Kotek rule a big threat to farm stands

By Eric Fruits, President
Economics International Corp.

[Submitted testimony to DLCD]  I am president and chief economist at Economics International Corp., an Oregon-based consulting firm that provides economics services to private and public sector clients. I am also a senior scholar at the International Center for Law & Economics, focusing on antitrust, competition, and telecommunications policy. I have been engaged in several matters involving Oregon’s agriculture industry, and my article on agricultural marketing orders was published in the top-tier Journal of Law & Economics.

 

I urge you to reject the proposed new rules for farm stands (OAR 660-033-0130). While the goal of improving clarity and resolving neighbor conflicts is understandable, these proposed rules are the wrong solution. They would create significant new costs and restrictions that would harm Oregon’s small farms, weaken rural economies, and stifle the very innovation that allows these family businesses to survive.

 

Oregon’s small farms face a crisis. As shown in the table below, from 1997 to 2022, the number of family or individual farms has decreased by 15%, while the number of corporate farms increased by 33%.[1] The proposed rules would worsen this problem by adding new barriers that make it harder for small farms to survive.

Research demonstrates that regulatory costs hit small businesses much harder than large ones. Small firms face regulatory costs of about $9,093 per employee compared to just $5,246 for large firms.[2] For small farms, regulatory compliance can consume 12-15% of total production costs.[3] In Oregon’s recently concluded legislative session, HB 2116 would have required the State Department of Agriculture to conduct an analysis of “[t]he overall regulatory burden on Oregon agricultural entities, including the cost of compliance verification, compared to regulatory burdens on other sectors within this state and compared to agricultural sectors in other states.” The proposed rules would add more costs exactly when small farms can least afford them.

 

Oregon’s agritourism sector generates nearly $1 billion annually in the Willamette Valley alone.[4] This economic activity supports about 9,000 farm jobs and another 2,000 jobs in rural communities. The proposed rules threaten this economic engine.

 

THE PROPOSED RULES CREATE PERVERSE ECONOMIC INCENTIVES

 

The proposal requires farm stands to undergo permit reviews every seven years, with potential fees and the threat of permit termination. This creates several economic problems:

 

The proposed rules would force farmers to treat their businesses as temporary rather than permanent investments. When businesses face regular threats to their existence, they invest less in improvements and growth. This reduces productivity and job creation.

 

The proposed rules would impose regulatory uncertainty. Farmers cannot plan long-term investments when they do not know if their permits will survive the next review. This uncertainty reduces economic efficiency and discourages innovation.

 

The seven-year review cycle creates a compliance treadmill. Farmers must spend time and money preparing for reviews instead of focusing on production and serving customers. This imposes deadweight costs on society, that is, costs with no discernible offsetting benefit.

 

SMALL FARMS NEED REVENUE DIVERSIFICATION

 

Economic theory and evidence demonstrate that income diversification helps small businesses survive market volatility. For farms, this is especially important because agricultural prices fluctuate unpredictably. Farm stands and agritourism provide stable revenue streams that help farmers weather bad crop years or low commodity prices.

The proposed rules restrict this diversification by limiting promotional activities to 17 days per year and restricting prepared food sales. According to basic portfolio theory, this forces farmers to rely more heavily on volatile commodity markets, which increases risk and reduces economic stability.

 

THE PROPOSED RULES FAVOR LARGE OPERATIONS OVER SMALL ONES

 

Large agricultural operations can absorb regulatory compliance costs more easily than small farms. When you add new permit requirements, fees, and restrictions, you create what economists call “barriers to entry” that prevent new small farms from starting and force existing small farms to quit.[5]

 

The evidence shows this is already happening. As shown in the table above, since 1997, Oregon has lost more than 5,000 individual or family farms while the number of corporate farms increased by nearly 800. The proposed rules will accelerate this consolidation by making small-scale farming less economically viable.

 

CONSUMER DEMAND SUPPORTS SMALL FARMS

 

Market evidence shows consumers increasingly want to buy directly from local farms. Research finds that roughly 28,600 U.S. farms and ranches reported receiving income from agritourism or on-farm recreation services and that, on average, these operations earned $44,000 in gross revenue from their agritourism ventures and approximately $28,000 in direct food and drink sales to consumers.[6] This consumer preference creates natural market support for small farms – but only if regulations allow these farms to serve customers effectively.

 

The proposed rules restrict farmers’ ability to meet this consumer demand by limiting activities like farm-to-table meals, educational tours, and prepared food sales. When regulations prevent voluntary transactions between farmers and consumers, they reduce economic welfare for both groups.

 

BETTER ALTERNATIVES EXIST

Instead of imposing more restrictions, Oregon should focus on reducing regulatory barriers that prevent small farms from succeeding instead of imposing more restrictions. Research shows that reducing regulatory burdens increases agricultural productivity and economic growth.

The proposed rules fail a basic economic test: they impose costs that exceed their benefits. The costs include lost farm income, reduced rural employment, and fewer opportunities for new farmers to enter agriculture. The benefits are unclear and unquantified.

Economic theory and evidence both point to the same conclusion: these proposed rules will harm Oregon’s small farms, reduce economic activity in rural communities, and accelerate the consolidation of agriculture into fewer, larger operations.

 

Oregon should support its small farms, not regulate them out of existence. Please withdraw these proposed rules and work instead to reduce the regulatory barriers that already make farming too difficult for many families.

NOTES:

1) National Agricultural Statistics Service, U.S. Department of Agriculture, 2022 Census of Agriculture, Historical Highlights, Oregon (June 2024), https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Report/Volume_1,_Chapter_1_State_Level/Oregon/st41_1_001_001.pdf
2) James Broughel, Regulations Hit Small Businesses and Low-Income Households Hardest, Competitive En-terprise Institute (June 5, 2024), https://cei.org/blog/regulations-hit-small-businesses-and-low-income-households-hardest/.
3) Lynn Hamilton & Michael McCullough, Two Decades of Change: Evolving Costs of Regulatory Compli-ance in the Produce Industry, Cal Poly, San Luis Obispo (Jan. 2025), https://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?params=/context/agb_fac/article/1164/&path_info=2024_Final_Report_Lettuce_Regulatory_Costs__FINAL.pdf.
4) Bruce Sorte, Melissa Fery & Audrey Comerford, An Initial Economic Impact Estimate of Agritourism in Oregon’s Willamette Valley, Oregon State University Extension Service (Feb. 2024), https://extension.oregonstate.edu/sites/extd8/files/documents/donnelja/an-initial-economic-impact-estimate-of-agritourism-in-oregons-willamette-valley_0.pdf.
5)See, e.g., Beatrice Andersson & Fredrika Eke-Göransson, Entry Barriers for Young Agricultural Entrepre-neurs. What Are They and How Can They Be Overcome?, Swedish University of Agricultural Sciences (2024), https://stud.epsilon.slu.se/20474/1/andersson-b-eke-goransson-f-20240829.pdf.
6) Claudia Schmidt, U.S. Agritourism and Direct-to-Consumer Sales Census Update, PennState Extension (Sep. 16, 2024), https://extension.psu.edu/u-s-agritourism-and-direct-to-consumer-sales-census-update.

 

 

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