MISSOURI"S CORPORATE FARM STATUTE: WHAT IT CAN AND CAN'T
DO
Stephen F. Matthews
Professor, University of Missouri
It was the year 1975 when Missouri's newly enacted 'Corporate Farming Prohibition
Act" was to take effect. And Missouri was not alone, as fifteen states eventually
enacted restrictions on corporate farming, including Illinois, Iowa, Nebraska,
Kansas, Oklahoma, and Kentucky. Among the many reasons offered as justification for
these statutes was the general concern that "corporateness" conveyed an unfair
advantage over the traditional farm unit, in the form of access to capital, lower
risks via limited liability, income tax breaks, and buyingselling power.
But the 1980s burst the bubble of everrising land prices, cheap and easy credit, and
general optimism about agriculture's future. Many farmers would have welcomed a land
buyer with corporate attire, even foreign capital. Missouri's corporate farming
"restrictions" cropped up again and again as obstacles to Missouri's own
agricultural
transition to what some would call the "new competitiveness."
Is the Missouri Corporate Farming Law (Chapter 350) blocking the way towards a
brighter future for agriculture? The answer lies, as always, in the eye of the
beholder.
Chapter 350 does clearly say no corporation shall engage in farming after September
28, 1975, unless exempt under at least one of eleven categories. The major exemptions
are for "grandfather" corporations (those in existence when the statute took
effect
on 9/28/75), family farm corporations, and authorized farm corporations. Missouri's
statute (unlike the Iowa statute) does not restrict other legal entities like limited
partnerships, general partnerships, trusts, and probably the newly authorized limited
liability companies from engaging in farming or owning/leasing farmland.
"Family farm corporations" require that at least half the voting stock be held
by and
at least half of the stockholders be members of a family related within the third
degree of consanguinity or affinity (including spouses, sons-in-law, and
daughters-in-law). Also, at least one stockholder must reside on or actively operate
the farm.
"Authorized farm corporations" is a pretty large exemption category, as only two
requirements must be met: (1) all shareholders must be natural persons (not another
corporation or other legal entity); and (2) twothirds or more of its total net income
must come from "farming." This exemption could readily accommodate investors who
would form a corporation to engage in farming and/or in the ownership or leasing of
farmland. Nowhere does it require an investor to be an active participant in or
reside on or near the farming operation.
But being competitive in some agricultural commodities in the 1990s reputedly
requires greater flexibility than now exists under Missouri's corporate farming
statute. In 1993 an amendment to Chapter 350 authorized corporations to engage in
farming in three north-central Missouri counties: Mercer, Putnam, and Sullivan (all
near the Iowa border). Should the 1975 statute be completely repealed, leveling the
playing field for all Missouri counties? Or are there still valid rational
justifications for continuing the restrictions for the rest of the state?
The debate is being carried out in both economical and political terms. The feeling
that other states are outcompeting Missouri for market share in hogs seems to be
chief among the factors urging reconsideration of the corporate farming restrictions.
And more focus is being drawn towards the "limited liability" of corporations
for not
just financial failure but environmental damages.
But why can't traditional farmers (family farmers?) compete under the corporate veil
as well? That is the big question.
Many in Nebraska argue strongly that their corporate farming restrictions foster
competitiveness of family farmers.
Other states (like Kansas and Oklahoma) have lowered their barriers to corporate
farming, even offering inducements.
Frankly, there are few teeth in Missouri's corporate farming prohibition law now. And
the three-county exception points towards a lessening of the political opposition to
corporate agriculture. The financial crisis of the 1980s left few Missouri
agricultural counties unscathed with failed farms and local economies severely
impacted by agriculture's decline.
Even Chapter 350's definition of 'farming" leaves open the door "somewhat"
to
contractual farming (350.010(6): 'farming' does not include a processor of farm
products or a distributor of farming supplies contracting to provide spraying,
harvesting, or other farming services), seen by some as the path to employee-status
for otherwise independent farmers.
Even if a corporate farm were to run afoul of Missouri's corporate farming statute,
it will require the attorney general to begin the court action to force
divestiture. Opponents to corporate farming cannot alone bring legal action to
enforce this statute; it is up to the attorney general's office.
The "penalty" if a violation is proven in court: the corporation has two years
to
sell the land (divestiture) and to stop farming. There are no criminal penalties like
fines or jail time.
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