Amicus Curiae Brief — Dakota Rural Action v. South Dakota Farm Bureau, Inc.

Supréme Court, Us.

(3) FILED

MAR 4 - 2604

No. 03-1108

: OFFICE OF THE CLERK |

In The

Supreme Court of the Anited States

4

THE SOUTH DAKOTA SECRETARY OF STATE AND

THE SOUTH DAKOTA ATTORNEY GENERAL,

Petitioners,

v.

SOUTH DAKOTA FARM BUREAU, INC., et al.,

Respondents.

7

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Eighth Circuit

¢

BRIEF OF THE STATES OF MINNESOTA,

MISSOURI, OKLAHOMA, AND THE

COMMONWEALTH OF PUERTO RICO AMICI

CURIAE IN SUPPORT OF PETITIONERS

¢

MIKE HATCH

Attorney General

State of Minnesota

Counsel of Record

MICHAEL J. VANSELOW

Deputy Attorney General

445 Minnesota Street, Suite 1100

St. Paul, Minnesota 55101-2128

(651) 296-9418

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

Amici Curiae:

JEREMIAH W. (JAY) NIXON

Attorney General of Missouri

Supreme Court Building

207 West High Street

Jefferson City, MO 65101

(573) 751-3321

W.A. DREW EDMONDSON

Attorney General of Oklahoma

2300 N. Lincoln Boulevard, Suite 112

Oklahoma City, OK 73105-4894

(405) 521-3921

ANABELLE RODRIGUEZ

Secretary of Justice of the

Commonwealth of Puerto Rico

P.O. Box 9020192

San Juan, PR. 00902-0192

(787) 724-2165

TABLE OF CONTENTS

Page

I onc scasensiinvoanssvscvaevastncssunesesaseens i

REE OA BURT BMI IRE ELI ovscroseesscosossenssvonenesorsssaconsonse ii

INTEREST OF THE AMICI CURIAE STATEG........... 1

SUMMARY OF ARGUMENT. ...................:cccccssssssseesesees

I. Legitimate And Non-Discriminatory State

Interests Support State Laws Prohibiting Cor-

I ds cincctdnseusuosesaueosaredousntvenssssiseners 3

II. The Eighth Circuit’s Commerce Clause Analy-

sis Is Inconsistent With The Directives Of This

A. The Eighth Circuit’s Analysis Of Whether

Amendment E Discriminates Against In-

terstate Commerce Is Flawed..................... 8

B. The Eighth Circuit Did Not Apply The Ap-

propriate Test To Determine The Validity

I 5 oss coke uisvnania Veidieaivaviteiipinansvee 10

ie iat puck. sianenseesveniinanrendereneiaeresssenvensvinsesen 13

il

TABLE OF AUTHORITIES

Page

CASES:

Asbury Hosp. v. Cass County, 326 U.S. 207 (1945)......... 2,6

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)........... 9

C & A Carbone, Inc. v. Town of Clarkstown, 511

Ss Se CE see vxcetinniicuanscdisnornaneciemaenensntresiacsiumets 9

CTS Corp. v. Dynamics Corp. of Amer., 481 U.S. 69

CEE dba ica em eeunsnehramsyadcaecauienssaenaienen 2,10, 12

Hampton Feedlot, Inc. v. Nixon, 249 F.3d 814 (8th _

Se. SEE sussacisoviiicns pndesdasinieesnietinctoiaseesaasecisabanaeatameekiaes 5

Hughes v. Oklahoma, 441 U.S. 322 (1979)......... 2, 8,10, 11

Hunt v. Washington Apple Adver. Comm’n, 432 U.S.

I BU Siacucncousnstcesauadcnmvaatetecaice sdeetonneeuiambseaaeoias 9, il

Huron Portland Cement Co. v. City of Detroit, 362

Oo ee NE visienteatissecthcncson ied lacntealotaitienen 12

Lewis v. BT Inv. Managers, Inc., 447 U.S. 27 (1980).......... 9

Minnesota v. Clover Leaf Creamery Co., 449 U.S.

Lk | eT a eee ECE Se me 9,10

MSM Farms, Inc. v. Spire, 927 F.2d 330 (8th Cir.

BINA sehsevicienntédhimcasivsnanetceraamaeasidisemamiaamaadaa 6

Omaha Nat? Bank v. Spire, 389 N.W.2d 269 (Neb.

BO sa tdcsaorindiosinaiesstcisdacsenashenasennicdaeen eames 10

Oregon Waste Sys., Inc. v. Dep’t of Envtl. Quality,

BS Le nee: ane 7, 8, 11

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)... 2, 3, 8, 11

iii

TABLE OF AUTHORITIES — Continued

Page

State ex rel. Webster v. Lehndorff Geneva, Inc., 744 |

iS. Wee re CARD. BONO hiietisiseicucticemesioen 2, 5, 6

West Lynn Creamery, Inc. v. Healy, 512 U.S. 186

GE snisinichiscTacccainciaicencnsasncaenaladeaiataaet cone 8,9

STATUTES:

F CBA. | BR) CO soi cccceccsccsccvicerniccion aeadigiiaeia 7

See COE AR. & re Gr viv nkcorcendcaicieenesen 1

Kan. Stat. Ann. § 17-5904 (1995 and Supp. 2002)............ 1

Minn. Stat. § 500.24 (2002).......ssssssesecssseseeeesessesesseneenenees 1,3

Dado. Stak. Aaums. § GEOG CE oc csscssenesacsccrcasinsviavevenseavapenns 1

N.D. Cent. Code § 10-06.1-02 (2008)..cncccccsssscsesccccesvessonesses 1

Pane. Ck, Gk. Bile OO vvssicincdck eee 1

Chia. Gonet. 008. 55, 9 scccsisiccicsmnvtonciomaeeaennnan 1

S.D. Codified Laws § 47-9A-1 (2008) ..................ccccscceeceecees 1

Wis. Stat. § 182.001 (2002)... ee i abawasbaeanenspauannan 1

MISCELLANEOUS:

Family Farm Antitrust Act of 1979: Hearings on S.

334 Before the Subcomm. on Antitrust, Monopoly,

and Business Rights of the Senate Comm. on the

Judiciary, 96th Cong., Ist Sess. 68 (1979).................cce. 5

James B. Wadley, Small Farms: The USDA, Rural

Communities, and Urban Pressures, 21

WASHBURN L. J. 478 (1982)

1V

TABLE OF AUTHORITIES -— Continued

Page

Jan Stout, The Missouri Anti-Corporate Farming

Act: Reconciling the Interests of the Independent

Farmer and the Corporate Farm, 64 UMKC L.

es A PMO ia.csnsiinssicharniepeinsaoececusamimionsieasenbabiaaueoreduaees 5

Rick Welsh and Thomas A. Lyson, Anti-Corporate

Farming Laws, the “Goldschmidt Hypothesis,”

and Rural Community Welfare (2002) .............ccc000000 4,7

1

INTEREST OF THE AMICI CURIAE STATES

This amici curiae brief is submitted on behalf of the

States of Minnesota, Missouri, Oklahoma, and the Com-

monwealth of Puerto Rico in support of the Petition for

Writ of Certiorari brought by the South Dakota Secretary

of State and the South Dakota Attorney General. In this

case, the Eighth Circuit Court of Appeals held that the

South Dakota anti-corporate farming law, known as

Amendment E, which was adopted in 1998 by South

Dakota voters as an amendment to their state constitu-

tion, violates the dormant Commerce Clause. Pet. App. 27.

Specifically, the Eighth Circuit concluded that Amendment

E was motivated by a discriminatory purpose and that

Defendants had not satisfied their burden of showing that

non-discriminatory alternatives would not advance the

interests furthered by Amendment E. Pet. App. 25-27.

The amici curiae States and Commonwealth respect-

fully request this Court to grant the Petition for Writ of

Certiorari because the Eighth Circuit’s decision involves a

question of significant importance to agricultural states,

particularly those attempting to protect family farms and

their rural communities. If allowed to stand, the Eighth

Circuit’s decision could have a detrimental impact on

similar state laws’ prohibiting corporate farming. Conse-

quently, the amici curiae States and Commonwealth have

* Currently, nine states, including South Dakota, prohibit corpo-

rate farming to some extent. See Iowa Code Ann. § 9H.4 (2003); Kan.

Stat. Ann. § 17-5904 (1995 and Supp. 2002); Minn. Stat. § 500.24

(2002); Mo. Stat. Ann. § 350.015 (2001); Neb. Const. art. XII, § 8; N.D.

Cent. Code § 10-06.1-02 (2003); Okla. Const. art. 22, § 2; S.D. Codified

Laws § 47-9A-1 (2003); Wis. Stat. § 182.001 (2002).

a strong interest in ensuring that limitations on corporate

farming are upheld.

SUMMARY OF ARGUMENT

State laws prohibiting corporate farming enjoy a long

history of judicial and legislative recognition based on a

state’s important and legitimate interest in preventing the

corporate takeover of farmland at the expense of inde-

pendent family farms and the welfare of rural farming

communities. See, e.g., Asbury Hosp. v. Cass County, 326

U.S. 207 (1945); State ex rel. Webster v. Lehndorff Geneva,

Inc., 744 S.W.2d 801 (Mo. 1988). In analyzing whether

Amendment E violates the dormant Commerce Clause, the

Eighth Circuit did not consider the strength of the state

interests involved. Rather, relying solely on statements

made by some of the drafters, the court held that Amend-

ment E was enacted with a discriminatory purpose. Based

on its finding that Amendment E discriminated against

interstate commerce, the Eighth Circuit concluded that it

was unconstitutional under the strict test set forth in

Hughes v. Oklahoma, 441 U.S. 322 (1979).

Because Amendment E affects in-state corporations in

the same manner as it affects out-of-state corporations, it

cannot be held to discriminate against interstate com-

merce in the manner prohibited by the dormant Commerce

Clause. See CTS Corp. v. Dynamics Corp. of Amer., 481

U.S. 69, 87 (1987). Where a law, such as Amendment EF,

regulates even-handedly, its constitutionality under the

dormant Commerce Clause is determined through applica-

tion of the balancing test set forth in Pike v. Bruce Church,

Inc., 397 U.S. 137 (1970). In holding that Amendment E

discriminates against interstate commerce and in failing

to use the Pike balancing test to determine Amendment

E’s constitutionality, the Eighth Circuit’s decision is in

conflict with the established Commerce Clause jurispru-

dence of this Court. The Eighth Circuit’s decision could

open the door to similar challenges of other state anti-

corporate farming laws, thus interfering with a state’s

ability to protect its rural communities and regulate the

conduct of corporations within its borders. This potential

impact is an important issue warranting granting the

Petition for Writ of Certiorari in this matter.

¢

ARGUMENT

I. Legitimate And Non-Discriminatory State Inter-

ests Support State Laws Prohibiting Corporate

Farming.

Agricultural states have a long history of supporting

family farms. For example, as early as 1973, the Minne-

sota Legislature adopted statutory provisions prohibiting

corporate farming within the state of Minnesota. See 1973

Minn. L. ch. 427, § 1. The purpose of Minnesota’s Corpo-

rate Farm Law is set forth in the preamble of the current

statute:

The [Minnesota] legislature finds that it is in the

interests of the state to encourage and protect

the family farm as a basic economic unit, to in-

sure it as the most socially desirable mode of ag-

ricultural production, and to enhance and

promote the stability and well-being of rural so-

ciety in Minnesota and the nuclear family.

Minn. Stat. § 500.24 (2002).

4

Agricultural states have a very legitimate concern

with the takeover of family farms by corporations, both

large and small. The loss of family farms has a proven

adverse effect on rural communities. Studies have shown

that independent family farms contribute significantly

more to healthier rural communities than do corporate

farms. See Rick Welsh and Thomas A. Lyson, Anti-

Corporate Farming Laws, the “Goldschmidt Hypothesis,”

and Rural Community Welfare (2002), at 11.’ Particularly,

research has indicated that as the number of independent

family farms declines, the quality of rural life declines,

available community services decrease, and the number of

schools, churches, and other primary socializing institu-

tions are reduced. See James B. Wadley, Small Farms: The

USDA, Rural Communities, and Urban Pressures, 21

WASHBURN L. J. 478, 497 (1982). In addition, the number

of cultural amenities such as parks and playgrounds, the

number of independent business establishments, and the

number of self-employment opportunities also decline. Jd.

A comparison of a family farm community with an agri-

business town led one expert to conclude:

Whether we focus on economic, social, or political

factors, the traditional virtues of our society are

better served in the family farm community than

in the agribusiness town. Incomes were on the

average higher though more people were sup-

ported; business enterprises were both more nu-

merous and more profitable; there were more

social amenities such as parks, paved streets,

and sewers; there were more schools, clubs, and

* A copy of this study is appended to this brief for the Court’s

convenience.

5

churches; there were more local newspapers and

formal institutions for local political decision-

making. The crucial difference is that in the fam-

ily farm community, most of the population was

self-employed; in the other, two-thirds were agri-

cultural workers.

Family Farm Antitrust Act of 1979: Hearings on S. 334

Before the Subcomm. on Antitrust, Monopoly, and Business

Rights of the Senate Comm. on the Judiciary, 96th Cong.,

lst Sess. 68 (1979) (statement of Walter Goldschmidt),

cited in, Id. at 499-500.°

It is because of this impact on rural farming commu-

nities that several agricultural states have enacted laws

limiting the role of corporate farming within their states.

Such laws have been found to be within the purview of a

state’s regulatory power. See, e.g., Hampton Feedlot, Inc. v.

Nixon, 249 F.3d 814, 820 (8th Cir. 2001) (“The Missouri

legislature has the authority to determine the course of its

farming economy. . . .”); Lehndorff Geneva, Inc., 744 S.W.2d

at 806 (“It is within the province 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

* Additionally, recent experience in states allowing large corporate

farming operations demonstrates that states have reason to be con-

cerned with adverse environmental harm associated with such opera-

tions, including waste spills and water pollution. See Jan Stout, The

Missouri Anti-Corporate Farming Act: Reconciling the Interests of the

Independent Farmer and the Corporate Farm, 64 UMKC L. REV. 835,

848-50 (1996) (discussing the environmental harm experienced in

Missouri and North Carolina resulting from large corporate hog

farming operations).

6

comprising its traditional farming community... .”). Such

laws have also consistently withstood challenges under the

Equal Protection Clause, based on findings that such laws

are rationally related to a state’s legitimate interest in

preventing corporate domination of farmland at the

expense of independent family farms. See, e.g., Asbury

Hosp., 326 U.S. at 214 (“We cannot say that there are no

differences between corporations generally and those

falling into the excepted classes which may appropriately

receive recognition in the legislative application of a state

policy against the concentration of farming lands in

corporate ownership.”); MSM Farms, Inc. v. Spire, 927

F.2d 330, 333 (8th Cir. 1991) (agreeing that a policy

seeking to retain and promote family farm operations and

avoid the threats of unrestricted corporate ownership of

farmland by preventing the concentration of farmland in

non-family corporations is a legitimate state interest

under the equal protection clause); Lehndorff Geneva, Inc.,

744 S.W.2d at 805 (“The statute is rationally related to a

legitimate state interest in that it prevents the aggrega-

tion of farmland in large corporations to the competitive

exclusion of traditional farming entities.”).

Congress has also recognized the importance of

preserving family farms. Codified in the Agriculture and

Food Act is the congressional statement of policy support-

ing the maintenance of the family farm system of agricul-

ture:

Congress reaffirms the historical policy of the

_United States to foster and encourage the family

farm system of agriculture in this country. Con-

gress believes that the maintenance of the family

farm system of agriculture is essential to the so-

cial well-being of the Nation and the competitive

7

production of adequate supplies of food and fiber.

Congress further believes that any significant ex-

pansion of nonfamily owned large-scale corporate

farming enterprises will be detrimental to the na-

tional welfare.

7 U.S.C.A. § 2266(a) (1999) (emphasis added).

Anti-corporate farming laws are not only supported by

a long history. of judicial and legislative recognition as to

their legitimate purposes, but also have had the effect of

furthering those purposes. Specifically, the Welsh and

Lyson study found that farming communities in states

with anti-corporate farming laws have lower relative

poverty levels, lower levels of unemployment, and higher

percentages of farms reporting cash gains, than do farm-

ing communities in states without such laws. Welsh and

Lyson, supra, at 11.

II. The Eighth Circuit’s Commerce Clause Analysis

Is Inconsistent With The Directives Of This

Court.

The Commerce Clause, although phrased as an

affirmative grant of regulatory power to Congress, “has

long been understood to have a ‘negative’ aspect that

denies States the power unjustifiably to discriminate

against or burden the interstate flow of articles of com-

merce.” Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality,

511 U.S. 93, 98 (1994). The analysis this Court undertakes

to determine whether a state law violates this negative

aspect of the Commerce Clause is well established. The

first step is to determine whether the challenged law

“‘regulates evenhandedly with only ‘incidental’ effects on

interstate commerce, or discriminates against interstate

8

commerce.” Id. at 99 (quoting Hughes v. Oklahoma, 441

U.S. 322, 336 (1979)). If the law discriminates against

interstate commerce, “it is virtually per se invalid.” Jd. On

the other hand, a nondiscriminatory law that has only

incidental effects on interstate commerce will be upheld

unless “‘the burden imposed on such commerce is clearly

excessive in relation to the putative local benefits.’” Id.

(quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142

(1970)).

The Eighth Circuit incorrectly concluded that

Amendment E discriminates against interstate commerce.

Further, because of this erroneous conclusion, the court

failed to consider whether any burden imposed on inter-

state commerce was incidental when compared to

Amendment E’s local benefits. The Eighth Circuit’s deci-

sion, therefore, is contrary to the established Commerce

Clause jurisprudence of this Court.

A. The Eighth Circuit’s Analysis Of Whether

Amendment E Discriminates Against Inter-

state Commerce Is Flawed.

In its analysis of whether Amendment E discriminates

against interstate commerce, the Eighth Circuit focused

primarily on statements made during the drafting process

by some proponents to conclude that Amendment E had a

discriminatory purpose.’ Pet. App. 18-23. In doing so, the

* Further, while the amici curiae States and Commonwealth do not

agree that the drafters of Amendment E had a discriminatory purpose,

even if they did, a discriminatory purpose alone is insufficient to

invalidate Amendment E. Rather, Amendment E must also have a

discriminatory effect. See, e.g., West Lynn Creamery, Inc. v. Healy, 512

(Continued on following page)

9

court completely ignored the plain language of the

Amendment. As the Supreme Court of Nebraska stated

when considering a challenge to Nebraska’s anti-corporate

farming constitutional amendment:

There is no meaningful way to determine the in-

tent which motivates voters to sign a petition for

- the submission of an enactment, nor is there any

real way to determine the intent of those voters

who vote for the adoption of an enactment... we

must consider the words of the initiative petition

... and the words actually voted on and adopted

by the voters. Any other approach would only be

a selective choice, made by a reviewing court, of

diametrically opposed allegations made by those

favoring or opposing the enactment ... it is im-

possible to divine the intent of myriad voters who

adopt a constitutional amendment.

U.S. 186, 194 (1994) (finding discrimination based on a pricing order’s

“avowed purpose and its undisputed effect”); C & A Carbone, Inc. v.

Town of Clarkstown, 511 U.S. 388, 394 (1994) (invalidating an ordi-

nance based on its “practical effect and design”); Bacchus Imports, Ltd.

v. Dias, 468 U.S. 263, 273 (1984) (concluding that a liquor tax violated

the Commerce Clause “because it had both the purpose and effect of

discriminating in favor of local products”); Lewis v. BT Inv. Managers,

Inc., 447 U.S. 27, 37, 42 (1980) (finding a statute discriminates based

“both on its face and in actual effect,” and noting that “[t]he principal

focus of inquiry must be the practical operation of the statute, since the

validity of state laws must be judged chiefly in terms of their probable

effects.”’; Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 350-

53 (1977) (finding discrimination based on the practical effect of the

statute, and therefore not reaching the issue of whether it was intended

to discriminate); cf. Minnesota v. Clover Leaf Creamery Co., 449 U.S.

456, 471 n.15 (1981) (rejecting a discriminatory purpose argument

based on a finding that the articulated purpose of the law was its actual

purpose).

10

Omaha Natl Bank v. Spire, 389 N.W.2d 269, 279 (Neb.

1986) (citations omitted).

Simply put, Amendment E does not affect out-of-state

corporations any differently than in-state corporations.

Rather, Amendment E “‘visits its effects equally upon both

interstate and local business.’” CTS Corp., 481 U.S. at 87

(citing Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 36

(1980)), As a result, it does not discriminate against

interstate commerce. See Id. (finding that an Indiana

statute imposing requirements on tender offers was

nondiscriminatory because it had that same effects on

tender_offers whether or not the offeror was a domiciliary

or resident of Indiana). See also Minnesota v. Clover Leaf

Creamery Co., 449 U.S. 456, 471-72 (1981) (concluding

that a Minnesota statute prohibiting all milk retailers

from selling milk in certain containers, “without regard to

whether the milk, the containers, or the sellers are from

outside the State” did not discriminate against interstate

commerce). -

While Amendment E admittedly has some burden on

interstate commerce, it treats all business organizations

alike regardless of their domicile. Pursuant to this Court’s

established Commerce Clause jurisprudence, Amendment

E cannot, therefore, be found to discriminate against

interstate commerce.

B. The Eighth Circuit Did Not Apply The Ap-

propriate Test To Determine The Validity of

Amendment E.

Based upon its finding of discrimination, the Eighth

Circuit applied the strict test of Hughes v. Oklahoma, 441

U.S. 322 (1979), to determine the constitutionality of

11

Amendment E. Pet. App. 18. Hughes places the initial

burden of proving that a challenged law is discriminatory

on the party challenging its validity, 441 U.S. at 336. Once

discrimination against interstate commerce is established,

the burden shifts to the state to justify the law “‘both in

terms of the local benefits flowing from the statute and the

unavailability of nondiscriminatory alternatives adequate

to preserve the local interests at stake.’” Jd. (quoting Hunt

v. Washington Apple Adver. Comm’n, 482 U.S. 333, 353

(1977)). This Court has deemed this test to be one of

“strictest scrutiny.” Oregon Waste Sys., Inc., 511 U.S. at

101.

The Eighth Circuit’s reliance on this test was mis-

placed. While Amendment E has an impact on interstate

commerce, its application is even-handed, applying to both

in-state and out-of-state corporations. As there is no

discrimination in the Amendment’s application, the

appropriate test to be applied to determine the constitu-

tionality of Amendment E is that set forth in Pike v. Bruce

Church, Inc., 397 U.S. 1387 (1970). Pike instructs that:

Where the statute regulates even-handedly to ef-

fectuate a legitimate local public interest, and its

effects on interstate commerce are only inciden-

tal, it will be upheld unless the burden imposed

on such commerce is clearly excessive in relation

to the putative local benefits. If a legitimate local

purpose is found, then the question becomes one

of degree. And the extent of the burden that will

be tolerated will of course depend on the nature

of the local interest involved, and on whether it

could be promoted as well with a lesser impact

on interstate activities.

Id. at 143 (citation omitted).

12

Had the Eighth Circuit applied this Pike balancing

test to Amendment E, the court would have had to con-

sider the important and substantial state interests in-

volved. In determining whether a state law imposes an

excessive burden on interstate commerce, a court must

consider that the Constitution “never intended to cut the

States off from legislating on all subjects relating to the

health, life, and safety of their citizens,” even if the law

indirectly affects interstate commerce. Huron Portland

Cement Co. v. City of Detroit, 362 U.S. 440, 443 (1960).

Rather, “[s]tate regulation, based on the police power,

which does not discriminate against interstate commerce

. may constitutionally stand.” Id. at 448. Like the air

pollution ordinance upheld in Huron, Amendment E is “a

regulation of general application, designed to better the

health and welfare of the community.” Jd. Amendment E,

applicable to all corporations regardless of location, is

designed to better the health and welfare of rural family

farm communities by protecting residents from the social,

economic, and environmental harms associated with the

presence of large farming corporations.

The Eighth Circuit should also have considered “the

significance for Commerce Clause analysis of the fact that

state regulation of [corporations] is regulation of entities

whose very existence and attributes are a product of state

law.” CTS Corp., 481 U.S. at 89. State laws regulating

corporations by. prohibiting certain activities “necessarily

affect aspects of interstate commerce.” Jd. at 90. The

Eighth Circuit’s failure to even consider this important

factor will have a very detrimental impact on a state’s

ability to regulate the conduct of corporations conducting

business within the state.

13

CONCLUSION

The Eighth Circuit’s decision in this case is in conflict

with the established dormant Commerce Clause jurispru-

dence of this Court. This is an issue of exceptional impor-

tance which warrants the granting of the Petition for Writ

of Certiorari.

Respectfully submitted,

MIKE HATCH

Attorney General

State of Minnesota _

Counsel of Record

MICHAEL J. VANSELOW

Deputy Attorney General

445 Minnesota Street, Suite 1100

St. Paul, Minnesota 55101-2128

(651) 296-9418 (Voice)

(651) 296-1410 (TTY)

Attorneys for Amici Curiae

States and Commonwealth

-

App. 1

Anti-Corporate Farming Laws, the “Goldschmidt

Hypothesis” and Rural Community Welfare

By:

Dr. Rick Welsh

P.O. Box 5750

School of Liberal Arts &

Center for Environmental Management

Clarkson University

Potsdam, NY 13699

P: 315-268-3988

e-mail: welshjr@clarkson.edu

Dr. Thomas A. Lyson

Dept. of Rural Sociology

133 Warren Hall

Cornell University

Ithaca, NY 14853

e-mail: tal2@cornell.edu

An earlier version of this paper was presented at the

annual meeting of the Rural Sociological Society in

Albuquerque, NM, August, 2001. This research was

supported by a grant to Friends of the Constitution by

the Dedicated Fund of the Rockefeller Family Fund.

Any conclusions or opinions expressed in this report

are those of the authors and may or may not represent

the views of the Rockefeller Family Fund or Friends

of the Constitution.

Executive Summary

A tremendous amount of attention and research has

been devoted to the impacts of farm scale on rural com-

munities. The majority of this research follows in the

“Goldschmidt” tradition. Walter Goldschmidt is an an-

thropologist who in the 1940s made the finding that

communities surrounded by large-scale farms faired

App. 2

poorly, in a number of important social indicators, when

compared to communities surrounded by small-to-

moderate sized farms. Since Goldschmidt’s research, a

plethora of studies have been undertaken to attempt to

replicate or refute his findings. The “follow-up” studies

employ a diverse set of methodologies, data sets, units of

analysis and variables. However, in general, the majority

of the studies provide at least some support for Gold-

schmidt’s original findings.

The impetus behind Goldschmidt’s original research

and subsequent studies is the effort to understand the

nature and impacts of structural change in U.S. agricul-

ture. Since early in the 20th century, U.S. agriculture has

been increasingly characterized by a loss in farm numbers,

increasing average farm size, increasing use of hired labor

on farms, vertical integration of farming with off-farm

businesses and upsurges in contract farming. These

changes have been uneven across time and place, but in

general have characterized the development of U.S.

agriculture in the 20th and early 21st centuries, and have

caused some observers to argue that agriculture is “indus-

trializing”.

In addition to generating academic research, concerns

over structural change in U.S. agriculture have also

generated public policies. For example, nine Midwestern

states have adopted laws that restrict corporate involve-

ment in agriculture. The nine states are Iowa, Kansas,

Minnesota, Missouri, North Dakota, Oklahoma, South

Dakota and Wisconsin. The laws were primarily put into

place between 1974 and 1975 for all states but Nebraska.

Nebraska’s constitutional amendment (Initiative 300 or I-

300) restricting corporate agriculture was adopted in 1982.

The laws, called anti-corporate farming laws, vary from

App. 3

state to state but in general are intended to hobble or

restrict corporate involvement in agriculture in order to

protect family farm agriculture.

Anti-corporate farming laws are not necessarily

intended to slow down or stop many of the changes occur-

ring in U.S. agriculture. For example, the laws do not

address issues around hired labor or increasing scale of

the farming units in general. Rather, the laws are de-

signed to regulate or proscribe the entry of particular

types of organizational forms based on ownership ar-

rangements, most commonly non-family corporations, into

production agriculture. This is accomplished through

actions such as restrictions or regulations on ownership of

farmland or downward vertical integration of livestock

processing with production. It is often thought that unin-

corporated farming units might find it difficult to compete

with incorporated farming units, because the latter enjoy

liability advantages and possibly advantages in other

areas such as acquiring financing and paying taxes. Our

purpose in this study is to investigate what impacts, if

any, these anti-corporate farming laws have had on rural

communities.

We examine agriculture dependent counties, which we

define based on two criteria: first, at least 75 percent of —

the total land in a county had to be in farms in 1982 and.

1992; second, at least 50 percent of total gross receipts for

goods and services in the county needed to originate from

agricultural sales in 1982 and 1992. These measures were

derived from the 1982 and 1992 Censuses of Agriculture

and variables from the 1982 and 1992 Economic Censuses.

There are 433 counties that fit these criteria. The states

and counties included in the analysis are listed in the

Appendix section at the end of this report.

App. 4

To test the impacts of the anti-corporate farming laws

we construct two variables: a binary variable for whether

a state has such a law or not; and a restrictiveness index

that allows us to compare states with more restrictive

laws to those with less restrictive laws. In addition, a

number of control variables are included in the analysis.

The controls are used in order to attempt to isolate the

effects of the variables of interest: in this case the anti-

corporate farming variable impacts on rural community

welfare. The control variables are those variables that

might be considered as important determinants of rural

community welfare and have to be included in order for an

analysis to rigorously attempt to test for relationships of

interest. Rural community welfare is measured by three

variables: percent of families in poverty, percent unem-

ployed and percentage of farms in a county realizing cash

gains.

In addition, we use data from the 1982 and 1992

Censuses of Agriculture to construct a measure of large

scale, absentee owned (industrial style) farming in a

county. We label this measure the farm scale factor and

include it in the analysis primarily as a control variable

but also to inform the scholarship in the Goldschmidt

tradition. However, our analysis of industrial farming or

farm scale relative to rural community welfare differs

from previous analyses since we test to determine if lower

and higher levels of industrial farming, as measured by

the farm scale factor, have differing impacts on rural

community welfare.

The results of the analysis indicate that, in general,

agriculture dependent counties in states with anti-

corporate farming laws fared better (less families in

poverty, lower unemployment and higher percentages of

App. 5

farms realizing cash gains) than agriculture dependent

counties in states without such laws. When we compare

states with more restrictive anti-corporate laws to states

with less restrictive laws, the results are similar, though

much less consistent, to comparing states with laws to

states without laws.

The results also suggest that rural communities tend

to benefit from lower levels of agricultural industrializa-

tion but might fare poorly as agricultural industrialization

intensifies and begins to dominate a county’s agriculture.

We conclude that diversity in agricultural structural forms

at the county level appears to have positive impacts on

rural communities as measured by poverty, unemploy-

ment and farm cash returns. Counties appear to require

some agricultural industrialization to prosper but suffer

when this type of agriculture crowds out less industrial-

ized forms.

A public policy intervention that promotes organiza-

tional and structural diversity in agriculture would seem

to be needed. In this vein, anti-corporate farming laws

provide one model. These laws vary across states but in

general have been designed to attempt a balance between

allowing for economic flexibility of farm firms and protect-

ing family-based agriculture. The laws are designed to

allow farm firms to incorporate but only under certain

restrictions and limitations. Some laws restrict the num-

ber of shareholders, other laws require that at least one

owner also regularly work on the farm, and still others

restrict the ability of certain types of corporations to feed

livestock. There are of course other models for regulating

industrial agriculture and for providing sheltering institu-

tions for less industrialized forms. However, the relatively

App. 6

extensive experience U.S. agriculture has had operating

with such laws; and the fact that the laws appear to have

had some of the beneficial impacts that their authors and

proponents intended, make the laws interesting and

thought provoking starting points for public policy devel-

opment and debate concerning the realization of wide-

spread and sustainable benefits from U.S. agriculture.

Introduction

A tremendous amount of attention and research has

been devoted to the impacts of farm scale on rural com-

munities. This subject has been a favorite of rural sociolo-

gists. The majority of the research follows in the

“Goldschmidt” tradition. Walter Goldschmidt is an an-

thropologist who in the 1940s made the finding that

communities surrounded by large-scale farms faired

poorly, on a number of important social indicators, when

compared to communities surrounded by _ small-to-

moderate sized farms. Since Goldschmidt’s research

(1946/1978), a plethora of studies have been undertaken to

attempt to replicate or refute his findings (Buttell, Larson

and Gillespie, 1990; Lobao, 1990; Lyson, Torres and

Welsh, 2001). The “follow-up” studies employ a diverse set

of methodologies, data sets, units of analysis and vari-

ables. However, in general, the majority of the studies

provide at least some support for Goldschmidt’s original

findings (Lobao, 1990; Lyson, Torres and Welsh, 2001).

The impetus for Goldschmidt’s original research and

the later studies is the effort to understand the nature and

impacts of structural change in U.S. agriculture on rural

communities. Since early in the 20th century, U.S. agricul-

ture has been increasingly characterized by a loss in farm

App. 7

numbers, increasing average farm scale, increases in the

use of hired labor on farms, vertical integration of farming

with off-farm businesses and upsurges in contract farming

(Lobao, 1990). These changes have been uneven across

time and place, but in general have characterized the

development of U.S. agriculture in the 20th and early 21st

centuries and have caused some observers to argue that

agriculture is “industrializing” (Lobao, 1990; Welsh, 1996).

The potential for industrial style farming to displace the

traditional family-labor farm with other organizational

forms, has caused public concern within and outside rural

America.

In addition to generating academic research, concerns

over structural change in U.S. agriculture have also

generated public policies. For example, nine Midwestern

states have adopted laws that restrict corporate involve-

ment in agriculture. The nine states are Iowa, Kansas,

Minnesota, Missouri, North Dakota, Oklahoma, South

Dakota and Wisconsin (Pedersen and Meyer, 1995). The

laws were put into place primarily between 1974 and 1975

for all states but Nebraska. Nebraska’s constitutional

amendment (Initiative 300 or I-300) restricting corporate

agriculture was adopted in 1982. The laws, called anti-

corporate farming laws, vary from state to state but in

general are intended to hobble or restrict corporate in-

volvement in agriculture in order to protect family farm

agriculture (Powers, 1993; Welsh, Carpentier and Hubbell,

2001). For example, Minnesota’s anti-corporate farming

law specifically states that it is in the interests of the state

to promote and protect:

“the family farm as a basic economic unit, to in-

sure it as the most socially desirable mode of

agricultural production, and to enhance and

App. 8

promote thw stability and well-being of rural so-

ciety in Minnesota and the nuclear family.”

Anti-corporate farming laws, are not necessarily

intended to slow down or stop many of the changes occur-

ring in U.S. agriculture. For example, the laws do not

address issues around hired labor or increasing scale of

the farming units in general. Rather, the laws are de-

signed to regulate or proscribe the entry of particular

types of organizational forms based on ownership ar-

rangements, most commonly non-family corporations, into

production agriculture. This is accomplished through

actions such as restrictions or regulations on ownership of

farmland or downward vertical integration of livestock

processing with production (Welsh, 1998). The idea behind

these policies is that unincorporated farming units might

find it difficult to compete with incorporated farming units

because the latter enjoy liability advantages and possibly

advantages in other areas such as acquiring financing and

paying taxes (Welsh, 1998).

Despite the plethora of research on industrialization

of agriculture and its impact on rural communities, we

could find no attempts to integrate data on public policy

initiatives intended to blunt or regulate industrial agricul-

ture into such research. Our purpose in this study is to

begin to address this hole in the research in the Gold-

schmidt tradition. Specifically we intend to investigate

whether anti-corporate farming laws have had positive or

negative effects on rural communities. To accomplish this

we first present a discussion of research in the Gold-

schmidt tradition, followed by a brief analysis of the

structure and content of anti-corporate farming laws.

Following this, we use data from the U.S. Census of

Agriculture, the U.S. Census, and from a maii survey of

App. 9

agricultural lawyers to discern if anti-corporate farming

laws have had any impacts on rural communities in

agriculture dependent counties; and if so, the nature of the

impact.

The Goldschmidt Hypothesis

In the mid-to-late 1940s, a U.S. Senate Special Com-

mittee commissioned research to explore the potential

relationship between the concentration of economic power

at the community level and the social and economic well

being of rural/farming residents and communities (Gold-

schmidt, 1946/1978; Lyson, Torres and Welsh, 2001). In

his report to the U.S. Senate, Small Business and the

Community, Walter Goldschmidt (1946) compared and

contrasted “communities of large and small farms” in

California; Arvin and Dinuba. According to Goldschmidt’s

description, Arvin was a community dominated by farms

substantially larger than those found in Dinuba, the

community surrounded by smaller farms. Goldschmidt

argued that “... the differences between average farm size

are great — in the neighborhood of 9 to 1 when taken on

an acreage basis, 5 to 1 in value of products, and 3 to 1 if

adjusted for intensity of operations. Nine-tenths of all

farm land is opera’ed in units of 160 acres or more in

Arvin as against on fourth in Dinuba.” However, Arvin

and Dinuba were similar in other characteristics includ-

ing population size, shared value systems and social

customs and were “ ... part of a common system of agri-

cultural production, best understood as industrialized”

(Goldschmidt, 1978:393; see also Lyson, Torres and Welsh,

2001). Goldschmidt believed that a comparison of the

relationship between the agricultural structure and the

App. 10

community welfare of the two communities would be

informative.

Goldschmidt concluded from his research findings

that residents of Arvin realized a lower standard of living

and quality of life than residents in Dinuba; a fact attrib-

utable to the difference in the agricultural structure

surrounding the two communities. For example, he wrote

that, “The reported differences in communities may

properly be assigned confidently and overwhelmingly to

the scale of farming factor” (Goldschmidt, 1978:284; Lyson,

Torres and Welsh, 2001).

Lobao (1990:65) reviewed twenty-six studies that

followed Goldschmidt. She found that “ ... about half of

the twenty-six studies support Goldschmidt and another

nine have mixed findings.” Regarding the latter set of

studies, some researchers have found that the Gold-

schmidt findings are supported in certain parts of the

U.S., but not in other regions. For example, Lobao

(1990:58) reports that in California, Texas, Arizona,

Florida, other parts of the West, and the Great Plains,

research tends to find support for Goldschmidt. However,

in the South, Northeast and the Corn Belt research is less

likely to support Goldschmidt. In addition, Lobao (1990)

goes on to argue that further research in the Goldschmidt

tradition should include a longitudinal (over time) compo-

nent in addition to cross-sectional analysis, and account

for the degree of agricultural dependency of a county or

community. Outcomes for agriculture dependent counties

are more likely to be linked to surrounding farm structure

than non-dependent counties.

App. 11

Anti-Corporate Farming Laws

Anti-corporate farming laws primarily restrict corpo-

rations and other investment type organizations from

engaging in farming. The restrictions are generally ap-

plied to non-family corporations and limited partnerships

(Pedersen and Meyer, 1995). Family corporations are often

exempted from the laws if they have certain characteris-

tics. These characteristics might include a maximum

number oi unrelated (non-kin) shareholders or at least one

shareholder living and working on the farm (Pedersen and

Meyer, 1995). Additionally, family farm corporations

might have to earn a minimum percentage of their gross

income from farming in order to be permitted to engage in

farming (Welsh, 1998). If a farm is the type of corporation

that is not proscribed, or not a scrutinized entity (e.g.,

general partnership, sole proprietorship), then there are

no restrictions placed on the farm (Pedersen and Meyer,

1995). Also, it is important to note that Pedersen and

Meyer (1995:45) found that anti-corporate farming laws

often exempt certain types of commodities. In their words:

“The vertically integrated poultry sector may be tolerated,

while the same state may ban the vertically integrated hog

industry.” This latter finding is probably cue to the fact

that the poultry industry had vertically integrated prior to

the establishment of the laws. It might have been consid-

ered overreaching, impractical or counter productive to im-

pose corporate restrictions on poultry given its structure in

the 1970s.

If a business is not authorized then a number of

restrictions can apply. For example, there may be restric-

tions on the amount of farmland that can be owned (Dahl,

1991). In addition, other activities could be restricted

under the laws. For example, Iowa’s anti-corporate

App. 12

farming law bans packer feeding of livestock (Hamilton,

1995). Generally the laws limit the flexibility of corpora-

tions to vertically integrate and expand operations. The

intent of the laws is to hobble or discourage the develop-

ment of a non-family based corporate agriculture and to

retain an agricultural industry that is dominated by

family owned and operated production units.

Over time there have been some efforts to relax or

rescind the laws (see Hamilton, 1995; Pedersen and

Meyer, 1995; Powers, 1993). Structural change in U.S.

agriculture, especially livestock agriculture, toward a

larger-scale vertically coordinated form has brought with

it pressure to allow greater flexibility for agribusiness

firms in Midwestern states to move toward the poultry

model of vertical integration (Thu and Durrenburger,

1998). Efforts to convince state legislatures, or the citi-

zens, of states with anti-corporate farming laws to relax

the laws have often been met with resistance by individu-

als and groups (Welsh, 1998). Because of these conflicting

interests and desires, the outcome of efforts to either relax

the laws or strengthen them has been mixed. In 1991,

Oklahoma “clarified” its laws to allow corporations to have

more flexibility. Missouri exempted three counties from its

law in 1993 and Kansas allowed for county exemptions to

its law beginning in 1995. On the other hand, South

Dakota strengthened its law in 1988 (Hamilton, 1995) and

again in 1998 through popular referendum (WORC, 1998).

Welsh, Carpentier and Hubbell (2001) have demonstrated

that making changes in the laws can influence outcomes

such as changes in the percentage of acres owned by non-

family farm corporations.

What is apparent from the various efforts to change

the laws is that those parties in favor of, and opposed to,

“App. 13

corporate involvement in agriculture believe the laws have

some relevant impacts. Otherwise it would not be rational

action to either oppose or support the laws. In addition, it

is clear from the complexity of the laws and the detail in

which those entities to be regulated or proscribed are

characterized, that the laws are constructed carefully with

a great degree of purpose. Incorporation is allowed but

only under certain conditions. Likewise, absentee owner-

- ship is permitted but limited. The architects of the laws

have attempted to allow economic flexibility on the part of

firms to grow and expand, but to limit the degree to which

production agriculture departs from the family-farm model

(Welsh, 1998).

Materials and Methods

We examine agriculture dependent counties (cf Cook

and Mizer, 1995) which we define based on two criteria:

first, at least 75 percent of the total land in a county had

to be in farms in 1982 and 1992; second, at least 50 per-

cent of total gross receipts for goods and services in the

county needed to originate from agricultural sales in 1982

and 1992. These measures were derived from the 1982 and

1992 Censuses of Agriculture and variables from the 1982

and 1992 Economic Censuses.’ There are 433 counties that

fit these criteria (see Lyson, Torres, and Welsh, 2001). The

states and counties included in the analysis are listed in

the Appendix section at the end of this manuscript. Of the

433 counties, 292 are in states with anti-corporate farming

laws.

In addition, we use data from the 1982 and 1992

Censuses of Agriculture to construct a measure of large

scale, absentee owned farming in a county. For 1982, we

App. 14

combine the following three variables: 1) the percentage of

agricultural sales in a county accounted for by farms with

sales of $500,000 or more; 2) the percentage of farm

operators in a county that reside off-farm; and 3) the

percentage of tenant farms in a county. A principal com-

ponents analysis shows that the three variables together

form one factor that accounts for over 50 percent of the

variance, with an eigenvalue of 1.51. Eigenvalues of

greater than 1.0 indicate that a factor is statistically

significant (Table 1).

For the 1992 cross-sectional analysis, we use the same

three variables, but add a fourth variable (not available in

the 1982 Census of Agriculture) that taps the percentage

of hired farm labor (of all hired farm labor) on the largest

farms in the county. This variable adds a labor intensity

component to the factor scale. This factor accounts for

52.35 percent of the variance and has an eigenvalue of 2.1.

For both scales, a high factor score is associated with

counties characterized by large-scale, industrial-like farm

operations, while a low factor score is associated with

counties in which smaller-scale, family-type farms pre-

dominate (Lyson, Torres and Welsh, 2001). We chose these

variables in order to construct an index that reflects the

rhetoric of family farm advocates. That is, individuals and

groups that are likely to favor anti-corporate farming laws

and family-based agriculture, are also likely to hold

Jeffersonian ideals regarding the primacy of small-to-

moderate sized family owned and operated farms (see

Hamilton, 1996; Welsh, 1998).

In our analyses we use a quadratic form of this vari-

able. We include the factor score (labeled as “farm scale”)

and then we include the square of the factor score (labeled

App. 15

as “farm scale”). A quadratic tests for potential differen-

tial impacts of higher and lower values of a variable. In

our case we will test whether high levels of agricultural

industrialization have a different impact on rural commu-

nity welfare than lower levels.

To probe for differences between large-farm and

small-farm communities, Goldschmidt identified a variety

of measures of socioeconomic welfare including income

distribution, housing conditions, and a general level of

living index. To measure rural community welfare we use

two frequently employed measures that reflect aspects of

community economic health (Horn, 1993; OECD, 1997),

and a third variable that measures overall farm economic

performance in a county. The community economic health

measures are for (circa) 1980 and (circa) 1990 and come

from machine-readable data files, CO-STAT 4 (US.

Bureau of the Census, 1992). The two measures are 1)

percent of families in poverty; and, 2) unemployment rate

(three year average). The farm economic performance

variable is the percentage of farms reporting cash gains in

the county, and is derived from the Census of Agriculture

for 1992 (see Lyson, Torres and Welsh, 2001).

Our analysis differs from Goldschmidt’s in a number

of important ways. For example, he reported differences in

mean percentages or absolute levels in order to discern the

impacts of farm scale on community welfare. However, we

attempt to parallel Lobao (1990) and use both cross-

sectional and lagged panel linear regression analyses

(Ordinary Least Squares’) to investigate whether anti-

corporate farming laws are associated with community

welfare (see Lyson, Torres and Welsh, 2001). The cross-

sectional analyses regresses the set of community welfare

variables circa 1990 on a measure of farm scale derived

App. 16

from the 1992 Census of Agriculture, anti-corporate

farming law variables and important control variabies

taken from the Census of Agriculture and the U.S. Census.

In a lagged panel design, independent variables are

measured at points earlier in time than the dependent

measures. Additionally, lagged panel models also include

dependent variables measured at earlier points in time as

explanatory variables. The inclusion of a lagged panel

design in conjunction with a cross-sectional analysis is

more rigorous than cross-sectional analysis alone, since

lagged panel analysis provides an assessment of the

effects of farm scale and anti-corporate farming laws on

changes in community welfare over time. In the lagged

panel analyses, we use dependent variables from the 1990

cross-sectional analyses and regress them on independent

measures circa 1980 (see Lyson, Torres and Welsh, 2001).

To assess the impact of the anti-corporate farming

laws we construct two variables: 1) a binary variable for

whether a county is within a state with an anti-corporate

farming law (1 = anti-corporate state; 0 = otherwise); and

2) a restrictiveness index that rates the overall restric-

tiveness of a state’s law. To construct the restrictiveness

index we surveyed agricultural lawyers deemed by their

peers as experts on anti-corporate farming laws. To obtain

the names of the agricultural lawyers, we initially identi-

fied knowledgeable informants and queried them as to a

list of experts. Each of these experts were subsequently

contacted and asked for a list of experts. This iterative

process continued until a “core” group of 19 experts were

identified. This type of purposive sampling is a common

qualitative research methodology. It is useful for identify-

ing and gathering data from small groups of people with

App. 17

specialized knowledge, experiences or insight (Patton,

1990). Nineteen surveys were mailed and 15 complete and

usable surveys were returned. The surveyed lawyers

worked in private practice, academia and non-govern-

mental organizations interested in agricultural policy.

Respondents rated the laws from 1 to 5 for each year the

laws were in effect from 1974 to 1997. This time period

was chosen to coincide with the establishment of the laws

(all laws were in place by 1975 except for Nebraska’s in

1982). Lower ratings indicate less restrictiveness. The

results are the weighted averages of the respondents’

ratings for each state (see Welsh, Carpentier and Hubbell,

2001). Restrictiveness ratings corresponding to Census of

Agriculture years (1982 and 1992) were included as

explanatory variables.

The results of the survey are reported in Table 1. The

agricultural lawyers rated most of the laws as mildly to

fairly restrictive. No laws were rated as very restrictive,

and two of nine state laws were rated as at least fairly

restrictive over the life of their laws: Nebraska and North

Dakota. In addition, Table 1 indicates that over time the

perceived restrictiveness of the laws in general has de-

clined slightly and there has been increasing variation

between state laws. For example, the restrictiveness

ratings of Missouri, Oklahoma and Kansas declined to

reflect changes made by the state legislatures. Specifically,

Oklahoma’s “clarification” of its law to attract corporate

investment resulted in its rating dropping from 2.7 to 1.8

from 1990 to 1991. Contrariwise, South Dakota strength-

ened its law in 1988, which was also reflected by an

increase in the average rating from 1987 to 1988: 2.7 to 3.0

(see Welsh, Carpentier and Hubbell, 2001).

App. 18

The analysis is divided into two steps. We initially

consider the full data set and include only the binary anti-

corporate farming law variable. We then analyze only

those counties within anti-corporate states and include the

restrictiveness rating variable in place of the binary

variable. The initial analysis assesses the effect of the

presence of a state anti-corporate farming law. The second

step compares the effect of the relative restrictiveness of

the state laws.

In addition, a number of control variables are included

to account for other possible factors influencing the com-

munity welfare variables. The control variables included

in the analysis are:

e Percent college educated

e Median family income

e County population

e Natural log of percent of population that are

Native Americans

e Natural log of percent of population that are

Black Americans

e Percent of state workforce that is unionized

¢ County level control for agricultural region.

The natural logarithms of several independent variables

are calculated to correct for skewness in the data. Control

variables are included in an attempt to isolate the effects

of the variable of interest: in this case the anti-corporate

law variables on community welfare. In this case, controls

were included that would likely be seen as potentially

influencing poverty and unemployment rates at the county

level, as well as percent of farms earning cash gains. For

App. 19

example, it is often found that Native and Black American

populations endure higher poverty rates and higher

unemployment rates than other groups. Therefore, con-

trolling on these variables adds confidence that the impact

of the laws has been measured and not other influences

that might be contained within states with anti-corporate

farming laws.

Regarding agricultural region, the Economic Research

Service of the U.S. Department of Agriculture has devel-

oped county-level region variables. These regional vari-

ables have been developed to identify “ ... areas with

similar types of farms intersected with areas of similar

physiographic, soil, and climatic traits, as reflected in

USDA’s Land Resource Regions” (ERS). We control on two

regions: 1) “Heartland” region that primarily entails the

Corn Belt; and, 2) “Prairie Gateway” region that primarily

entails Texas, Oklahoma and Nebraska. Controlling on

agricultural region is necessary for studies that investi-

gate outcomes related to agricultural structure.

Results

The results for the full data set (all states) are pre-

sented in Table 4 (family poverty dependent variable),

Table 5 (percent unemployed dependent variable), and

Table 6 (percent of farms reporting cash gains dependent

variable). The results for the subset of states (anti-

corporate states) are presented in Tables 7, 8 and 9.

Because all states except Nebraska had the laws enacted

by 1975, (Nebraska’s was not adopted until 1982), we

place greater weight on the cross-section results when

comparing differences between the restrictiveness of the

states’ laws. By 1982 it is unlikely that sufficient time had

App. 20

passed for the differences between the laws to result in

different outcomes for agriculture dependent communities

in states with anti-corporate farming laws. However, the

results for all analyses are included in the tables.

Turning first to the full analysis, for family poverty,

the anti-corporate state binary variable is negative and

significant in the cross section and lagged panel analyses.

This indicates that farming dependent counties in states

with anti-corporate farming laws have lower relative

poverty levels than farming dependent counties in states

that do not have anti-corporate farming laws. A similar

result is obtained for unemployment in both the cross-

section and lagged panel analyses. Anti-corporate states

are associated with lower levels of unemployment at the

county-level. For the percent of farms reporting cash

gains, the anti-corporate states are associated with higher

percentages of farms reporting cash gains at the county-

level.

Considering the impacts of the “farm scale” (lower

levels of industrialization) and “farm scale” (higher levels

of industrialization) variables, the results are mixed. The

“farm scale” variable is positively associated with higher

unemployment and percent of farms reporting cash gains

in the lagged panel analysis. The “farm scale” variable is

positively associated with higher levels of family poverty

and higher unemployment in the cross sectional analyses.

For the analysis among the subset of states with anti-

corporate farming laws, the restrictiveness index has no

effect on poverty in the cross-section analysis, and a slight

positive association with poverty in the lag panel analysis.

The index also has a strong negative association with

unemployment and a positive association with percent of

App. 21

farms reporting cash gains in the cross section analysis.

That is, agriculture dependent counties in states with

stricter anti-corporate farming laws are likely to have

lower unemployment and a higher percentage of farms

that reported cash gains than agriculture dependent

counties in states with less strict laws. We find no rela-

tionship between restrictiveness and percent unemployed

and percent farms reporting cash gains in the lag panel

analysis. :

Turning to the scale of farm variables, we find a

negative relationship between “farm scale” and poverty

and unemployment and a positive relationship with

percent of farms earning cash gains. The “farm scale”

variable is positively associated with poverty and unem-

ployment and percent of farms reporting cash gains. >

Discussion and Conclusions

In general, the results indicate that some economic

flexibility regarding the components of industrial agricul-

ture are beneficial to agriculture dependent rural commu-

nities. However, there appears to be a ceiling on the

beneficial effects of agricultural industrialization, and

beyond a certain level, the impact turns negative. The

results suggest that diversity in agriculture structure

could be a vehicle for sustaining agriculture dependent

communities.

Regarding the role of anti-corporate farming laws, we

find that the laws are likely to have been beneficial to

rural communities. Agriculture dependent counties in

states that restrict or regulate corporate agriculture are

more likely to score higher on the measures of community

well being than states without such laws. Also, when

App. 22

comparing anti-corporate farming states to each other,

stricter laws are, for the most part, likely to either have

had no impact or positive impacts on the socio-economic

welfare of agriculture dependent counties.

The farm scale and anti-corporate law results provide

similar messages regarding farm structure and rural

community welfare. Both indicate that economic flexibility

regarding aspects of agricultural industrialization is

needed to promote healthy rural communities. However,

there is also a need to limit the degree to which industri-

alization and the corporate penetration of agriculture

occurs. The key question raised by our analysis is to what

degree should public policy attempt to promote family-

based agriculture and allow for firm flexibility in the

direction of corporate organization in order to maximize

community benefits? In this vein, anti-corporate farming

laws provide one model since they have been designed to

balance economic flexibility of farm firms with the protec-

tion of family-based agriculture. There are of course other

models for regulating industrial agriculture, and for

providing sheltering institutions for less industrialized

forms of agricultural production (Castle, 1998). However,

the relatively extensive experience U.S. agriculture has

had operating with such laws; and the fact that the laws

appear to have had the beneficial impacts that their

authors and proponents intended, make the laws interest-

ing and thought provoking starting points for public policy

development and debate concerning the realization of

widespread and sustainable benefits from U.S. agricul-

ture.

Another important question to be answered with

future data is the impact changes in the laws have had on

the community health indicators we investigated. Our

App. 23

analysis is historical in that we have only been able to

consider data from circa 1980 and circa 1990. Through the

nineties the laws have been altered and later Census data

should reveal the impacts of those changes.

Notes

1. The U.S. Department of Agriculture has con-

structed a typology of U.S. counties in which

“farming dependent” is one type. The USDA de-

fines farming dependent counties as nonmetro-

politan counties in which farming contributed a

weighted annual average of 20 percent or more of

total labor force and population income over the

three years from 1987 to 1989. Because farm-

related incomes are generally low, we felt a better

measure of agricultural dependency should focus

more on the economic and geographic scope of the

farming enterprise and not on the income farming

generates.

2. The three-year averages for this and subsequent

variables are for 1991, 1992, and 1993 for the

cross sectional and lagged panel dependent vari-

ables and for 1981, 1982, and 1983 for the lagged

panel regressors.

3. For analyses of data with two-levels (in this case~

county and state levels), Ordinary Least Squares

can have certain limitations. An alternative ap-

proach is to use Hierarchical Linear Modeling

(HLM) techniques (see Bryk and Raudenbush,

1992). However, the power of HLM techniques

may be limited for data sets with less than thirty

groups with thirty observations in each group (in

this case counties within states) (see Hofmann,

Griffin and Gavin, 2000). Our data set consists of

about 20 states with a wide variation in county

On renee crn r nnn ee erence nnn c ener eeeenernner ener

App. 24

numbers (some with as féw as one county per

state). We opted to report OLS results, however,

for those states with at least 10 counties we per-

formed cross-section HLM analyses as a check on

our OLS results. The HLM results indicated that

on average, and net of controls, agriculture de-

pendent counties in states with anti-corporate

farming laws had lower poverty rates and unem-

ployment and higher percentages of farms earn-

ing cash gains.

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