2015 West Virginia Food & Farm Coalition: 2015 Legislative Issues West Virginia Food and Farm Coalition 2015 Legislative Session
Introduction & Summary As the West Virginia Legislature convenes its 2015 Regular Session, lawmakers will face a host of daunting challenges, incredible opportunities and hard decisions for our great state. On behalf of our food and farm stakeholders from throughout West Virginia, the West Virginia Food & Farm Coalition humbly requests that lawmakers offer their support on the following three issues: Implement a Statute Allowing Development of Cooperative Business Enterprises Cooperative businesses are owned and run by and for their members. Whether the members are the customers, employees, or suppliers, they have an equal say in what the business does and a share in the profits. In many states new breeds of cooperative enterprises are giving people and communities opportunities for entrepreneurship and ownership unavailable through traditional corporate structures. Except along narrowly- tailored lines for agricultural producers, West Virginia law does not offer a statutory framework under which cooperative enterprises can organize. There are several businesses and planned businesses interested in organizing formally as cooperatives. Due to this interest and need, the West Virginia Food & Farm Coalition, in conjunction with stakeholders in the food system and other industries statewide, asks the Legislature to implement a cooperative statue for West Virginia. Ease Regulatory Burdens For Farmers Market Vendors Food business owners in several West Virginia counties reported to the West Virginia Food & Farm Coalition, West Virginia Farmers Market Association, and West Virginia Small Farms Center that they were experiencing a level of inconsistency and excess in regulation that was threatening the ability to grow their businesses. An investigation by our policy team indicated that while some areas of the state have a very workable regulatory framework for local food sales, businesses in several areas do experience a disruptive level of confusion and inconsistency over local health department regulations. Vendors also reported scale- inappropriate fees making vendor health permits prohibitively expensive. After carefully considering several policy options, the WV Food & Farm Coalition and WV Farmers Market Association policy team support the creation of a new statewide permit for farmers market vendors which could potentially be administrated by the WV Dept. of Agriculture or the WV DHHR. Create a Regulatory Space to Incubate Small Rabbit Farms and Increase Farm Profitability Commercial rabbit production has a very low business startup cost, and small farmers from throughout the state report that rabbit production could be highly profitable if they were able to process rabbits on their farms. Under current law, rabbits must be slaughtered at an approved slaughterhouse, but no facilities in the state offer services for rabbit. Poultry farmers have long enjoyed a federal exemption allowing them to slaughter up to 1,000 birds per year on their farm without an inspector present (the Legislature upped the number to 20,000 in 2014). If rabbit farmers were able to slaughter up to 1,000 rabbits on their farm per year, it would give them enough revenue to scale up their farm operation and expand local food economic opportunity. The West Virginia Food & Farm Coalition asks that legislators support a code change that would allow the Department of Agriculture to set up a regulatory system for farmers to process rabbits on their farms. 1
About the West Virginia Food & Farm Coalition The mission of the West Virginia Food & Farm Coalition is to build, support and strengthen a statewide network of those involved in West Virginia s local food economies, with the interconnected goals of improving access to healthy, locally- produced food for all West Virginians and helping viable food and farm businesses to grow. Our conviction is that when West Virginia farmers and food producers become more directly connected to West Virginia consumers, the results include healthier people, greater business opportunities, stronger communities, and a unique economy reflecting our state s proud heritage of self- sufficient food production. We are especially dedicated to the success of small- but- growing West Virginia food businesses and beginning farmers focused on selling to local consumers. To advance these ends, the Coalition helps build connections among farmers, processors, distributors, educators, agencies, nonprofits, farmers markets, restaurants, youth groups, institutional food service, and anyone else interested in making our local food economy stronger. Rather than launching food enterprises or building big programs and facilities of its own, the Coalition s office serves these groups by answering questions, raising awareness about useful resources that already exist, identifying and sharing successful business models, and helping people to connect with each other on collaborative projects. Many agencies and organizations exist in West Virginia to support food eaters, food producers and everyone in between. We seek to tie the threads together and to help continue a statewide conversation among multiple sectors about how to help West Virginia s local food economy grow. 2
Issue #1: Implement a Statute Allowing Development of Cooperative Business Enterprises Cooperative businesses are owned and run by and for their members. Whether the members are the customers, employees, or suppliers they have an equal say in what the business does and a share in the profits. Cooperatives have existed throughout much of US history, but until recently most cooperative businesses have been groups of agricultural producers. Some of cooperative enterprises have gone on to be highly successful household names, such as Ace Hardware and Land o Lakes. In many states new breeds of cooperative enterprises are giving people and communities opportunities for collective entrepreneurship and business ownership unavailable through traditional corporate structures. Both worker- owned and multi- stakeholder cooperatives. are generally owned by people concentrated in a specific region, so workers, families, and businesses get direct benefits of doing business with the coop, along with the benefit of the surplus/profit being retained and circulated in the local economy. West Virginia Law Does Not Currently Support Cooperative Development Except along narrowly- tailored lines for agricultural producers, West Virginia law does not offer a statutory framework under which cooperative enterprises can organize. There are some businesses formed under the corporate code and operating de facto as cooperatives, and several businesses or planned businesses interested in organizing formally as cooperatives. Due to this interest and need, the West Virginia Food & Farm Coalition, in conjunction with stakeholders in the food system and other industries statewide, asks the Legislature to implement a cooperative statue for West Virginia. Creating a Cooperative Statute Will Have Immediate Economic Impact Nationally there are nearly 30,000 cooperatives with over $3 trillion in assets. Cooperatives account for nearly $654 billion in annual revenue, have created over 2 million jobs, and pay $75 billion in wages and benefits. Patronage refunds and dividends paid to America s 350 million cooperative members generate nearly $79 billion in total impact. In Ohio alone cooperatives helped Ohio businesses create more than 187 jobs, save over 138 more, and avoid over $7.7 million in costs between 2009-2012. The West Virginia Food & Farm Coalition has identified several existing and planned businesses that seek to legally incorporate as cooperatives. Allowing these businesses to form as they want under West Virginia law will enable them to focus on the core of their business operations and begin benefitting the stakeholders and communities they serve. Below we identify some of these entities and outline the benefits that cooperatives offer members and communities. Ample Statutory Models Exist for Cooperative Statutes Twenty- three states have some form of non- producer cooperative law, and models have recently been proposed in other states. Below we provide some models from other states with cooperative statutes that have fostered the formation of healthy cooperative business sectors. The West Virginia Food & Farm Coalition is working actively with legislative staff to draft a bill for the 2015 session. 3
Recommended Actions After discussing with stakeholders from throughout West Virginia, examining cooperative operations in other states, and comparing related laws from other states, the West Virginia Food & Farm Coalition recommends that West Virginia create a statute outlining the provisions under which a cooperative may be formed. We further recommend that such statute: Our current research has identified the following minimum needs for a functional cooperative statute: Allows for the formation of cooperatives for any business purpose Allows membership from different groups of stakeholders, such as workers/employees, producers, consumers, and suppliers Allows cooperatives a mechanism to raise capital through investor stock while retaining the voting and financial rights of patron- members Allows cooperatives significant flexibility in the structure and management of their organization We have identified the Minnesota and Wisconsin cooperative laws, as well as a proposed Illinois law, as models reflecting the requirements above. Model Cooperative Statutes Wisconsin Wis. Stat. 185.01 to 185.99 Wisconsin s cooperatives law permits the creation of multiple classes of membership, and includes a number of provisions that encourage multi- stakeholder enterprises to balance the interests of different classes of members as well as non- member stockholders. We also choose Wisconsin s law as a model because: Under the Wisconsin law, cooperatives may be organized either with or without capital stock, giving the enterprises the ability to raise capital from outside the membership base. Cooperatives are given wide leeway to set the organizational structure, including the designation of classes of members; the number and par value of shares of each authorized class of stock; which classes of stock are membership stock and their rates of dividend. Members are given protections in voting and financial rights in the cooperative, however the bylaws may permit member associations or cooperatives to have voting rights that reflect their share of membership. Note that Wisconsin s law provides more protections to guarantee that member- owners retain control of the cooperative vis- à- vis investors, and also contains provisions encouraging cooperatives to balance the interests among its members and with investors. Cooperatives may be formed for any lawful purpose except banking and insurance (Wis. Stat. 185.02). In potentially adapting Wisconsin s law to West Virginia, our stakeholders Cooperatives in Wisconsin s Economy A 2012 report identified almost 800 active cooperatives in Wisconsin with for $27B in revenue Wisconsin cooperatives paid $2.5B in wages, and created almost 64,000 jobs. 4
Minnesota Minn. Stat. Title 308B, 308B.001 to 308B.975 Minnesota s legislature updated the state cooperative law in 2003 by adding an additional section aimed at facilitating cooperative capital formation. Before the change co- ops were limited to raising capital from their membership base, which hampered cooperative growth. In addition to being one of the latest statutes passed, we choose the Minnesota law as a legislative model because: Minnesota 308B allows for multi- stakeholder cooperatives or those owned by members from different groups such as workers/employees, customers, producers, suppliers by allowing cooperative associations to be formed formed and organized on a cooperative plan for any lawful purpose (Minn. Stat. Title 308B.201). The law allows for cooperatives to form capital by issuing investor stock under conditions the cooperative chooses to lay out in its bylaws. Cooperatives are allowed a wide degree of flexibility to choose the structure and management of the cooperative and be guided by the cooperative s own bylaws, while providing protections for the voting and financial rights of patron- members. Conversations with stakeholders in West Virginia show that two aspects of Minnesota s law would not work well in the Mountain State: Minnesota law allows investor- members (those who do not work for, supply, or patronize the cooperative) to hold as much as 99.99% of the equity of the cooperative and to receive up to 85% of the profits. We believe that in order to maintain the community- focused nature of a cooperative enterprise, stakeholder- members in West Virginia cooperatives should maintain at least 51% of the equity in a cooperative and receive at least 50% of the profits by statute. Minnesota investor- members also have greater control over the business of the cooperative. While patron- members must hold at least 50% of the voting power on general matters of the cooperative, investor- members may be permitted to control the outcome of certain designated special matters. Stakeholders in West Virginia believe that stakeholder- members should have at least equal control in all matters of the cooperative by statute. Cooperatives in Minnesota s Economy In 2003 Minnesota s 429 cooperatives had 943,450 members, with gross revenues of over $18.4 billion. State residents collected over $600 million in equity payments. Cooperatives employed over 46,000 Minnesotans, with an 33,400 additional jobs created as a result of the cooperatives economic activity. 5
Illinois (Proposed Law) HB 5877 (2014) Illinois lawmakers are considering a cooperatives bill that is modeled after a proposal from the American Legislative and Issue Campaign Exchange (or ALICE) and based on needs identified in other states. The Illinois proposal is notable because: The proposed law balances the need for investment with the need for worker control of the cooperative by permitting cooperatives to issue two classes of stock: member shares, with one share to each member and one vote per member; and non- member shares, with no voting rights except in cases of dissolution, consolidation, merger or division. If necessary to attract investment, non- members may be permitted to comprise a minority of the board, while members must still make up a majority. Other Notable State Cooperatives Law Provisions Ohio Ohio Rev. Code 1729.01-1729.99 Ohio s cooperative law is notable for: Allowing cooperatives to be organized for, for any lawful purpose permitted to corporations by the laws of this state (Ohio Rev. Code 1729.02(A)). Allows cooperatives to be formed by, two or more individuals (Ohio Rev. Code 1729.06(A)). Allows each member only one vote on amendments to bylaws. We did not identify Ohio s law as a model because Ohio cooperatives are considered nonprofit corporations and are limited in their ability to raise capital from outside the membership. Vermont Vt. Stat. Ann. tit. 11, 1081-1092 Vermont s statute is notable because each member is limited to no more than 10 percent of the corporation stock, and members are limited to only one vote. We did not choose Vermont s cooperative law in its entirety as a model because it does not allow for the formation of multistakeholder cooperatives, and it does not have a mechanism for cooperatives to raise capital from investors. 6
Issue #2: Ease Regulatory Burdens for Farmers Market Vendors As trends toward eating healthy and buying locally sweep the nation, West Virginia s farmers and other local food businesses are experiencing a period of outstanding growth. Local food businesses, often family enterprises with little capital, depend on farmers markets and on- farm sales to incubate their early development stages. Some in the local food business community, however, fear that inconsistent and increasing regulation from local and state agencies could threaten growth in the industry and possibly stifle the sprouting local food movement. Interpretations of state health code regulations from county to county, and sometimes from one official to another, create an atmosphere of confusion and uncertainty. Some vendors report excessive fees and permit requirements not scale- appropriate for small farmers and local food businesses. Farmers Markets are Important Farmers Markets are a lynchpin business in may WV communities. They provide opportunities for positive, family- friendly social interactions for their customers. They fill healthy food access gaps for youth and families in rural areas. Also, they provide an economic engine for small towns and a sales outlet for both beginning and experienced farmers and their families. Unnecessary regulatory barriers make it hard for farmers markets and their vendors to thrive and grow. We aim to reduce those barriers in order to support WV farmers market growth. Farmers Market Survey Suggests Regulation Can Be Confusing, Inconsistent The West Virginia Food & Farm Coalition and West Virginia Farmers Market Association worked throughout the summer of 2013 to investigate the regulatory issues reported by farmers and other stakeholders. Through interviews, meetings, and online surveys, we worked to get a broad spectrum of input from throughout the state. Our findings indicate that while some areas of the state have a very workable regulatory framework for local food sales, businesses in several areas do experience a disruptive level of confusion and inconsistency over regulations. Forty- three percent of farmers market vendors surveyed report significant variation in requirements from county to county, as did 1/3 of farmers market managers. Fees Have a Substantial Impact on Small Farm Economies Our survey and interviews found that vendors selling the same products in two or more counties might be required to have a different type of permit in each county. Some vendors report being required to obtain a Temporary Food Establishment Permit each week, at a cost of $50 per week, to offer product samples. Those same vendors might be able to offer the same samples in a neighboring county under a yearly $100 Food Establishment Permit. One study found that the average farmers market vendor has daily sales of just $152. A vendor paying $50 per week in order to offer product samples forfeits nearly 1/3 of their gross sales up front. Statewide, 80 percent of farmers do less than $10,000 per year in farm sales, yet often pay the same permit fee a multi- million dollar restaurants and grocery stores. Solutions from Other States Facing Similar Challenges Investigation of experiences in other states reveals that regulation and fee inconsistency is by no means unique to West Virginia. Neighboring states report inconsistency, and some have acted recently to streamline or tailor regulations with mixed results. Farmer and market advocates in Ohio have worked 7
to bring the health regulator, agriculture, and farmer communities together to generate mutual understanding, but much inconsistency persists. Pennsylvania lawmakers streamlined the state s food code and shifted farmers market regulation authority to local health officials. Stakeholders there, however, report that fees and requirements still vary widely across jurisdictions. Maryland legislators created a special permit class for farmers market vendors in 2010, and also prohibited local jurisdictions from requiring additional permits for vendors. No Permit Category for Farmers Market Vendors Part of the confusion regarding permits and fees stems from the fact that none of the existing permit categories are tailored to the small- scale and seasonal nature of farmers markets and other local food sales outlets. Neither the West Virginia code nor state health rules account for farmers market businesses, and West Virginia law does not define a farmers market. More long- lived than temporary food establishments, but not nearly as extensive in scope and reach as restaurants or grocery stores, local food sellers have specific needs not recognized under current law. Review of Policies in Neighboring States Show Possible Solutions Investigation of experiences in other states reveals that regulation and fee inconsistency is by no means unique to West Virginia, and problems are being addressed in our neighboring states and beyond. Maryland legislators addressed regulatory problems in their state with a 2010 law that created new, scale- appropriate licenses for farmers market vendors and sampling at farmers markets that applied statewide, and forbade local jurisdictions from requiring any addition license or permit. Virginia farmers market stakeholders reported that regulatory inconsistency was not a problem. In that state, most markets are operated by local government, and are all licensed by the VA Department of Agriculture and Consumer Services. Recommended Actions Through a serious of discussions with lawmakers, key stakeholders, and team members, the WVFFC/WVFMA policy team considered which option reflected the most well- crafted public policy. We considered several options based on the needs of vendors, and state and local agencies. After consulting with stakeholders, lawmakers, and agency personnel in the West Virginia Department of Agriculture and West Virginia Bureau for Public Health, our policy team identified two main elements to be contained in legislation addressing the health permitting issues: 1. Defining a farmers market in code 2. Creating a new, more affordable, health permit type specifically for farmers markets that will be issued on the county level but valid statewide. Currently, the West Virginia Food & Farm Coalition, in conjunction with the West Virginia Farmers Market Association, are working with legislative staff to have an Interim Bill drafted for the January 2015 Interim Session. 8
Issue #3: Create a Regulatory Space to Incubate Small Rabbit Farms and Increase Farm Profitability The WV Food and Farm Coalition facilitates and supports four stakeholder- based Food and Farm Working Groups, including a Meat Processing Working Group, which works to identify opportunities and constraints in processing and marketing meats within West Virginia. The West Virginia Food & Farm Coalition has identified several farmers throughout the state who are interested in entering into rabbit production but have not done so for lack of a legal and affordable way to slaughter and process rabbits for market. Current state rules do not allow for the on- farm slaughter of rabbits, meaning farmers in the state interested in raising rabbits would have to rely on expensive and potentially far- flung state or federally inspected processing facilities to process their animals in a way that makes them legal for intrastate sale. The cost of transporting rabbits to and from these facilities including fuel and travel expenses, as well as the cost of time spent away from the farm makes small scale rabbit production unprofitable for Mountain State farmers. Working with the West Virginia Department of Agriculture, the Coalition has determined that creating a slaughter exemption that mirrors long- standing exemptions for poultry farmers would spur rabbit production throughout the state and substantially increase the ability of farmers to expand their operations. Rabbit Exemption Modeled on Longstanding Federal Poultry Exemption West Virginia law has long recognized a federally created exemption allowing for on- farm slaughter and processing of up to 1,000 poultry in a calendar year without animal- by- animal inspection. In 2014 the Legislature decided to increase the limit to 20,000 birds (also a level set by the Federal government). Recognized by most states, poultry processing exemptions allow small farmers to feed their communities without falling under expensive requirements intended for large- scale producers selling into the international food chain. Under the exemption, meat can only be sold within the state if it is produced at on- farm outlets, roadside stands, and at farmers markets; the same restriction would hold for rabbit meat. We propose amending the code to create an exemption allowing farmers to process up to 1,000 rabbits on their farm under an exemption identical to the poultry exemption. It is important to note that any proposed law change would only apply to domesticated livestock rabbits: farmers would not be permitted to capture and slaughter wild rabbits for sale. Rabbit slaughter would further be required to take place under sanitary conditions, and premises where rabbits are processed would be required to be registered with the WV Department of Agriculture. Significant Demand for Small- Scale Meat Production in WV Means Economic Opportunity Individuals and families in West Virginia have a growing interest in the availability of affordable local food, both for reasons of health as well as supporting the economy of their communities. West Virginia now boasts over 95 farmers markets, and the state s growing local food movement has been recognized as a model for Appalachia and the rest of the nation. Current U.S. Census of Agriculture data shows that over five years, 39% more farmers have begun targeting local customers, capturing a greater portion of the consumer food dollar by marketing their products as directly as possible to the end user. The buy local trend among West Virginia volume buyers, from restaurants to schools to hospitals, likewise continues to grow sharply. One survey by the Farm2U Collaborative and the WV Small Farm 9
Center showed that from 2006 to 2008, West Virginia restaurants and hotels increased purchases of local products by 360%. The West Virginia Department of Education this year committed $250,000 in school food funds for local purchases. Over a dozen county school systems report buying directly from West Virginia farms, and four of these began buying since September 2011. If allowed to produce and slaughter small numbers of domesticated rabbits West Virginia s farmers could take advantage of the growing interest in fresh and locally produced foods and see increases in farm revenue. The U.S. rabbit meat industry is valued at over $20 million, with rabbit meat selling between $8- $15 per pound. Restaurants in states that allow for affordable small- scale rabbit production have been able to introduce rabbit meat to their customers and create economic opportunities for farmers in their communities. Currently restaurants and resorts in Greenbrier, Pocahontas, Morgan, and Monongalia counties offer rabbit on their menus, and restaurants in Ohio and Kanawha counties have expressed interest in local rabbit meat availability. 10
West Virginia Food & Farm Coalition Policy Team West Virginia Food & Farm Coalition Elizabeth Spellman, Executive Director Brandon W. Holmes, Policy Analyst Megan Smith, Program Coordinator West Virginia Community Development Hub Stephanie Tyree, Director of Policy and Community Strategy West Virginia Farmers Market Association Kelly Crane, Executive Director For more information, contact: West Virginia Food & Farm Coalition 411 Main St Suite 215 Mount Hope, WV, 25880 Phone: (304) 877-7920 Email: foodandfarm@wvhub.org 11