Initiative 300 Rationale

Before Initiative 300 was adopted, non-family farm corporations were having a substantial impact on Nebraska agriculture. The impact was especially severe in livestock production and on land use in the Nebraska Sandhills, an ecologically fragile part of the state. In 1979 it was estimated that 20% of Nebraska’s sow herd was in corporate hog operations and the percentage was expected to grow higher after National Farms completed its expansion in the state. Corporate involvement in Nebraska cattle feeding was also estimated to be high. But the most egregious corporate farming activity in the 1970s was taking place in the Sandhills, where there was a direct correlation between corporate/investor ownership and development of marginal erosion-prone soils for irrigation. Studies of two Sandhills counties showed that in the 1970s, over one-fourth of the irrigated land was owned by non-family farm corporations, and thousands of Sandhills acres were being converted to crop production, despite its classification as non-arable land. Investors were reaping substantial tax benefits by converting rangeland into cropland and the tax benefits increased as the conversion increased. Family farmers across the state were outraged by the growth of corporate farming and the resulting economic and environmental damage occurring.

Corporations and other limited liability business organizations were authorized by law to limit liability for investors and allow for centralized management and control. This preferential treatment allows them to attract outside investment capital more easily and to build industrial scale enterprises. Limited liability reduces risk for investors who do not directly take part in management and labor functions. At times, lower corporate tax rates have also allowed investors to avoid the progressive affect of personal income taxes on farm profits. This is still true for corporations with very large incomes, and corporations of any size can divide taxable income to achieve lower tax rates. Corporations also get preferred treatment when it comes to paying Social Security taxes and deducting certain business expenses.

Preferential tax treatment helps corporations attract investment dollars that allow them to expand beyond what they otherwise could and puts them at a competitive advantage over individual farmers. As one economist said in 1982, the year I-300 was adopted, the tax system "tends to penalize the farmer who provides most of his labor supply from family resources, buys few purchased inputs, and extends the life of his equipment by careful maintenance and repair…" Even the "double taxation" (taxation at both the corporate entity level and the shareholder level) that some people claim puts corporations at a disadvantage is not a significant problem for corporations that simply reinvest dividends for more expansion rather than making payments to shareholders. Limited liability entities, because of their ability to more rapidly expand as a result of investor benefits, increase the concentration of farm production and land ownership into fewer units. Restricting the use of such structures discourages concentration, thus allowing economic opportunity for greater numbers of independent farm families.

As corporations buy land and/or engage in farm production, they reduce farming opportunities for family farmers and beginning farmers. As corporations engage in livestock production, they add to total agricultural production, thus reducing prices received by family farmers. Corporate ownership of livestock is restricted by I-300 as well as corporate ownership of farmland because corporations can do harm to family farming without directly engaging in production. Corporations control hog production by owning the hogs, and having them raised on contract by producers. This has shifted control of production decisions out of the hands of the farmer. As corporations have gained control of hog production, open markets have disappeared.