Overview of Agribusiness Law
Agribusiness law, as the name implies, is the body of law that regulates agricultural businesses. Often, agribusiness law is described as comprised of both agricultural law (the law that most often applies to farmers) and business law (the law that most typically applies to businesses that are not engaged in agriculture, but with which agricultural producers engage in business). Neither agricultural law nor business law is comprised solely of state or federal law. There are state and federal statutes, regulations and case law that make up both areas of the law. Agribusiness law therefore applies to a wide variety of circumstances.
When farmers engage in business with one another, it often involves the law of contracts. For instance, an apple grower’s sale of its apples to a canning company would make contract law highly relevant, while an agreement between two farmers to provide their clover and alfalfa hay for pickup by a dairy would be more of a bailment situation. The production and processing of milk is further complicated by both state export and federal marketing ordinances.
Whether its a farm or a processing facility, an agricultural business’ facilities will be covered by laws related to real estate. Farm leases and contracts for the sale or lease of farmland will also raise issues unique to agricultural businesses.
Perhaps the area of agribusiness law most familiar to non-attorneys and attorneys alike is insurance law. The so-called "Triple A" insurance policies of Revenue Protection with the Additional Coverage Option, Crop-Hail Insurance, and Crop Revenue Coverage are particularly well-known amongst farmers .
The recent rise in popularity of employment law, alternative dispute resolution and bankruptcy have all created increased legal complexity for farmers. The United States Court of Appeals of the Tenth Circuit recently held that agricultural cooperatives are not immune from Chapter 7 of the U.S. Bankruptcy Code. The Ninth Circuit, which is comprised of states along the U.S.’s Pacific and Alaskan coastline, rejected this logic in a recent decision and determined that a chapter 11 bankruptcy may continue notwithstanding the agricultural cooperative provisions of 11 U.S.C § 101(18).
The growing value of agricultural land, whether holding it for conservation, for recreation, or for the production of crops or livestock has created many disputes involving land use, including among farmers and farming organizations.
The list of agribusiness law subjects continues on. We have not yet touched upon taxes or the highly intensive regulatory requirements for non-discrimination and food safety.
Agribusiness law applies to a wide variety of circumstances because agriculture does not exist in a vacuum. The people who grow our food, raise our livestock, and produce agricultural commodities are tied to competitive markets, local infrastructure, labor, and financial institutions. Agricultural producers are not only providers, but consumers. Farmers beauty our landscapes both literally and figuratively. As long as people eat and agriculturalists are cultivating that food, agribusiness law will be an important subject.
Legal Framework for Agribusiness
The choice of business structure and legal entity plays a major role in the success of an agribusiness. Given the inherent complexities and risks in agribusiness, the selection of the proper legal structure can assist an agribusiness in better managing risks and complying with the law. The first step in this process is selecting the appropriate business entity and its corresponding form. There are six basic types of business entities that may be used by an agribusiness:
Sole Proprietorship
Partnership
Corporation
Limited Liability Company
Limited Partnerships
Limited Liability Partnerships
Each entity has its advantages and disadvantages. Generally, when structuring an agribusiness, a company should consider its projected revenue, growth potential, management structure, and ownership goals. A sole proprietorship is the easiest and cheapest to form. However, it does not provide any liability protection for owners. Corporations provide full liability protection to their owners (i.e. owner can only lose the amount of capital they contributed to the company), tax benefits, and allows for the potential use of stock as currency for building capital, buyer interests, etc. However, corporations are expensive and complicated to establish and operate. Partnerships do not provide any liability protection to its owners, but is flexible and easy to maintain. An LLC is more established and often more organized than a partnership, but more expensive and complicated than a GP. Limited partnerships (LP) and limited liability partnerships (LLP) are generally used by agribusinesses that have significant investment assets under management. They are generally used in connection with investment funds, pensions funds, real-estate management, and some private equity firms. LP and LLPs generally offer the same liability protections as corporations to its investors/owners. However, they do not offer the same tax benefits nor are as flexible as limited liability companies and "S" corporations. We recommend a private LLC or an LP/LLP for true asset managers.
Regulatory Framework for Agriculture
The regulatory landscape for agribusiness is a complex web of requirements that target environmental concerns, labor and employment issues, food safety and biosecurity.
The Environmental Protection Agency (EPA) plays a critical role in the regulation of the agricultural sector. The Federal Insecticide Function, Fungicide, and Rodenticide Act (FIFRA) regulates agricultural pesticides; the Toxic Substance Control Act (TOSCA) regulates toxic substances in the ag sector; and the Clean Water Act (CWA) and Clean Air Act (CAA) regulate emissions from new and existing sources related to agriculture. For example, the agency has raised heightened concerns over the potential impact of fertilizers on water runoff, as well as methane production from livestock operations.
Labor and employment law issues can also be front and center in agribusiness compliance. Whether it involves migrant labor employment, discrimination requirements that apply to the workplace, or OSHA regulations that apply to farm labor and equipment, agribusiness companies must strike a careful balance of complying with federal, state and local laws while maintaining their core business operations and profitability.
Food safety regulation is another key component of your compliance obligations. The FDA regulates food safety standards through the Food Safety and Inspection Service (FSIS). These standards are designed to ensure meat, poultry and some egg products are safe and sanitary for human consumption. The Agricultural Act of 2014 (better known as the Farm Bill), included additional Food Safety Modernization Act (FSMA) provisions. FSMA authority gives the FDA new tools for prevention-based food safety. HSMA focuses on risk-based preventative standards from farm-to-table for produce from both domestic and foreign farms, as well as additional authority for inspections, watchlists of risky facilities and adherence to preventive-corrective action controls and environmental assessments for processing facilities.
Farms, ranches and other similar enterprises are generally exempt from many of the OSHA regulations. However, OSHA regulations do apply to agribusinesses that employ workers. OSHA regulations include hazardous chemicals in the workplace, machine guarding, noise exposure, ergonomics, field sanitation, heat stress, ladders and stairways, and many more areas.
Contracts and Agreements in Agribusiness
A variety of contracts and agreements are essential for the operation of an agribusiness. Leasing agreements for land, production and supply contracts with growers, sales agreements with wholesalers or retailers and many other agreements will work together to establish reliable long-term business relationships within the agribusiness. For example, some purchasers of agricultural products require contracts with their suppliers to ensure quality and reliability of supply, as well as to establish payment terms. Other contracts may be established between producers and the wholesale sector or food retailers to protect price, quantity and quality of supply. These agreements can be very specific and have major financial implications for both producers and contract purchasers. Land-lease agreements, whether for a period of years or for a term of twenty years or more, should clearly and unambiguously define all expectations and parameters for any parties involved in agribusiness. Considerations regarding operation and maintenance of structures and land, developed water access, livestock feed, animal health concerns and insurance coverage may all be issues to be considered in the drafting of a land lease agreement. It is critical, then, in the assessment and negotiation of any of these agribusiness-related contracts and agreements, that experienced legal counsel be enlisted to ensure that the terms are clearly defined and the most prominent concerns of all parties are addressed.
Intellectual Property and Agribusiness
Agribusiness often represents a complex tangle of multiple legal considerations – from land contracts to business arrangements to regulatory compliance. But one aspect that’s often overlooked is the intellectual property (IP) considerations involved in the agriculture and food production industries.
The goals of most agribusinesses are the same as those in other industries – to innovate, to grow and to stay ahead of the competition. And just as in other industries, securing IP rights is one way to accomplish these goals.
Intellectual Property in the Agriculture Industry
Just how comprehensive is IP law’s impact on agribusinesses? For starters, the America Invents Act provides for plant patent protection. Businesses that discover new and distinct varieties of plants may apply for a patent to cover the new variety’s asexually reproduced genes, seeds or whole plants.
Also, the U.S. Patent and Trademark Office has said plants that are developed through modern biotechnology (genetic engineering), including genetically modified organisms (GMOs), may be patented under 35 U.S.C. §101 of U.S. patent law as long as other patent requirements are also met. Additionally, plant varieties that are bred conventionally (not genetically modified , but rather hybridized) may be eligible for protection under Plant Variety Protection Act (the PVPA).
As for trademark protection, brands that have acquired distinctiveness and strength are afforded the broadest protections under federal law. The U.S. Patent and Trademark Office also now allows registration for certification marks.
Moreover, the Agricultural Marketing Service accepts submissions of trademarked products for inclusion on their website. And the USDA recently announced a notable partnership with the agency formerly known as the Food and Drug Administration (FDA). Under this partnership agreement, (now called Food Safety and Inspection Service) FSIS employs the FDA’s GMOSTM trademark to identify foods or food ingredients that have been evaluated using FDA’s rigorous science-based food safety regulatory process.
In addition to protecting the rights of agribusinesses, such practices extend intellectual property to transforming the land, securing farmers’ own technologies and production, and protecting consumers.
Because commercial relationships between agribusinesses are often complex, dealing with integration, distribution or franchising, preventing counterparties from misusing brand or technology has become critical.
Real Property and Land Use
A variety of legal issues can impact an agricultural business’s rights to property including zoning regulations and easements. Zoning laws can restrict the types of land uses in a given area, and easements may give other parties, such as neighboring businesses, rights to use the land for purposes other than that of the land owner. Agribusinesses license and obtain permissions to access water sources for irrigation, which may also be affected by property rights issues. Additionally, property disputes between owners and neighbors may arise in the context of an agribusiness. For example, utility companies may seek to use an agribusiness’s land to run overhead electrical or telephone lines from one property to another, or cut trees to clear the way for new rail or highway construction. While attempts to block such uses may be futile, an agribusiness can minimize potential damages and control the uses of its land by carefully negotiating terms. Water rights, a particularly difficult legal issue for agribusinesses, are subject to their own host of regulations, or may even fall under personal property law depending upon the jurisdiction. For example, groundwater rights govern the use of underground aquifers, while surface water rights pertain to the use of streams, ponds, lakes and canals. An agribusiness may have to obtain permits to access water sources for business operations. As such, if an agribusiness has concerns about land use issues, the agribusiness should immediately contact its real estate attorney. Land use issues should be addressed as early as possible to avoid future disruptions or problems with land use, business plans, property use, and other real estate ownership issues.
Litigation and Dispute Resolution for Agribusiness
Dispute resolution is a pivotal aspect of agribusiness law, as disputes can arise from various sources within the industry. Common disputes include contractual disagreements, land use and ownership issues, and intellectual property infringements such as patent violations concerning agricultural technologies.
Mediation often serves as an effective initial approach to dispute resolution in agribusiness. Mediation is a non-binding process wherein both parties try to reach an amicable resolution with a neutral third party. This process can save time and costs associated with more adversarial proceedings . For example, if two agribusiness entities are in conflict over a supply chain issue, mediation can allow them to work together to address the root cause of the problem without further damaging their business relationship.
However, cases involving intellectual property or where significant damages are at stake may require litigation. Litigation is a formal legal process involving a lawsuit that is heard in a court. Agriculture companies involved in a patent dispute over the use of genetically modified seeds may opt for litigation to resolve the matter before a judge or jury, due to the complexity and potential business implications of the case. While litigation may be necessary in some situations, it can be costly and time-consuming.