Corporate Farming Laws: A Policy Dilemma for States
Jeffrey S. Royer
During the 1970s and 1980s, several Midwestern states passed corporate farming laws designed to protect traditional family farms from competition by large investor-owned corporations. Although the provisions of these laws vary widely, they generally place restrictions on the farming or land-holding activities of nonfamily-farm corporations and similar business entities. Seven states--Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota--currently have provisions prohibiting corporations or packers from producing livestock or engaging in contract feeding. All but North Dakota are among the nation's ten largest hog producing states.
Major structural changes have been occurring in the pork industry. Hog production has been shifting from thousands of small, independent producers to fewer and larger operations. Many of the largest operations are owned by corporations or produce hogs under contract for packers, feed companies, or farrowing firms. Although states with corporate farming laws have been able to curtail corporate hog production within their borders, individual states are powerless to control the policies set by other states, some of which have created economic incentives to attract large hog production and processing facilities in order to increase employment and economic development. Given the national and international scope of the pork industry, corporate hog operations compete with independent producers, even those in states where they are protected by corporate farming laws.
Many of the new pork facilities have been built in North Carolina and in states such as Colorado, Oklahoma, Utah, and Wyoming, where hog production has not been important in the past. Meanwhile, there has been a general decline in production in the Midwestern states that historically have been the largest suppliers of hogs.
In the May issue of the Review of Agricultural Economics, V. James Rhodes, professor emeritus at the University of Missouri, summarized the situation:
State policy makers face a basic economic quandary. If family farmers in states A and B obtain, or keep, anticorporate legislation that effectively bars big firm hog production, and then that production goes to welcoming states C and D, the economic benefits of a new employer have been lost. Moreover, the family farmers in states A and B have not been saved, because in a national pork market, the impact of the new production on hog prices in states C and D is the same as if it were in states A and B. Realization of that economic limitation to state regulation has led to considerable pressures for change in several Midwestern states with restrictive regulations.
Indeed, two states recently have relaxed their corporate farming laws in an effort to increase or maintain hog production. In 1993, Missouri exempted three counties from its corporate restrictions, and, in 1994, Kansas provided counties the option of individually authorizing corporate hog farming.
A similar situation exists with respect to environmental regulation. Recently, some states have considered tightening the regulation of large hog confinements in light of odor complaints and the manure spills that occurred this year in North Carolina, Iowa, Minnesota, and Missouri. However, states that adopt stringent regulations to protect residents and the environment from hog odor, waste disposal, and water quality problems may find that their actions will encourage expanding pork firms to locate new facilities in other states. States may be able to avoid this dilemma only by adopting a uniform approach through regional compacts or federal legislation.
This type of dilemma is not unique to the pork industry. State and municipal governments face similar circumstances in the interstate bidding war for manufacturing plants and the opportunities for employment and economic development they may bring. At the national level, there are concerns that the United States may be losing jobs to countries with less stringent environmental protection and that the costs of regulatory compliance make U.S. products less competitive in the world market. Even welfare reform could create another dilemma of this sort. A criticism of current proposals to turn social welfare programs over to the states is that states would have an incentive to reduce the benefits they pay to avoid attracting welfare recipients from other states.
From Cornhusker Economics, Nov. 1, 1995.