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Corporate Farming in the United States

Published online by Cambridge University Press:  11 May 2010

Philip M. Raup
Philip M. Raup
Affiliation:
University of Minnesota
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Extract

Corporate farming is not new in the United States. The companies of “gentlemen adventurers” setting out in the seventeenth century to establish settlements in the New World were not corporations in a modern sense, but in organizational form and motivation they bear a striking resemblance to corporation farming ventures of recent decades. The twin lures of short-run profits and long-run capital gains have been major forces in shaping land use patterns and institutional structures throughout America's history. For over 300 years repeated efforts were made to use large scale organizational forms to reap these rewards in agriculture. Up to 1950 the record was one of almost consistent failure.

Type
Papers Presented at the Thirty-second Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 33 , Issue 1 , March 1973 , pp. 274 - 290
Copyright
Copyright © The Economic History Association 1973

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References

Scientific Journal Series Paper No. 8187, Minnesota Agricultural Experiment Station. I am indebted to over two dozen individuals who contributed references and ideas during the preparation of this paper. Among those who reviewed a penultimate version, I am especially obligated to Willis Peterson, Vernon W. Ruttan, W. B. Sundquist and Arley Waldo for helful suggestions. Any errors of fact or interpretation that remain are mine.

1 Olsen, Michael L., “Corporate Farming in the Northwest: The Puget's Sound Agricultural Company,” Idaho Yesterdays, XIV (Spring 1970), pp. 18–23Google Scholar.

2 Ibid., p. 23.

3 Inman, Buis T. and Fippin, William H., Farm Land Ownership in the United States, U.S. Dept. of Agriculture, Miscellaneous Publication No. 699, December 1949Google Scholar, Appendix Table 35.

4 U.S. Department of Agriculture, Corporations with Farming Operations, ERS, Agricultural Economics Report No. 209, June 1971.

5 For Wisconsin, see Rodefeld, Richard D., “The Current Status of ‘Corporate' Farm Research,” Hearings, Corporate Secrecy: Agribusiness, Subcommittee on Monopoly, U.S. Senate Select Committee on Small Business, Washington, D.C., March 1, 1972Google Scholar; for Iowa, personal communication from Prof. Harl, Neil E., Department of Economics, Iowa State University, Ames, Iowa, Jan. 19, 1972Google Scholar.

6 Bureau of the Census, 1969 Census of Agriculture, County Data, United States, May 1972Google Scholar.

7 U.S. Department of Agriculture, Farm and Off-Farm Income Reported on Federal Tax Returns, ERS-383, August 1968, Table 14, p. 31.

8 U.S. Dept. of Agriculture, Corporations …, Table 9, p. 15.

9 Bird, J. S., “Some Experiences in Industrialized Farming,” Agricultural Engineering Journal (February 1930), pp. 51–54Google Scholar, as expanded and reprinted by the Wheat Farming Corporation.

10 Kansas Statutes Annotated, paras. 17–202a, 2701 (1964). An amendment in 1965 added sorghum to the prohibited list, but permitted “small business” corporations to produce the proscribed products if there were no more than 10 shareholders, all were Kansas residents, and they controlled no more than 5,000 acres. Kansas Session Laws, Chap. 149, 1965. Apart from dairying, corporation farms in Kansas have never been restricted from engaging in other livestock enterprises. North Dakota is the only state that has a statutory prohibition against corporate farming of all kinds:

11 For an account of large-scale farming experiments at the dawn of mechanization see Drache, Hiram M., The Day of the Bonanza (Fargo, N.D.: North Dakota Institute for Regional Studies, 1964)Google Scholar.

12 U.S. Dept. of Agriculture, Food Grain Statistics, ERS, Statistical Bulletin No. 423, April 1968, p. 21.

13 U.S. Dept. of Agriculture, Current Developments in the Farm Real Estate Market, CD-34, March 1953, CD-43, March 1956; and subsequent.

14 Nichols, Donald A., “Land and Economic Growth,” American Economic Review (June 1970), p. 339Google Scholar.

15 For a discussion of the significance of the Subchapter S or “tax-option” corporation for agriculture, see Neil S. Harl, “Resource Allocation and Capital Accumulation in Corporations Under Subchapter S of the Internal Revenue Code,” Farm Corporations and their Income Tax Treatment, U.S. Dept. of Agriculture, Economic Research Service, March 1970, pp. 124–165.

16 Revenue Act of 1951, Section 324. This was later consolidated as Section 1231 of the Internal Revenue Code of 1954. In 1969 the holding period was increased from 12 to 24 months.

17 For a discussion of litigation under this act see Ben F. McClinton, “Capitalizing Raising Costs For All Section 1231 Animals: United States vs. Catto, ” The Hastings Law Journal, XIX (January 1968), pp. 462–475Google Scholar. For examples of economic and fiscal consequences, see Harrison, Virden L. and Woods, W. Fred, Farm and Nonfarm Investment in Commercial Beef Breeding Herds: Incentives and Consequences of the Tax Law, USDA, ERS-497, April 1972Google Scholar; Carman, Hoy F., “Tax Shelters in Agriculture: An Example For Beef Breeding Herds,” American Journal of Agricultural Economics, L (December 1968), pp. 1591–1595CrossRefGoogle Scholar.

18 USDA, Corporations …, Appendix Table 7, p. 38.

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20 In a study nearing completion of large farms in Iowa, Minnesota, the Dakotas and Montana, Drache found that approximately 80 of 125 farms surveyed had one or more corporations in their farm structure. Two of the farm corporations were held by absentee owners. These were the two farms in the survey experiencing the most severe management and coordination problems. Drache, Hiram, Dept. of History, Concordia College, Moorhead, Minnesota, personal communication, Aug. 21, 1972Google Scholar.

21 Krause, Kenneth R. and Kyle, Leonard R., “Economic Factors Underlying the Incidence of Large Farming Units: The Current Situation and Probable Trends,” American Journal of Agricultural Economics, LII (December 1970), p. 753Google Scholar.

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24 Oppenheimer, Harold L., “The Case for the Urban Investor,” The Farm Quarterly, Spring Planning Issue, 1969Google Scholar. The Oppenheimer firm of Kansas City, Missouri has been one of the most active brokers in promoting investments in beef-cattle herds by non-farm investors. Its best publicized clients include Jack Benny and Governor Ronald Reagan of California. See Wrightson, James, “Reagan Tax Angle, Cattle Firm Offers Benefits,” The Sacramento Bee, June 13, 1971Google Scholar.

25 Davenport, Charles, “A Bountiful Tax Harvest,” Texas Law Review, XLVIII (December 1969), p. 5Google Scholar.

26 Lee, John E. Jr, “The Money Market—Is It Adequate for the Needs of Today's Agriculture,” Agricultural Finance Review, USDA-ERS, Vol. 32, August 1971, pp. 2–3Google Scholar.

27 The Farm Credit System in the 70's, Report of the Commission on Agricultural Credit, Farm Credit Administration, Washington D.C., March 1970, p. 5Google Scholar.

28 Agricultural Finance Review, USDA-ERS, Vol. 32 Supplement, January 1972, Table 7, p. 11Google Scholar.

29 Thomas, Dana L., “Corporate Sodbusters,” Barton's National and Financial Weekly (August 5, 1968), p. 3Google Scholar.

30 In arguing for a policy change, Davenport points out that existing tax laws foster two inequitable advantages: “(1) Those farm taxpayers that have no other income are at a substantial disadvantage to those who have large outside income. (2) There is a substantial unfair tax advantage as between those who have farm investments and those who do not …. Those making farm investments have a preferential rate of tax which not only shields the farm income from tax but helps to shelter their income from other sources. This is unfair.” Charles Davenport, Professor, School of Law, University of California, Davis. Statement before the Subcommittee on Migratory Labor, Senate Committee on Labor and Public Welfare, Hearing, San Francisco, California, Jan. 11, 1972.

31 Chandler, A. D. and Galambos, L., “The Development of Large-Scale Economic Organizations in Modern America,” JOURNAL OF ECONOMIC HISTORY, XXX (March 1970), p. 204Google Scholar.

32 Goetsch, Forest, “More Corporate Farming in the Future,” Doane's Agricultural Digest (June 1970), p. 34Google Scholar.

33 Chandler and Galambos, “Development …,” p. 205.

34 Marglin, Stephen, “What Do Bosses Do?,” Discussion Paper No. 222, Harvard University, Institute of Economic Research, Nov. 1971 (mimeo), p. 1Google Scholar.

35 U.S. Department of Agriculture, Changes in Farm Production and Efficiency, ERS, Statistical Bulletin No. 233, June 1972, Table 27, p. 31.

36 Cordtz, Dan, “Corporate Farming—A Tough Row to Hoe,” Fortune (August 1972), pp. 134 ffGoogle Scholar.