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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2004
- **Citation:** 541 U.S. 1037

## Text

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_1041%3A4. Public record. Not legal advice.