Protecting Diversified, Direct-Market, and Value-Added Operations with Smart Business Structures, Written Agreements, and Regulatory Compliance

Project Overview

LNC13-348
Project Type: Research and Education
Funds awarded in 2013: $158,660.00
Projected End Date: 12/31/2015
Region: North Central
State: Wisconsin
Project Coordinator:

Annual Reports

Commodities

Not commodity specific

Practices

  • Crop Production: food product quality/safety
  • Education and Training: decision support system, farmer to farmer, focus group, workshop, technical assistance
  • Farm Business Management: whole farm planning, community-supported agriculture, cooperatives, marketing management, farm-to-institution, risk management, value added, agritourism
  • Sustainable Communities: local and regional food systems, partnerships

    Abstract:

    As a result of this project, we reached 2474 farmers with information about how the law affects their operation. We created 8 detailed, innovative, and comprehensive print resources that use color, graphics and farmer stories to make the law come alive. We hosted 7 workshops and 3 webinars, reaching over 1000 farmers. Most importantly, this project met it’s outcomes. Around 75% of our users learned a significant amount of new knowledge regarding farm business entities, farm financing, and drafting farm agreements/contracts. Amazingly, 90% of our users made a specific, identified change to their farm business within 3 months of accessing our resource. These changes included starting a new business entity, writing down or revising a business contract, creating a legal-compliance plan and other specific actions that reduce risk and create resiliency. Our project continues to yield dividends as fully 100% of survey respondents indicated they still plan to make additional changes. This project set a trajectory towards continued legal resiliency and stability. Farmers indicated they were more comfortable meeting with an attorney and discussing legal issues as a result of this work. We increased the knowledge of attorneys and set the stage for long-term attorney-farmer relationships. This project will continue to yield dividends for a long time, whether through continued distribution of the print resources and recorded webinars or as farmers continue to make changes and forge relationships with qualified, helpful attorneys. 

    Introduction:

    Farmers are far behind regular small business owners in using legal services. Research on Illinois family farmers shows that only 16% of survey respondents (with gross sales under $100,000) had ever met with an attorney. This small percentage was in spite of the fact that 68% of the same group felt they had needed the services of an attorney. (Endres, 2010) By contrast, 76% percent of small business owners in a nation-wide survey had used an attorney within the past three years alone. (NFIB, 2005). Farmers are not working with attorneys for three main reasons: 1) Attorneys do not understand the farm business, 2) Attorneys cannot help the farm business, and 3) Attorneys are too expensive. (Endres, 2010) These data are not necessarily surprising because as individuals who work in the sustainable agriculture community are aware, direct to consumer farmers prefer to learn from other farmers. (Newenhouse, 2009)  

    Choosing not to work with an attorney makes farmers vulnerable if they aren’t otherwise informed of the legal aspects of their operation. Although a sole proprietorship is the traditional choice amongst farmers, other business options may offer  the same benefits but increased liability protection.  Unfortunately, many farmers have not yet made these structural changes.   Currently, 30-50% of sustainable farmers are organized as a sole proprietorship. (Woods 2009 and internal data) If any of these farmers incur a liability, personal assets are at risk to satisfy the judgment. Total liability exposure is even greater where separate farms organized as sole proprietorships create a partnership (for example, by distributing each other’s product or creating one CSA), thereby leaving each personally liable for the other’s business. Moreover, many farm businesses that have chosen an alternative business structure often do not fully understand the procedures in their operating agreement or bylaws are less protected from liability.

    Sustainable farmers are experiencing tremendous growth as people enter farming, convert to selling locally, and expand operations. At the same time, farmers are becoming more creative about community-sourced funding and in creating collaborations for marketing and distribution. This is wonderful for communities and the environment, but growth and innovation not accompanied by sound legal infrastructure creates more to lose. This project is well timed because the sustainable farming community still has a chance to prevent legal issues from developing. Lawsuits and regulatory enforcement are not widespread; right now, we have the chance to create institutional knowledge amongst farmers and attorneys for the long term.

    By addressing an essential need in the sustainable farming community and building the framework for a long-term solution to the lack of legal services for farmers, this program advances SARE’s objectives. To start, this program will improve quality of life for farmers. Investment in business entity documentation, such as a carefully written operating agreement or bylaws, establishes clear lines of authority and decision-making. Likewise, outlining an exit strategy before it’s needed means the transition is more likely to happen smoothly, with less business disruption. These things bring peace of mind. Simply being educated in legal aspects of a farm business and having access to an attorney can improve quality of life for farmers, even if no business practices change. There is substantial value in simply understanding when and how much risk one is accepting, as compared to not knowing.

    This project will also improve farm profitability. Choosing the right business entity from the start can help a business run more efficiently. Clear authority and decision-making systems help a farm move quickly to take advantage of opportunity. Written contracts give a farm confidence in meeting obligations and expectations, and written agreements give the farm recourse if the other party breaches the contract. Environmental quality is also fostered by this project because our resources and services go beyond achieving strictly legal/economic goals. We help farmers understand how to incorporate their objectives for local food system development into the very structure of their business, their contracts, and their community-based funding strategies.

    Over the long term, this project will continue to contribute to the stability and resiliency of sustainable farmers in the North Central Region. Our approach to legal curricula encourages farmers to discuss with other farmers their approach to running a business, raising funds through alternative means, and entering into contracts. As such, this project begins to create institutional knowledge within the farming community. We also begin to shift farmers’ attitudes to attorney counsel (55% of farmers attending previous workshops by the project team say they are more likely to seek the advice of an attorney after the event). By training attorneys to work with farmers, we increase farmer access to knowledgeable attorneys over the long term. Also, by collaborating with attorneys who also use our educational resources, we will create a network that will efficiently update and improve those resources. This project will be sustained after the initial project period through the permanent educational resources and networks established.

    Without creating the legal backbone to support the innovative and profitable new farms in this area, our trajectory towards a more sustainable food system may not continue. It is essential that we address nascent vulnerabilities before they become problems. By developing high quality legal research materials based on farmer input, disseminating those resources in a collaborative environment back to farmers, and building a base of knowledgeable attorneys, we develop a permanent solution to a persistent, if still nascent, problem.

    Project objectives:

    Below, please find a numbered list of short term and intermediate term outcomes as listed in the project application to SARE. Beneath each listed element is a description of whether and how we met the outcome

    Short Term

    • Reach 2480 farmers
      • 2000 via 8 print resources
      • 480 through 8 workshops and 2 webinars

    We reached a total of 2474 farmers through this project, just 3 shy of our goal. 1172 farmers accessed our print documents and 1302 farmers attended or watched our webinars and workshops. Recording our webinars and distributing them over the course of one year was a very successful strategy- we reached 421 individuals through our first business entities webinar and another 337 farmers through our farm financing webinar. These were our most popular events. Our workshops had more modest attendance because of the natural limitations of an in-person event. Our print resources garnered fewer numbers for one reason: We released them only a few months before the end of the grant term. Our exact number of print resources, workshops and webinars also changed. We produced 11 resources (7 of which were also distributed as a single larger one), hosted 7 workshops and 3 webinars. Although the numbers moved around a bit, we met our goals overall.

    • 1860 or 75% will improve knowledge of business entities, contracts, and financing strategies.

    Averaging across all resources, 1905 individuals improved their knowledge of how the law affects their farm operation! We are excited to find that for our business entities materials, an average of 66% of users ranked their level of learning as a 4 or 5 on a scale of 1-5, with 5 being “a lot.” If we include those who ranked their level of learning as 3-5, 77% of users improved their knowledge. Learning levels were a bit lower for our financing strategies resources- about half of all users ranked their level of learning as as a 4 or 5 on a scale of 1-5, with 5 being “a lot.” If we include those who ranked their learning as a 3-5, 75% of users improved their knowledge.

    • 1860 or 75% will increase confidence in legal aspects

    2326 users or 94% of farmers felt more confident in choosing a business entity, drafting a contract, and arranging a legally sound financing strategy.  100% of our respondents said they were more comfortable communicating with an attorney, accountant, or farm business owners after using our resources.  When it comes to legal education, understanding the terminology is half the battle so we are not surprised or suspicious of these high numbers.

    • 4 attorneys will increase knowledge

    We worked with 7 regional attorneys to help develop their knowledge and experience in serving sustainable farmers. All increased their knowledge in sustainable farm law, particularly in the nuances of business entities for sustainable farmers.

    • 3 briefs developed for attorney community

    We drafted and have available 7 specific briefs on more complex business entity selection issues for the attorney community.

    Intermediate Term

    • 744 or 30% of farmers reached will make a change to a legal aspect.

    We far exceeded this goal! 2227 or 90% of our users indicated they had already made a change to their farm business as a result of the resource within 3 months. Respondents indicated exactly which change they had already made, and the most popular change was forming a business entity and drafting an operating agreement, bylaws, or other organizational document for the business entity. Other farmers revised their current organizational documents, planned out a loan program, and planned other financing strategies.

    Our program results indicate that farmers will continue to make important changes to their operation. 100% of respondents (across all platforms- online and in-person) planned to make a change in the near future to their farm business. These changes were specifically listed by each respondent and the most popular included changing a business entity and starting a new one. When asked about their current barriers to moving forward with that change, the majority said the issue was a lack of time.

    • 96 farmers will meet with an attorney

    We did not end up asking this question in our evaluations. Based on our experience working directly with farmers and gaining a deeper understanding of their attitudes, perspective, and desires, meeting with an attorney was not necessarily the best next step. Rather, farmers needed more time to discuss issues with partners, plan for changes, and learn more information. Of note, 100% of farmers said they were more comfortable speaking with an attorney after using our resources. We know we moved our audience closer to this goal, if not close enough to answer this specific question. 

    • 4 attorneys will develop experience serving farmers

    We worked with 7 regional attorneys to help develop their knowledge and experience in serving sustainable farmers. Because we realized the distance between farmers’ current position and actually meeting with an attorney was farther than we predicted, we are not able to draw a stronger connection. We know we increased comfortability meeting with attorneys and attorneys’ knowledge of sustainable farm law, and we expect the direct connections will grow naturally, going forward.

    • 3 farm educators will implement program materials into curricula

    We are working closely with about a dozen farm educators to integrate project materials into their curricula. However, we are not able to say this work has concluded by the end of the grant term. Although our webinars were distributed half way through the grant term, we didn’t complete our print resources until much closer to the end. Right now, we are actively working with 12 organizations nationwide to integrate this material into their operations.

    Long Term Outcomes are discussed in the Impact section

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.