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Robert S. Duxstad
Daniel P. Bestul
Lance A. McNaughton

Thinking of farming? Talk to a lawyer!

Posted: 6.23.2014  |  Author: 

As I’ve been driving around Lafayette County these past couple of weeks, the first cut of hay has offered a welcome sign that summer is finally here. Bean and corn fields, lush with green, are proof that our never-ending winter has finally ended. They’re also an ever-present reminder of the importance that agriculture plays in our region. For example, a 2008 study by UW Extension concluded that, in Lafayette County, agriculture is responsible for over 3,500 jobs and $841 million dollars in annual business sales. The numbers are equally impressive in Green County where the agricultural industry creates over 5,900 jobs and generates $1.3 billion dollars in business sales.

 

Within Wisconsin's agricultural industry, there’s a quickly growing sector represented by organic farmers and those contributing to the local foods (direct sales) movement. A 2012 study prepared by UW-Madison's Center for Integrated Agricultural Systems and Wisconin's DATCP, reported that, between 2002 and 2011, Wisconsin saw a 241% increase in organic acreage, from 81,026 to 195,603 acres. The growing importance of these movements is reflected in the positive treatment that they received in the most recent farm bill, which was passed by Congress in February. Among the big victories included increased federal funding for Organic Ag research, new federal programs to help market organic foods, and rules that leveled the premiums for organic farming insurance with those for conventional farming. The potential payoff explains the growing interest. The 2012 status report also showed that Wisconsin organic farms generated about 70 percent more income per acre than their nonorganic counterparts, and that, in 2009, organic dairy farms generated $1,000.00 profit per cow, while conventional farmers lost $147.00. With continued growth expected, it is easy to see why organic farming and the local foods movement are increasingly attractive in our region.

 

In some ways, the success of this movement can be deceptively attractive. Farming’s a risky business and even in a growing sector there’s no guaranty of success. This is even (and maybe especially) true with small organic farms and the increasingly popular small CSA operations. I recently had a friend tell me that he regretted pursuing a career in business instead of something simple, like farming. I gave him a look and responded, "Farming is a business and there’s nothing simple about it." In fact, there’s a long list of legal issues that one should address before pursuing any new business venture, and a farming business is no exception.

 

For example, the decision on whether to operate as a sole proprietor, partnership, corporation or limited liability company is critically important and requires a careful consideration of liability, tax and management concerns. A recent blog article by Attorney Robert S. Duxstad did an outstanding job of laying out the various options in that regard and is a worth a read. Organic farming, of course, offers a special challenge of understanding and meeting the strict certification requirements that are necessary to achieving the "organic" label. Often, a well worded farm lease agreement is crucial in making sure those conditions are maintained. Local food or direct sales producers face complicated regulations governing food processing, packaging and labeling, and need strong sales contracts with important retail and restaurant customers. Even community supported agriculture, or CSA, which often relies on volunteers to operate the farm, has unique employment issues, and requires a solid understanding of workers compensation and worker safety rules that apply even when workers are unpaid.

 

The full list of legal issues facing a new farm business is much longer than what I described here, and might be enough to scare someone away from pursuing a smart business opportunity. In reality, some easy planning and consultation with a legal professional are all it takes to put everything in perspective and get started on the right foot. A lawyer experienced in assisting small business owners and farmers in particular can help you identify which legal issues relate to your planned operation and how to address those in a way that greatly reduces the risk and enhances the reward associated with running a farm.

 

Lance A. McNaughton practices estate planning, probate, business, and real estate law in both Lafayette and Green Counties in Wisconsin. He can be reached by e-mail at mcnaughton@duxstadlaw.com.

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