership interest in the family farm corporation and exercises some management control or direction.

Family farm or ranch corporation shall mean a corporation engaged in farming or ranching or the ownership of agricultural land, in which the majority of the voting stock is held by members of a family, or a trust created for the benefit of a member of that family, related to one another within the fourth degree of kindred according to the rules of civil law, or their spouses, at least one of whom is a person residing on or actively engaged in the day to day labor and management of the farm or ranch and none of whose stockholders are non-resident aliens and none of whose stockholders are corporations or partnerships, unless all of the stockholders or partners of such entities are persons related within the fourth degree of kindred to the majority of stockholders in the family farm corporation.

Qualifications of family farm corporation. As used in this chapter, unless the context otherwise plainly requires, "family farm corporation" means a corporation founded for the purpose of farming and the ownership of agricultural land in which the majority of the voting stock is held by the majority of the stockholders who are members of a family related to each other within the third degree of kindred, and at least one of whose stockholders is a person residing on or actively operating the farm, and none of whose stockholders are corporations; provided, that a family farm corporation shall not cease to qualify as such hereunder by reason of any devise or bequest of shares of voting stock.

This chapter does not prohibit a domestic corporation from owning real estate and engaging in the business of farming or ranching, if the corporation meets all the requirements of chapters 10-19.1, 10-22, and 10-23 not inconsistent with this chapter. The following requirements also apply:

1. The corporation must not have more than fifteen shareholders.
2. Each shareholder must be related to each of the other shareholders within one of the following degrees of kinship or affinity: parent, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, brother, sister, uncle, aunt, nephew, niece, great-grandparent, great-grandchild, first cousin, or the spouse of a person so related.
3. Each shareholder must be an individual or one of the following:
a. A trust for the benefit of an individual or a class of individuals who are related to every shareholder of the corporation within the degrees of kinship or affinity specified in this section.
b. An estate of a decedent who was related to every shareholder of the corporation within the degrees of kinship or affinity specified in this section.
4. Neither a trust nor an estate may be a shareholder if the beneficiaries of the trust or the estate together with the other shareholders are more than fifteen in number.
5. Each individual who is a shareholder must be a citizen of the United States or a permanent resident alien of the United States.
6. The officers and directors of the corporation must be shareholders who are actively engaged in operating the farm or ranch and at least one of its shareholders must be an individual residing on or operating the farm or ranch.
7. An annual average of at least sixty-five percent of the corporation's gross income over the previous five years, or for each year of its existence, if less than five years, shall have been derived from farming or ranching operations.
8. The corporation's income from nonfarm rent, nonfarm royalties, dividends, interest, and annuities cannot exceed twenty percent of the corporation's gross income.

A domestic corporation may however be formed under the Oklahoma General Corporation Act to engage in such activity if the following requirements are met by that domestic corporation:

1. There shall be no shareholders other than (a) natural persons; (b) estates; (c) trustees of trusts for the benefit of natural persons, if such trustees are either (i) natural persons or (ii) banks or trust companies which either have their principal place of business in Oklahoma or are organized under the laws of the State of Oklahoma; or (d) corporations owned by no shareholders other than those described in paragraph l(a), (b) or (c) of this section and meeting the requirements of paragraph 3 of this section.
2. Not more than thirty-five percent (35%) of the corporation's annual gross receipts shall be from any source other than (a) farming or ranching or both, as the case may be, or (b) allowing others to extract from the corporate lands any minerals underlying the same, including, but not limited to, oil and gas. Provided, however, in the event a corporation does not comply with the thirty-five percent (35%) annual gross receipt test, then, in that event the corporation may furnish records of its gross receipts for each of the previous five (5) years, or for each year that it has been in existence if less than five (5) years, and the average of said annual gross receipts shall be used in lieu of the corporation's annual gross receipts for the purposes of complying with this section.
3. There shall not be more than ten shareholders unless said shareholders in excess of ten are related as lineal descendants or are or have been related by marriage to lineal descendants or persons related to lineal descendants by adoptions or any combination of same.
4. Certificates of incorporation for domestic corporations which intend to engage in farming or ranching or owning or leasing any interest in land to be used in the business of farming or ranching shall initially be approved by the State Board of Agriculture concerning the purpose prior to filing in the office of the Secretary of State. No stated purpose is to be disapproved by the Board of Agriculture unless such stated purpose violates existing civil or criminal code.

a. The stockholders do not exceed twenty-five in number; and
b. The stockholders are all natural persons or persons acting in a fiduciary capacity for the benefit of natural persons or nonprofit corporations.

"Authorized farm corporation" means a Kansas corporation, other than a family farm corporation, all of the incorporators of which are Kansas residents and which is founded for the purpose of farming and the ownership of agricultural land in which:

(1) The stockholders do not exceed 15 in number;
(2) the stockholders are all natural persons or persons acting in a fiduciary capacity for the benefit of natural persons or nonprofit corporations; and
(3) at least 30% of the stockholders are persons residing on the farm or actively engaged in the day-today labor or management of the farming operation. If only one of the stockholders is meeting the requirement of this provision and such stockholder dies, the requirement of this provision does not apply for the period of time that the stockholder's estate is being administered in any district court in Kansas.

"Authorized farm corporation" means a corporation meeting the following standards:

(l) its shareholders do not exceed five in number;
(2) all its shareholders, other than any estate are natural persons;
(3) it does not have more than one class of shares; and
(4) its revenues from rent, royalties, dividends interest and annuities does not exceed 20 percent of its gross receipts; and
(5) shareholders holding 51 percent or more of the interest in the corporation must be residing on the farm or actively engaging in farming;
(6) the authorized farm corporation, directly or indirectly, owns or otherwise has an interest, whether legal, beneficial, or otherwise, in any title to no more than 1,500 acres of real estate used for farming or capable of being used for farming in this state; and
(7) a shareholder of the authorized farm corporation is not a shareholder in other authorized farm corporations that directly or indirectly in combination with the authorized farm corporation own not more than 1,500 acres of real estate used for farming or capable of being used for farming in this state.

Qualifications of authorized small farm corporation. As used in this chapter, unless the context otherwise plainly requires, "authorized farm corporation" means a corporation whose shareholders do not exceed ten in number, whose shareholders are all natural persons or estates, whose shares are all of one class, and whose revenues from rent, royalties, dividends, interest and annuities do not exceed twenty percent of its gross receipts.

No corporation or trust may own land on which to carry on farming operations unless the corporation or trust meets the following standard:

(a) Its shareholders or beneficiaries do not exceed 15 in number. Lineal ancestors and descendants and aunts, uncles and 1st cousins thereof count collectively as one shareholder or beneficiary for purposes of this paragraph, but this collective authorization shall not be used for more than one family in a single corporation or trust: (b) It does not have more than 2 classes of shares; (c) All its shareholders or beneficiaries, other than any estate, are natural persons.

(2) "Authorized farm corporation" means a corporation meeting the following standards:

(a) All of its shareholders, other than any estate, or revocable and irrevocable trusts, are natural persons; (b) It must receive two-thirds or more of its total net income from farming as defined in this section.

In order to preserve free and private enterprise, prevent monopoly, and protect consumers, it is unlawful for any processor of beef or pork or limited partnership in which a processor holds partnership shares as a general partner or partnership shares as a limited partner, to own, control or operate a feedlot in Iowa in which hogs or cattle are fed for slaughter. However, this section shall not preclude a processor or limited partnership from contracting for the purchase or feeding of hogs or cattle, provided that where the contract sets a date for delivery which is more than twenty days after the making of the contract it shall: 1. Specify a calendar day for delivery of the livestock; or 2. Specify the month for the delivery, and shall allow the farmer to set the week for the delivery within such month and the processor or limited partnership to set the date for delivery within such week. This section shall not prevent processors or educational institutions from carrying on legitimate research, educational, or demonstration activities, nor shall it prevent processors from owning and operating facilities to provide normal care and feeding of animals for a period not to exceed ten days immediately prior to slaughter, or for a longer period in an emergency. Any processor or limited partnership which owns, controls, or operates a feedlot on August 15, 1975 shall have until July 1, 1985 to dispose of the property.

In order to preserve free and private enterprise, prevent monopoly and protect consumers, it is unlawful for any processor or pork or limited partnership in which a processor holds partnership shares as a general partner or partnership shares as a limited partner to: (l) Contract for the production of hogs of which the processor is the owner or (2) own hogs, except such processor may own hogs for 30 days before such hogs are manufactured, processed or prepared for sale as pork products.

Many factors influence the type of farming followed in a community. Biological conditions, such as the prevalence of insect pests, weeds, and plant and animal diseases are important. Economic factors such as the availability of relatively cheap labor in the South and Southwest, or the location of nearby market outlets for perishable products are the critical influences in certain areas.