Ag Policy Blog

Ag Contracts Transitioning to Ag Consolidation

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Omaha agricultural attorney David Domina gave his own perspective on the impacts of consolidation on farming in Nebraska during a speech Friday at the state's flagship university in Lincoln.

Domina began with the declining farms in the state. Nebraska, with 1.8 million people, now only has 49,100 producers -- an "infinitesimal part of the population."

The ratio between the state's population and number of farmers also has widened over time. In 1980, Nebraska had 1.5 million people and about 60,000 farmers, according to U.S. Census Bureau and USDA Ag Census figures.

Nebraska's population also is more urbanized than ever. As farms get larger, fewer and fewer people also are growing up on farms. That's the vanishing commodity in agriculture. "We don't have kids in rural America anymore," he said.

Domina currently is representing landowners in Nebraska fighting eminent domain by TransCanada to build the Keystone XL pipeline. Domina was the lead attorney in a case, Pickett v Tyson Foods (IBP) that won a $1.28 billion jury verdict only to see the verdict thrown out by the judge and then lose on appeal. Domina has run for statewide office a couple of times, including losing the U.S. Senate race in the state last fall to now-Sen. Ben Sasse.

Some farmers are worried about the future of water law in Nebraska. In his own law practice, Domina said farmers have approached him about selling their Nebraska land and moving east to states that do not need to irrigate. Farmers are afraid of water restrictions and the cost of production to keep that irrigation going. Some farmers also think the state is increasingly uncompetitive with its tax structure. Domina said he thought it was significant to question the trend, but he also noted he is just one Nebraska lawyer who ordinarily does not do business-transition work.

"That's a huge canary in a coal mine," Domina said.

Domina also has been asked to speak in both Nebraska and South Dakota about the array of litigation surrounding Syngenta's Viptera MIR162. Domina said the television commercials that have run about the Syngenta case have raised a lot of questions with farmers.

"It's more like late-night TV advertising and it's very unbecoming to us," he said.

The Syngenta litigation is a small reflection of how much the relationships have changed between farmers and input suppliers. Domina pulled out a standard seed-corn bag to highlight the complexity of today's seed market.

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"How many of you believe it is possible to purchase title to absolute ownership of seed corn?" Domina said.

The fact is that seed is sold under a license arrangement permitting the use of seed for limited purposes. There are restrictions on the ownership to only be used for licensed purposes. Opening the bag and using the seed is the same as acknowledging a farmer read and signed a 30-page, 10-point, single spaced contract.

"You can use this seed for the limited purposes in our license," he pointed out.

The limitations can be broad. Seed can be used for feed or be sold to an elevator that will turn around and sell the grain to be eaten or destroyed. The seed cannot be used experimentally or replanted. It cannot be used in any way other than a feedstuff or ethanol facility.

Yet, the same farmer who buys that seed without paying attention to the bag or 30-page contract then goes to Farm Credit or a bank

When producers pledge a crop for collateral on a loan, they sign other legal documents with bankers declaring they own the crop. "One of the things you tell the bank on those forms is, 'I own my crop,' " he said.

In reality, they do not, Domina said. Instead, they are licensed for limited purposes approved by the seed company. The conflicts between licensing and ownership could translate into potential legal problems for producers, even possible criminal charges.

"They speak different languages through complex forms that aren't reconciled," Domina said.

Domina challenged students and faculty from the University of Nebraska agricultural and law colleges to be thinking about ways reconcile the legal differences in agricultural contracts before more legal disputes occur. "The person you keep out of prison may be your student, and I am serious about that," he said.

The seed bag leads to a lot of waivers on the farmers' rights. Producers agree to arbitration on the terms set by the company and waive legal rights. The statute of limitations in the contract on the seed bag is one year, which is lower than statutory limits on litigation over written set by Congress or most states. Nebraska state law, for instance, has a five-year statute of limitation for written contracts. The farmer also consents to waiving jurisdiction for arbitration to the jurisdiction decided by the seed company.

Input sellers can place such licensing demands on seed or chemicals because there are so few companies now that they can dictate the terms of sale everywhere. "We don't have a producer in Nebraska -- we don't have ten producers in Nebraska, collectively -- who are big enough to negotiate against that company for different contract terms," Domina said. "We couldn't take our top 100 producers and have them band together to negotiate for different terms against that company."

At one time, such contracts would have been considered too onerous to enforce. It's a problem not exclusive to the seed industry or farmers, Domina noted. "But now we enforce them against everybody." Similar consented conditions or contracts are placed on our cellphones, credit cards or airlines. Domina said this is becoming the landscape across the country in the relationship between companies and consumers.

"There are those who wrote the contracts and understand them, and there are those who are subject to them," he said. "It isn't necessary to say who signed them. You don't have to sign them anymore. You just have to use the product, even unwittingly, to be stuck with the consequences of the adhesion contract."

The risks of such contracts could come when a farmer doesn't realize that things could get worse. A prosecutor from Omaha or Lincoln who doesn't know how things work on the farm could question the legality of the documents a farmer signed or products used and put together a case.

Domina said larger farm operations lead to fewer people involved in agriculture, thus diminishing the influence of farmers in the population. In the 1980s, he invested in a rural Nebraska bank. At the time, almost 40% of the bank's loan portfolio was to hog producers. Now, the bank doesn't have a single swine pledged as collateral on a loan. Hog production is more concentrated because the buyers are concentrated. That consolidation is moving into feedyards, he said.

"It's more efficient to make fewer stops, contract in advance and acquire them ahead of time for the cattle or the hogs they need to run a slaughter plant," Domina said. "It's also more efficient to deal with only one farmer if you own an elevator or a grain company, instead of 30 or 40 or 50 or 80. And that explains why we are down to under 50,000 producers in the state."

Domina called on the University of Nebraska ag school to produce farmers who will question the status quo. He pointed the story of Marvin Horne, a raisin grower in California who will have his second case heard this spring before the Supreme Court in a battle over the federal market order for raisins. Horne is trying to overturn rules requiring the federal government to hold nearly half the raisin crop in storage to control the market. He stopped paying the raisin assessment. The last time before the Supreme Court, he won 9-0, but USDA continues to fight to keep the marketing order for raisins, which goes back to 1949 and the Horne's pay their checkoff assessment and penalties.

"What I want you to do is to train one Nebraska farmer with that much guts," Domina said.

Follow me on Twitter @ChrisClaytonDTN.

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Chris Clayton