Are property rights now more clearly defined for organic farmers in Minnesota?

Michael Giberson

The United States Supreme Court chose to let stand a Minnesota Supreme Court decision concerning the rights of organic farmers exposed to pesticide drift from neighboring conventional farms. In the case Johnson v. Paynesville Farmers Union Cooperative Oil Co., the organic-farming Johnsons had sued conventional-farming Paynesville for damages after pesticide drift from Paynesville’s farm damaged the Johnson’s organic crops and required some of Johnson’s fields to be held out from organic production for up to three years. The U.S. Supreme Court action left in place Minnesota’s decision which held Paynesville was not responsible for harm to the Johnsons’ organic crops.

The case provides a good background for exploring questions of externality and property rights (i.e., a real live case for contemplating Coasian reasoning):

  • At one time both the Johnsons and Paynesville engaged in conventional farming, including the application of pesticides. Pesticide drift was a non-issue.
  • In the 1990s Johnsons decided to switch to organic farming. They posted signs declaring the property was to be used for organic farms, established a buffer zone between their organic fields and adjacent properties, and asked Paynesville to take actions to avoid overspraying Johnsons’ fields. Then they operated without pesticides for three years in order to qualify to market their product as organic.
  • Subsequently, pesticide drift from the Paynesville farm has resulted in damages to the Johnsons on at least five occasions: crops have had to be sold at lower non-organic prices, crops had to be destroyed, and fields had to be held out of organic production for three years after the pesticide overspray.

The story may be framed as a simple case of negative externality: Paynesville’s operation are imposing an external cost (i.e. “polluting”) the Johnsons’ operations. The beginning economist will jump to the conclusion that efficiency requires a tax on Paynesville, or, in the case of a more thoughtful student, liability for damages.

But the question of who is creating the externality is a bit more complicated, observes the more advanced economics student. After all, pesticide drift is only a problem because of the Johnsons’ choice to go organic. You might say that the Johnsons caused the problem by starting up an organic farm in an area they knew was subject to occasional pesticide drift. If you build your house adjacent to an airport, you don’t really have much ground to subsequently complain about the related noise and traffic.

In class discussions when I’ve talked about this case, most students will side with the Johnsons at first. The question that moves many of them back to Paynesville’s side is this: “If Paynesville had the right to its manner of operations before the Johnsons switched, how did the Johnsons acquire the right to force Paynesville to change its operations?” Or sometimes, this question: “No one is too worried if Johnsons’ choice results in a higher cost of operation for the Johnsons, but on what grounds do the Johnsons get to impose a higher cost of operation on Paynesville?”

(Note that you can move students to the Paynesville side by asking, “What right does Paynesville have to limit the Johnsons ability to farm the way they please on their own farm?” Also relevant, Minnesota farming regulations prohibits the application of pesticide in a manner that damages neighboring property, and the State has cited Paynesville for violating this rule in the past.)

Now that it appears that the legal matters are settled–the Johnsons’ choice to go organic does not impose restrictions on how Paynesville operates–Coasian thinking would have us expect the least-cost avoider to take steps to minimized the costs associated with pesticide drift. I can imagine several possibilities, but have no idea which would be least cost:

  • Johnsons pay Paynesville to exercise greater caution to avoid pesticide drift.
  • Johnsons expand their buffer zone between the organic crops and the Paynesville property.
  • Johnsons simply suffer occasional pesticide drift and attendant costs.
  • Johnsons return to conventional farming on their property.
  • Johnsons sell and relocate their organic farm elsewhere.
  • Johnsons buy out Paynesville (i.e. Paynesville relocates its conventional farm elsewhere).

Because this is a case in which the number of parties is small on each side of the externality, the costs of negotiation should be small and so ‘transactions costs’ ought not be a barrier to obtaining the least cost solution. Of course if the least cost adjustment is fully in the Johnsons’ control then it will not require negotiation at all.

NOTES: The first link above includes a summary of the case and links to related documents including the Johnsons’ appeal to the U.S. Supreme Court. The Johnsons’ appeal includes a lengthy appendix with the text of the Minnesota court decisions.

Lynne and I have each written about this case before: Lynne here, and me here and here.]

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4 thoughts on “Are property rights now more clearly defined for organic farmers in Minnesota?

  1. Why can’t Johnson be like the rest of the “organic” farmers and lie. I can assure you that a produce manager with two apples, one with spots and one without, will label the spotted one as “organic” and mark it up above retail, because some moron will pay for it. We have a name for people who buy “organic” food: suckers.

  2. Excellent discussion. As a resident of Minnesota it surprises me the Minnesota Supreme Court decided in favor of Paynesville

  3. OK, I’m not a lawyer but an engineer. Sometimes the use of pesticides contaminate the organic farm and sometimes they don’t. I wonder why this is – the force or direction of the wind at the time the pesticides are sprayed? Is it dependent on how the pesticides are applied – by a tractor or by crop dusting – an airplane? It would seem to me that the two parties could find a solution to this, like not spraying pesticides when the wind is from the “wrong” direction or above a certain speed. Of course this would require compromise and working together.

  4. One of the points of Ronald Coase’s analysis is that absence of clear rights can lead to conflict (as parties in effect both attempt to assert the right for themselves) where clarity of rights can promote cooperation.

    Paynesville could exercise greater care, presumably by engaging in some additional cost, and the main question involves whether (a) Paynesville should pay that cost itself, or (b) Johnson should pay that cost.

    In effect, (a) implies Johnson has the right to be pesticide-drift free, i.e., it implies Johnson’s choice to go organic imposes a costly obligation on Paynesville; (b) implies Paynesville has the right to continue farming in its traditional ways, i.e., that Johnson is responsible for all of the added costs associated with their choice to go organic, including those costs that fall on neighboring farmers.

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