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.]

Minnesota Supreme Court rules pesticide drift is not a trespass, but might be a nuisance

Michael Giberson

The Minnesota Supreme Court ruled today that pesticide drifting across property lines onto an organic farmer’s crop does not constitute a trespass under state law. The court dismissed the trespass claim as well as accompanying claims asserting nuisance and negligence under laws that govern organic farming. The organic farming laws regulate what a producer can apply to his own crop, but not what may drift onto the crop from elsewhere. However, the court ruled that additional nuisance and negligence claims not grounded in the organic farming laws could advance, and that portion of the suit was remanded to a lower court for further action. The case is Johnson v. Paynesville Farmers Union Cooperative Oil Company.

The case has become somewhat noteworthy within the organic farming community as an effort in which a small organic family farmer is battling against big, conventional agriculture. (Example.)

We’ve been following it more for its potential as an example of Coasian-style clarification of property rights, which done well can promote efficient resolution of such conflicts. The case might, eventually, bring clarity to the property rights held by neighboring farmers with respect to unwanted pesticide drift in Minnesota. Whether it does bring clarity will depend on what the lower court now does with the Minnesota Supreme Court’s ruling.

NOTES: We have discussed the case here before, Lynne with Coase, legal liability, and pesticide drift) and me with A Coasian look at pesticide and genetic drift). Additional background information available at those links. You can view the supreme court hearing in the case, from February 2012, at this link.

Schmidtz on the philosophy of property

Michael Giberson

At Bleeding Heart Libertarians, University of Arizona philosopher David Schmidtz discusses what a good concept of property does for society. He sums his view concisely at the end, reproduced below. Go read the rest of it for the background and support for these conclusions.

To summarize, in more concrete terms, when a system of property is working, it enables people to live good lives together by helping people to solve a cluster of key problems:

  1. It puts people in a position to produce.
  2. It puts producers in a position to trade.
  3. It fosters creative destruction by encouraging people to experiment, and to shut down experiments that are not working, and to acquire and transmit information about which experiments work and which do not.
  4. It limits externalities.  That is, it results in people having to pay the costs of their own experiments, and also in people being able to enjoy the benefits of their own experiments, thereby helping a society make progress. In most times and places, this will mean a mixed regime in which important bits of property are held by the public but in which the primary means of production are in private hands. That kind of mixed regime has been tested repeatedly in practice. Evidently, and for well-known reasons, it just works better.
  5. It limits transaction cost.  A system must enable producers to take steps to minimize the cost of getting their product to their customers. The roads must be good. Tariffs must not prevent them from dealing with foreign suppliers, and so on.
  6. It enables producers to grow their business, setting up production processes that exploit opportunities for productivity-increasing division of labor and economies of scale.

A system of good property law and good government does these six things, then stops.  Property rights don’t do everything for people, any more than do traffic lights, or plumbers, but this much they can do: they can structure people’s opportunities and incentives such that the most profitable thing people can do is to be as useful as possible to the people around them. The key to explosive economic growth is simple: Secure our possessions well enough to make it safe for us to be a part of the community. Put us in a situation where the key to personal prosperity is to devise ever more effective ways of making the people around us better off. That isn’t everything, but it is a lot.

Applying Coase to wildlife preservation

Lynne Kiesling

I loved seeing pictures a couple of weeks ago of an endangered Bengal tiger and her cubs from a hidden camera. Large predator wildlife that roam and are territorial often face reductions in their territory when humans move in; in the Bengal tiger territory in India, both traditional farming and the construction of new vacation resorts increases the margin on which human uses of the land and tiger uses of the land conflict.

Note the way I said that: conflicting uses of a scarce resource, which for most resources we resolve peacefully and productively using property rights. But how do you do that when one use is territorial roaming and hunting by large predators? And how do you reconcile that with settled farming and tourism? This issue is the same as ranchers in Montana and Idaho faced with the reintroduction of the gray wolf, in a classic case in which Defenders of Wildlife members made voluntary contributions to compensate ranchers in the case of livestock killings.

This is an application of Coase’s framework for compensation for harms when there are conflicting uses of a resource — it recognizes wildlife territory as a valuable use of the resource, and compensates the other users for harms so that they don’t pursue the alternative of killing the wildlife.

I discussed one of my favorite examples of this in a class last quarter, as summarized in this NPR story: Namibia has instituted community ownership of wildlife, with village councils establishing “communal conservancies” and retaining the revenues associated with wildlife tourism … including wildlife hunting. Thus at the community level they earn revenues and have a pool for compensation in the case of livestock or crop damage. Both humans and wildlife are thriving and wildlife in Namibia are less prone to poaching, because the villages have property rights in the wildlife. They all prosper by cultivating wildlife in the way that we cultivate chickens.

The Wired article on the Bengal tiger case hints at a livestock compensation system funded by voluntary donations:

Although the tigers managed to kill a domestic cow, the WWF allegedly compensated the animal’s owner to prevent a retaliatory killing. While not an ideal arrangement, the organization asserts that the strategy works.

“The fact that the tigress survived and it was photographed later is an example of the cattle compensation scheme working when implemented in earnest,” the release stated.

The comparison of these cases suggests that perhaps the WWF should build on their cattle compensation strategy and act as an intermediary to work with the resorts in the Bengal forests to develop the potential for tiger tourism revenue at the resorts. If the resorts can profit from the free movement of tigers in their forest corridors, they are less likely to intrude on those corridors. Then farms and resorts and tigers can coexist and thrive.

A Coasian look at pesticide and genetic drift

Michael Giberson

A few weeks back Lynne drew attention to an interesting property dispute between neighboring farmers in Minnesota, currently the subject of legal action (see news summary here, related court decision here). In brief, the issue is pesticide drift from conventionally farmed crops onto a neighboring organic farm, and whether the organic farm can sue the conventional farm for pesticide-drift trespassing. Appeals court says yes.

David Conner wrote about a very similar hypothetical case a few years back in “Pesticides and Genetic Drift: Alternative Property Rights Scenarios,” when considering a Coasian approach to resolving such issues:

Imagine the following hypothetical dispute between Cameron Conventional and Olivia Organic, two farmers with adjacent fields. Cam­eron is a cutting-edge, high-tech farmer, an early adopter of new technologies, making him a low­ cost producer of grains and legumes. “Back to the land” Olivia grows organic specialty orops for sale at a local farmers’ marker.

Someone tests an ear of Olivia’s sweet corn and determines that it is contaminated by pesticides and pollen from GE corn. Her upset consumers begin to boycott her. The belief that she is an organic producer is stripped away. She must now sell her produce conventionally at a much lower price. What are her options?

Conner then explores the case in “Coasian” fashion, considering various scenarios depending upon who would be the least-cost avoider of the conflict and who held what rights.

On the obligations of income-earners and property-owners to pay taxes

Michael Giberson

Perhaps you’ve seen the video of Elizabeth Warren, hoping to be elected to the U.S. Senate from Massachusetts, in which she declaims that since roads and police and fire protection are funded through taxes, people have no real claim to their income or wealth against a government that wants to take it. After all, she says, without use of the roads or protection by the policy, people couldn’t earn income or hold onto their wealth. (By the way, I’m looking forward to part two where she explains the consequences for religious freedom entailed by the fact that church-goers drive to church on tax-funded roads.)

Some people like her way of thinking (see the comments here). But obviously her presentation will grate on the nerves of folks that believe governments are instituted to secure and protect rights rather than the wellspring of those rights in the first place.

There are a number of thoughtful (and probably many more less thoughtful) criticisms of Warren’s little speech. Perhaps the best considered response I’ve seen so far comes from Will Wilkinson at The Moral Sciences Club, “Tax and Justice: It is your money.”

Coase, legal liability, and pesticide drift

Lynne Kiesling

A ruling last week from Minnesota’s Court of Appeals provides an interesting case study in using common law and legal liability (a la Coase) in an environmental case. As summarized in the St. Cloud Times, the issue at hand is pesticide drift — when pesticide spray on one field is carried over to another field by wind. In the case of an organic farm, such pesticide drift has a significant economic cost, because the organic farmer cannot sell the affected produce, and may even have to take affected acreage out of rotation for several years to clear the pesticide and retain the foundation of the organic attribution (usually defined by law).

Here’s a bit more about the fact pattern:

The Johnsons turned their farm into an organic one in the 1990s to take advantage of the higher prices organic crops and seeds bring at market. They posted signs noting that the farm was organic, created a buffer between their property and neighboring farms and asked the co-op to take precautions to avoid overspraying, according to the Court of Appeals opinion.

But the co-op violated state law four times from 1998-2008 by spraying chemicals that landed on the Johnson’s organic farm, the opinion said. The opinion said that the co-op was cited four times by the Minnesota Department of Agriculture for violating pesticide laws that make it illegal to “apply a pesticide resulting in damage to adjacent property.”

A 2002 overspray led to the Johnsons selling their crops at lower, nonorganic prices and taking the tainted field out of production for three years. In 2005, 2007 and 2008, the overspray led the Johnsons to destroy alfalfa and soybeans and plow under and take out of production for three years parts of their fields, according to the Court of Appeals opinion.

What’s interesting to me about this case is the Johnsons’ use of the common law — they filed a lawsuit claiming nuisance and trespass. The district court found against them, but this appeals ruling negates that and sends it back to the district court:

The Court of Appeals opinion Monday decided that what the co-op did could be considered a trespass because it met the two elements necessary — that the Johnsons had rightful possession of their fields and that the cooperative’s unlawful spraying of the pesticide, causing it to drift onto the Johnsons’ otherwise chemical-free fields, constitutes an unlawful entry.

Looks to me like an application of Coase to the pesticide drift question — clarifying who has legal liability for the consequences of actions when those actions affect others, use of the common law concept of nuisance — with the result that the pesticide sprayer is liable for the costs of the consequences.

In a case like this, with two adjoining plots of land, the identification of the actors and the actions is pretty straightforward, so it’s a textbook low transaction cost case. But what happens if, say, the organic farm is adjacent to three other farms, and the issue is not pesticide drift, but is rather GMO propagation drift? If all four farms plant corn, but three of them plant the same strain of drought-resistant GMO corn, some seed propagation across property boundaries is likely. How do you assign liability with multiple potential actors? Is there a way to avoid such a cost, and if so, who is likely to be the least-cost avoider? Or more interestingly, since the GMO corn is drought resistant, how do you net out the beneficial effects of the need for less irrigation against the cost of the corn not being able to be sold as GMO-free any more?

I think I may have just identified a new case study for my fall environmental class …