Lamson, Dugan and Murray, LLP, Attorneys at Law

Viptera Approved: China Ends Import Ban On 3 GMOs

Posted in Biotechnology, Government Regulations
China finally opens up to Viptera

China finally opens up to Viptera

On December 17, 2014 China finally ended its import ban on Syngenta’s Viptera corn and two varieties of GMO soybeans produced by DuPont Pioneer and Bayer Crop Sciences.

The announcement is cause for great relief to the seed companies and U.S. grain exporters considering U.S. grain trading with China was shut down for all intents and purposes during the ban.  Secretary of Agriculture, Tom Vilsack, cautioned the approval was not a change in China’s regulatory review process of GMO crops.  Via Reuters.com.  Rather, the delayed approval is another example of China’s consistently inconsistent approval bureaucracy.

Syngenta is not out of the Viptera woods yet.  Numerous lawsuits have been filed against Syngenta in the last year with plaintiffs alleging Sygenta’s release of Viptera before China’s approval caused a dramatic drop in corn prices.  Syngenta Under Pile of Lawsuits  China’s approval will open the trade going forward but will obviously not affect any alleged issues caused by the ban in the past.  Consequently, Syngenta still has a fight on its hands with grain exporters and farmers who were allegedly damaged by the ban.

8th Circuit Intercepts Syngenta’s Attempt to Pass Viptera Problem to Bunge

Posted in Biotechnology

tall corn

As a follow up to Syngenta Under Pile of Lawsuits, the United States 8th Circuit Court of Appeals recently broke up Syngenta Seeds, Inc.’s attempt to pass the Viptera problem to Bunge North America, Inc.

In 2013 Syngenta tried to get ahead of the problems caused by China’s ban of Viptera corn by suing Bunge for refusing to accept corn which contained the Viptera trait. Knowing Bunge would not accept Viptera corn, farmers subsequently refused to purchase Syngenta products resulting in lost profits, market share and goodwill.

Syngenta alleged Bunge’s refusal to accept Viptera corn breached Bunge’s obligations under the United States Warehouse Act (USWA), breached a duty to third-party beneficiaries of Bunge’s licensing agreement with the federal government, and Bunge engaged in false advertising in violation of the Lanham Act.

Under the USWA, Bunge is required to treat depositors of grain in a fair and reasonable manner.  Syngenta claims Bunge violated its obligation to treat all grain depositors equally by refusing to accept Viptera corn.  However, the 8th Circuit Court found the USWA did not allow seed producers to sue for a breach of the Act nor did it provide a private right of action against the warehouse operator.

Syngenta also claimed it was a “third party beneficiary” of Bunge’s Licensing Agreement with the federal government which also requires Bunge to treat all depositors fairly and reasonably.  The 8th Circuit disagreed and found the Licensing Agreement did not intend to benefit seed producers.  Consequently, Syngenta was not a third-party beneficiary to the agreement and had no claim under the agreement for Bunge’s refusal to accept Viptera corn.

Finally, Syngenta claimed Bunge posted signs falsely advertising Viptera was not approved in major export destinations and Bunge, therefore, could not accept corn with the Viptera trait.  The District Court had dismissed Syngenta’s false advertisement claim finding (1) Syngenta could not bring a false advertisement claim because Syngenta was not Bunge’s competitor; and (s) Bunge’s signs were not considered commercial speech.  Giving Syngenta a glimmer of hope, the 8th Circuit returned Syngenta’s false advertisement claim back to the District Court.

The 8th Circuit did not determine Syngenta had standing or Bunge’s signs constituted commercial speech.  Rather, the 8th Circuit instructed the District Court to determine whether Syngenta had standing under the “zone of interest” and “proximate causality” tests recently developed by the Supreme Court in Lexmark Int’l, Inc. v. Static Control Components.

The Viptera problem is multi-faceted and has effected the entire chain of grain distribution in the U.S.  Syngenta will do what it can to make sure it is not holding the ball for the problems caused by China’s ban of Viptera.  Per the 8th Circuit, Syngenta gets another down to prove it has standing under the Lanham Act to complete a pass of the Viptera problem onto Bunge.

For the full opinion see: Syngenta Seeds, Inc. v. Bunge North America.

Syngenta Under Pile of Lawsuits for Alleged Losses Caused by China’s Ban of Viptera Corn

Posted in Biotechnology

tall corn

The lawsuits against Syngenta for alleged losses due to China’s ban of Viptera corn are starting to pile up.  Nine such lawsuits were filed in the United States District Court for the Southern District of Iowa in October with more expected as producers jump on the pile started by Cargill in September.

In 2011 Syngenta launched the Agrisure Viptera trait to producers after being deregulated by the United States Department of Agriculture (USDA).  The Viptera trait acts as a biological insecticide targeting certain pests without harming non-target organisms. ISU Integrated Crop Management News    While approved in the U.S., Canada, Mexico and several other export nations, the trait was not and has not been approved in China; the number 3 export market for U.S. corn.

Some believe China is using the GMO angle to get out of U.S. corn contracts in light of China’s recent record crops.

Whatever China’s motives, Cargill filed suit claiming Syngenta should have never marketed or released the Viptera trait without China’s approval.  The claimants allege the rejection of corn with even trace amount of Viptera added supply to the domestic market, thereby driving down the price of corn by approximately 11 cents per bushel. via Wall Street Journal Cargill claims the U.S. grain industry lost approximately $2.9 billion due to the loss of the Chinese market. &Newsobserver.com

The claimants face some legal hurdles including proving China’s rejection of Viptera corn was a proximate cause in the drop in corn value. Furthermore, the claimants will have to prove that Syngenta has a duty to ensure the availability of foreign markets before releasing a given trait.  Finally, the claimants will have to get over the issue that the producers voluntarily planted the crop with the restrictions in place.

China may eventually approve Viptera, thereby saving Syngenta’s investment in the technology.  In the meantime, Syngenta will have to try to dig out of the current pile of lawsuits which is expected to turn into a class action. Whether or not Cargill and the producers are successful, the litigation may have an impact on how and when genetically modified seed is released in the future.

Majority Rules – Iowa District Court finds minority shareholder not oppressed

Posted in Farm Management

In 2013 the Iowa Supreme Court evaluated “fairness” among minority and majority shareholders of a family farming corporation in the context of disagreements between second-generation cousin shareholders.  The case is Baur v. Baur Farms, Inc.  In Baur Farms, one of the cousins, who was not involved in operating the farm and received all of his stock by way of inheritance or gift, decided he wanted to be bought out.  The corporate bylaws included a buy-out provision where the value of the shareholders’ stock was set at a value of equity interest determined by the Board of Directors at the end of the most recent fiscal year.    That value apparently did not reflect the fair market value of the corporation’s underlying assets – the farm and negotiations to settle were unsuccessful.

The disgruntled cousin filed suit alleging the majority owners committed oppressive, malicious and fraudulent acts resulting in waste of the corporation’s assets.  He sought dissolution of the corporation, payment of previously unpaid dividends or a buy-out of his stock at a fair value.  The district court originally dismissed the case in favor of the majority owners and corporation.  However, the Supreme Court reversed, holding that majority shareholders act oppressively when they fail to satisfy the reasonable expectations for a return on investment of a minority shareholder; specifically by refusing to buy out minority shareholder at fair value.   The case was sent back to the district court for trial.

The Baur Farms opinion appeared to give great power to minority shareholders and became the subject of criticism among many farmers and professionals – particularly since the disgruntled cousin made no investment in the farm and appeared to have no reasonable expectations for a return under the corporation’s structure.

The July 2014 district court opinion, took the air out of the minority shareholder’s balloon.  The court the corporation and majority owner did not engage in oppressive conduct because the minority shareholder had no reasonable expectations that could be violated.  Expectations are only reasonable if they are made known to the other shareholders, and the only expectation in this instance was to be bought out under the bylaw valuation.

Further, the disgruntled shareholder remained quiet for many years following the adoption of the bylaws.  He made no actual “investment” in the corporation because he received his stock by inheritance or gift.  The court also noted the value established by the Board of Directors would be appropriate for the shareholder’s minority interest and for the built-in taxable gain in the corporation’s assets, which would have materialized if the corporation was liquidated.  Thus, a fair price should be viewed as fair market value after accounting for applicable discounts (including tax).

Essentially, the district court found the Supreme Court’s opinion was not applicable because the facts presented to it were not those considered by the Supreme Court.  The Supreme Court simply didn’t get the facts right.

There are still lessons to be learned from the Baur Farms saga.  Corporations and majority owners cannot run roughshod of the business to the detriment of minority owners.  However, appropriate buy-sell agreement planning, business succession planning and corporate governance can resolve many of these issues before they result in litigation.

Dan Waters

Dan_Waters_Index

 

White Flag Waved: EPA drops suit against Lois Alt

Posted in Government Regulations

The Environmental Protection Agency (“EPA”) has decided not to appeal the Northern iStock_000017328332LargeDistrict of West Virginia’s ruling in favor of poultry farmer, Lois Alt.  The court ruled the Clean Water Act (“CWA”) did not regulate storm water runoff from the non-production areas of a farmyard.  A great outcome for Lois Alt which may impact concentrated animal feeding operations (“CAFOs”) across the country.

In 2012 the EPA handed Lois Alt an Administrative Compliance Order requiring Lois obtain a CWA discharge permit for storm water running off the area outside of her eight poultry houses.  Generally, “agricultural storm water” is exempt under the CWA and Lois Alt refused to obtain the permit.  In court, the EPA argued the exemption only applied to the crop production areas of a CAFO.  The EPA also alleged the runoff was “industrial storm water” because it contained trace amounts of feathers, manure and dust.  Essentially, the EPA was attempting to extend its authority over storm water runoff to areas beyond where animals, manure and feed are maintained and stored.

The court rejected both arguments finding runoff from non-producing areas are exempt as “agricultural storm water” even if it contains trace amounts of pollutants.  The EPA initially filed a notice of appeal but has now dismissed the appeal.

The EPA claims it voluntarily decided to turn its attention to other issues.  The American Farm Bureau Federation (who joined the lawsuit) believes the EPA withdrew out of fear of losing an appeal, thereby, establishing a legal precedent for future actions.  Via The Voice of Agriculture. 

Waving the white flag to Lois Alt does not mean the EPA will stop trying to extend its authority over storm water runoff.  However, it gives CAFO owners some good ammunition to fight future attempts.

 

 

 

Water is for Fighting Over: Nebraska Farmers Sue for Water Diverted to Kansas

Posted in Crop Damage Claims, Government Regulations, Water Law

Australien, Victoria, 7030

Many have heard the quote attributed to Mark Twain over a 100 years ago: “Whiskey is for drinking; water is for fighting over.”  Those words are as true today as they were a century ago.

Four South Central Nebraska farmers have decided to take their fight over water to court.  The farmers allege they lost yields because the State diverted water away from the farmers’ irrigation supply  to comply with the Republican River Compact.

Under the 1943 Compact, Kansas is to receive 40%  of the water from the Republican River which starts in Colorado and flows through Nebraska before entering the Kansas.  Nebraska is allocated 49% of the water but was using more than its share according to a 1998 lawsuit filed by Kansas.  To comply with the original Compact and a subsequent 2002 Settlement, the State has been releasing water once used for irrigation by south central Nebraska farmers downstream to Kansas.

The farmers allege the diversion is a compensable “taking” of their water rights resulting in reduced yields of corn, soybeans, wheat and alfalfa the past few years.  Some of the farmers allege they were disqualified from crop insurance as a result of the lack of irrigation water while others contend they had to resort to dry-land farming.  The damages alleged may exceed tens of millions of dollars according to their attorney.  Via Agweb.com

Takings claims are never easy and this one may be an especially tough row to hoe.  The farmers will have to prove they had a proprietary right to the water and the State’s actions resulted in a complete taking of that proprietary right to recover compensation.

Interestingly, other farmers of South Central Nebraska lost a previous lawsuit wherein they alleged a proposed underground water diversion project would deprive them of their water rights. While not necessarily conclusive of the current lawsuit, the prior decision is evidence of how difficult the current claim may be.

Missouri Passes “Right-to-Farm” Constitutional Amendment 1

Posted in Government Regulations, Property Rights

farm operation

On August 6, Missouri narrowly passed the “Right-to-Farm” amendment by 2,500 votes.

Section 35 Article 1 of the Missouri Constitution will soon read:

That agriculture which provides food, energy, health benefits, and security is the foundation and stabilizing force of Missouri’s economy.  To protect this vital section of Missouri’s economy, the right of farmers and ranchers to engage in farming and ranching practices shall be forever guaranteed in this state, subject to duly authorized powers, if any, conferred by article VI of the Constitution of Missouri.

Right-to-farm measures have been generally used to protect agricultural operations from nuisance suits filed by neighbors due to unavoidable noise, dust, and odors.  Missouri farmers and ranchers were already protected to a degree from nuisance suits by Missouri statute Section 537.295, which led many to wonder why a constitutional amendment was necessary.

Proponents of the amendment rightfully argue the amendment makes farming a constitutional right on par with other constitutional protections.  Therefore, future legislation and local initiatives limiting agriculture would be more difficult to adopt and apply.

A win for agriculture for sure, but a limited victory.  A farmer’s right-to-farm is still subject to local and state authority as conferred by Article VI of the constitution.  Furthermore, the amendment is unlikely to reduce the number of nuisance claims since the amendment does not increase the protections already provided under Section 537.295.

 

 

Beginning Farmer Incentive Programs Part III: Federal Programs

Posted in Farm Management, Government Regulations, Tax

The United States Department of Agriculture (“USDA”) has created several incentive programs for landowners and beginning farmers to help move land ownership and farming operations from today’s farmer to tomorrow’s.

Beginning Farmer or Rancher Land Contract Guarantee

guaranteeThe USDA Beginning Farmer or Rancher Land Contract Guarantee Program encourages shifting land to beginning farmers through installment land contracts. This program is administered by the Farm Service Agency (“FSA”) and offers two types of guarantees. First, the “prompt payment guarantee” assures payment will be covered up to the amount of three amortized annual installments or three annual installments plus the cost of any related real estate taxes and insurance. Second, the “standard guarantee plan” covers an amount equal to 90 percent of the outstanding principal of the loan. This program provides incentive for the government to take a more active roll in ensuring the beginning farmer’s ability to make payments.  The program requires an acceptable credit history, as well as a down payment of at least five percent of the purchase price.

 Transition Incentives Program

The USDA’s Transition Incentives Program (“TIP”) provides two years of additional payments to retired farmers with land exiting the Conservation Reserve Program (“CRP”), if they sell or rent the land to a beginning farmer. This program is available to landowners who sell land to a beginning farmer or enter into a lease of at least five years. While there is no maximum lease term under this program, it should be noted that this can conflict with state law limits on lease terms.  The beginning farmer must (1) have been a farmer or rancher for less than 10 years; (2) obtain a conservation plan and implement the plan; and (3) not be a family member of the landowner.  There are also a number of requirements placed on the landowner in order to qualify for the program.

USDA Loan Programs

USDA also offer loan programs available through the FSA to help beginning farmers purchase land (farm ownership loans) as well as pay operating expenses (operating loans). The USDA offers direct loans up to $300,000 and guaranteed loans up to $1,119,000.

The state and federal programs don’t remove the hurdles beginning farmers and ranchers face when starting their operations.  However, the programs may lower those hurdles enough to incentivize current operators and beginning operators to shift agricultural production to the next generation.

Authored by: Katie French

Katie French

Katie French

Beginning Farmer Incentive Programs Part II: Nebraska

Posted in Farm Management, Government Regulations, Tax

carrot on a stickLike their Iowa counterparts, landowners and beginner farmers in Nebraska can take advantage of tax credits and loan programs implemented to assist the next generation of farmers.

Nebraska Beginning Farmer Tax Credit

 The Nebraska Beginning Farmer Tax Credit Act provides an incentive for a farmer who is retiring or who wants to cut back on his or her operation to rent to a beginning farmer. A qualified beginning farmer or rancher must (1) be domiciled in Nebraska or spend more than six months in the state, (2) entered into farming or livestock production or be seeking to do so; and (3) intend to farm or raise crops or livestock on land in Nebraska, in addition to a number of other requirements.

Landowners receive a tax credit against their Nebraska income tax for assets rented to qualified beginning farmers for a period of three years. The landowner can receive a credit up to (a) ten percent of the gross rental income stated in a cash rent agreement, or (b) fifteen percent of the cash equivalent of the gross rental income in a share-rent rental agreement. In order to qualify for the fifteen percent credit, the rental agreement must provide for shared risk of loss or shared production expenses between the parties.

The application process requires the landowner and beginning farmer to complete a Beginning Farmer Application packet with the Nebraska Department of Agriculture. The Beginning Farmer Board will evaluate the application and determine eligibility and the amount of credit or exemption for each landowner and farmer.  The beginning farmer receives a chance to rent on a three-year lease, rather than a one-year lease. In addition, the beginning farmer will receive a tax credit to reimburse the cost of a financial management class, up to $500. The hope is that the experienced landowner will be a mentor to the beginning farmer to increase his or her chances of success.

Nebraska Investment Finance Authority Loans

While the Nebraska Beginning Farmer Tax Credit Act is directed at landowners, loan programs are available for beginning farmers and ranchers from the Nebraska Investment Finance Authority (“NIFA”). NIFA loans are only available to individuals, not corporations or partnerships, who (1) have a net worth less than $500,000, (2) will materially and substantially participate in the operation, and (3) who have never had direct or indirect ownership of any parcel of land greater than 30% of the average size of a farm in the county where the parcel is located.  The loans provided by NIFA cannot exceed $500,000 and must be used solely for land and property used in Nebraska.

Beginner farmers and landowners in the Cornhusker State need to check with their attorneys, accountants, and bankers to determine whether they qualify for these incentives.

For more information check out http://www.nextgen.nebraska.gov/index.html.

Coming next: Federal Incentives.

Authored by: Katie French

Katie French

Katie French

 

 

Beginning Farmer Incentive Programs Pt. I: Iowa

Posted in Farm Management, Government Regulations, Tax

incentive

According to the U.S. Dept. of Agriculture Census of Agriculture, the average age of today’s farmer has increased to 58 years of age.  Concerns are increasing over who will step up as the next farming generation considering dramatic increases in land prices and the high cost of equipment and inputs make it difficult for new farmers to get a foothold. Recognizing the problem, state and federal governments have introduced incentives to get beginning farmers started.  The next three blogs will summarize some of those incentives provided in Iowa, Nebraska and at the federal level.

Iowa Beginning Farmer Tax Credits

The Iowa Agricultural Development Division (“IADD”) has two tax credit programs to assist beginning farmers.

The Agricultural Assets Transfer Tax Credit, commonly referred to as the Beginning Farmer Tax Credit program, allows agricultural asset owners to earn tax credits for leasing their land, equipment, or breeding livestock to beginning farmers. The maximum credit is $50,000. Terms include a 7 percent tax credit for cash rent leases or a 17 percent tax credit for crop share leases. Lease terms and duration are set by the asset owner, but must be a two to five year lease term.  There is additional credit available if the beginning farmer is a veteran.

The new Beginning Famer Custom Farming Tax Credit program offers a tax credit to anyone hiring a beginning farmer to do agricultural contract work for the production of crops or livestock. The Iowa Legislature created the Custom Hire Tax Credit Program in 2013 as an incentive for hiring beginning farmers. The tax credit is 7 percent of the value of the custom work performed by the beginning farmer, with a maximum credit of $50,000. If the beginning farmer is a military veteran, the tax credit increases to 8 percent for the first year he or she participates in the program. Iowa Finance Authority.

Iowa Beginning Farmer Loan Programs

The Iowa Beginning Farmer Loan Program assists new farmers in acquiring agricultural property by offering financing at reduced interest rates. Beginning Farmer Loans are financed by participating lenders with the issuance of federal tax exempt bonds by the Iowa Finance Authority; contract sellers also receive a state tax exemption on the interest income. The tax exempt interest income earned by lenders and contract sellers enables them to charge borrowers a lower interest rate, which will typically result in about a 25 percent rate reduction using the program. For this program, applicants must be below 30 percent of the county median for land ownership. Eligible projects include land, machinery, equipment, breeding livestock, or farm improvements. Iowa Finance Authority.

The Loan Participation Program assists low income farmers to secure loans and make down payments. IADD can supplement the borrower’s down payment, helping a farmer secure a loan more readily. The lender’s risk is also reduced because the IADD provides a “last-in/last-out” loan participation for the financial institution. Eligible projects include land, machinery, equipment, breeding livestock, or farm improvements. Funding is available for up to 30 percent of the project cost, up to $150,000 with interest rate equal to 1 percent above FSA’s Beginning Farmer loan rate, fixed the first five years, then adjusted to 1 percent above the FSA rate at that time, with a 10-year balloon payment. Iowa Finance Authority.

Finally, the Iowa Department of Natural Resources Lease to Beginning Farmers Program gives beginning farmers the first chance to lease DNR owned land. Potential tenants must meet all of the requirements to be certified as a Beginning Farmer by the Agricultural Development Division of the Iowa Finance Authority which reviews residence, net worth, training and experience, and ensures the farmer’s substantial participation in the farming. There are also requirements for the terms of the lease, including: (1) lease must be less than 240 acres, (2) lease cannot be for more than seven years, and (3) farmer must establish a conservation system, crop rotation, and other soil conservation practices. Iowa Finance Authority.

It is important to check with your attorney, accountant and banker to see if you can take advantage of any of these incentives.

Up next: Nebraska

Authored By: Katie French

Katie French

Katie French