Corporate Farming & Land Ownership Laws – An Overview
Several states regulate or restrict certain ownership interests and investments in agricultural land that is located within the boundaries of their state. In general, states that limit farmland ownership have enacted a corporate farming law or foreign ownership law, or both. There is some overlap between corporate farming laws and foreign ownership laws. For example, like corporate farming laws, some foreign ownership laws restrict certain corporations from acquiring, purchasing, or otherwise obtaining land that is used or usable for agricultural production. However, corporate farming laws restrict the power of foreign and/or domestic corporations from engaging in farming or agriculture. Proponents of corporate farming laws assert that these laws are aimed at protecting the economic viability of family farms from threats of competition with domestic and foreign corporate-owned or managed farms. Alternatively, proponents of foreign ownership laws generally assert these laws seek to restrict only foreign investments in agricultural land as a way to discourage or prevent foreign competition in agriculture, increased production costs, and possible threats to the agricultural supply chain. Like foreign ownership laws, corporate farming laws vary from state to state, but each establish a general prohibition on corporate farming activities.
Corporate Farming Laws
Several states have statutes or constitutional provisions that restrict the power of certain corporations to engage in farming or agriculture, or to acquire, purchase, or otherwise obtain land that is used or usable for agricultural production. Such legal provisions are commonly referred to as corporate farming laws, or anti-corporate farming laws. Most corporate farming laws are enacted as statutes rather than constitutional amendments. Nineteen states have statutes or constitutional amendments that prohibit or limit corporate farming: Arkansas, Florida, Idaho, Indiana, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Utah, Virginia, and Wisconsin.
The primary goal of corporate farming laws is to protect the economic viability of family farms in light of the threats from competition with corporate-owned or corporate-managed farms. Some proponents of corporate farming laws also argue that corporate-owned or managed farms are more likely than family farms to inflict serious environmental damages and will be unfairly protected from liability for these damages by the farms’ corporate status. Opponents of corporate farming laws commonly argue that these laws are unnecessarily restrictive, ineffective, and anti-capitalistic. Additionally, opponents argue that corporate farming laws are unconstitutional because they impede a vibrant free trade economy among the states.
Corporate farming laws vary from state to state but typically establish a general prohibition on corporate farming activities, set out certain exemptions to the general prohibition, and provide a legal mechanism for forcing corporations to divest ownership of land held in violation of the law. Some corporate farming laws exempt cooperative associations from their restrictions, provided certain conditions are satisfied. Others permit certain corporations to acquire farmland even though the corporation would otherwise be prohibited from engaging in farming or purchasing the agricultural land. For example, corporate farming laws typically permit a bank to acquire agricultural land if the acquisition is undertaken for the purpose of collecting a debt or enforcing a legal security interest. The same laws, however, will generally limit the amount of time the bank or other permitted corporation can maintain an interest in that agricultural land and will often restrict the ability of the corporation to use that land.
Several corporate farming laws exempt “family farm corporations.” To qualify as a family farm corporation, the entity typically must be comprised of family members who are within a certain degree of kinship and who must own a majority of the voting stock in the corporation. A common requirement is that the shareholders in a family farm corporation be natural persons rather than a corporate entity. Six of the state statutes limit the number of shareholders an exempted corporation can have. Another common requirement to satisfying the family farm corporation exemption is that at least one family member must reside on the farm to prevent “absentee ownership,” a characteristic proponents of corporate farming laws often attribute to corporate farming activities.
Several courts, including the United States Supreme Court, have heard challenges to these laws on the basis that they were in violation of the Equal Protection Clause, Due Process Clause, Privileges and Immunities Clause, and Contract Clause of the United States Constitution. In the context of these challenges, courts consistently upheld the constitutionality of the anti-corporate statutes. During the twentieth century, no state appellate court or federal court held that a state’s corporate farming law was unconstitutional.
In 2003, however, the United States Court of Appeals for the Eighth Circuit held in South Dakota Farm Bureau, Inc. v. Hazeltine, 340 F.3d 583 (8th Cir. 2003) that a corporate farming law enacted as a voter-approved amendment to the South Dakota constitution was unconstitutional because it violated the dormant Commerce Clause of the United States Constitution. The dormant Commerce Clause has therefore become a popular choice for challenging corporate farming laws. See, e.g., Smithfield Foods, Inc. v. Miller, 241 F. Supp. 2d 978 (S.D. Iowa 2003), vacated by Smithfield Foods, Inc. v. Miller, 367 F.3d 1061 (8th Cir. 2004) (holding that Iowa’s corporate farming law violated the dormant Commerce Clause and was discriminatory on its face, in its purpose, and in its effect); Jones v. Gale, 470 F.3d 1261 (8th Cir. 2006) (holding that Initiative 300 precluded non-family-owned limited partnerships from acquiring an interest in real estate used for ranching or farming in Nebraska, violated the dormant Commerce Clause making it unconstitutional); N.D. Farm Bureau, Inc. v. Stenehjem, 333 F. Supp. 3d 900 (D.N.D. 2018) (holding that although one section of North Dakota’s corporate farming law violated the dormant Commerce Clause, this section was severable, and the rest of the law could be left in place).
Foreign Ownership Laws
In general, a “foreign ownership law” is a law that restricts certain foreign individuals, foreign entities, or foreign governments from acquiring, transferring, holding, or investing in U.S. real estate, specifically private agricultural land located within the U.S. Currently, no federal foreign ownership law exists, but there are approximately twenty-four states that specifically forbit or limit foreign ownership of farmland within their state. Although no federal law exists, the federal government monitors certain foreign acquisitions and landholdings in agricultural land through the Agricultural Foreign Investment Disclosure Act (“AFIDA”) of 1978. Essentially, AFIDA requires certain foreign persons to disclose their interests in U.S. farmland to USDA.
States that have a foreign ownership law include: Alabama, Arkansas, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Utah, Virginia, and Wisconsin. Other states, such as Georgia, Maryland, and New Jersey have enacted statutes that permit foreign persons to purchase or hold real estate within their state to some degree. However, these states’ laws condition land ownership rights on certain factors. For example, New Jersey’s law expressly provides land ownership rights to “alien friends” who are domiciled and have a residency within the U.S. See N.J. Stat. Ann. § 46:3-18. Maryland provides real property rights to an “alien who is not an enemy.” See Md. Code Ann., Real Prop. § 14-101. Although these laws do not contain language that strictly prohibits foreign ownership of real property within their state, these statutes could be construed as a restriction on foreign investments that are not expressly permitted under these states’ laws.
Even though approximately twenty-four states have foreign ownership laws, each state has taken its own approach to restricting foreign ownership of farmland within its borders. For example, some states define “agricultural land” and “farming” differently from other states, restrict only certain types of foreign investors, or allow foreign purchasers to acquire a certain acreage amount of farmland.
Because each state has taken its own approach to its foreign ownership law, many states restrict different types of foreign investors, such as foreign individuals or nonresident aliens, foreign businesses and corporations, or foreign governments. Additionally, some states restrict certain parties associated with a restricted foreign investor, such as an agent or trustee. For example, Indiana’s foreign ownership law restricts only foreign business entities from purchasing agricultural land while Arkansas’ law restricts certain foreign individuals, business entities, and governments from specific countries.
Aside from restricting certain foreign investors from purchasing agricultural land, some states have their own reporting requirements. These states, which include Arkansas, Florida, Illinois, Indiana, Iowa, Kansas, Maine, Minnesota, Missouri, Nebraska, Ohio, South Dakota, Tennessee, and Wisconsin, require foreign persons and entities to report their purchase or ownership interest in farmland within their state. These state reporting statutes often correspond with the federal reporting law under AFIDA. Pennsylvania does not have reporting requirements separate from AFIDA; rather, the state has enacted a law that requires the Pennsylvania Department of Agriculture to review AFIDA data to ensure compliance with the state’s restriction on foreign ownership of agricultural land. In Virginia, foreign persons and entities are not required to report their agricultural landholdings, but state law requires the Virginia Department of Agriculture and Consumer Services to compile an annual report that contains certain information concerning foreign ownership and investments in the state’s agricultural land. Mississippi has created a committee to study and monitor foreign interests in agricultural land, water rights, and energy production within the state, but no reporting requirement has been established by the state.
States’ foreign ownership laws and state-level reporting statutes are compiled under NALC’s Statutes Regulating Ownership of Agricultural Land here.