Herd Shares: Legalities and Liabilities

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Description

Herd shares are often considered to be a sneaky way to circumvent state laws prohibiting the sale of raw milk. But did you know that herd shares themselves are not legal in all 50 states? In addition, there is far more nuance to the endeavor than simply selling shares in your herd–both in terms of legalities and liabilities.

Today, we’re talking to Alexia Kulwiec, an attorney and Executive Director of the Farm to Consumer Legal Defense Fund. In this episode, Alexia discusses how herd shares work, the general nuances of state laws regarding herd shares, what a sufficient herd share contract should contain, and, most importantly, the steps you as the producer can take to protect yourself from legal issues.

She also touches on the Raw Milk Nation interactive map found on the Farm to Consumer Legal Defense Fund’s website and reveals why maps like this are far from the end-all-be-all when it comes to determining if raw milk sales or herd shares are legal in your state.


See full show notes here >> https://thriftyhomesteader.com/herd-shares/

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Transcript

Introduction 0:02
For the love of goats. We are talking about everything goat. Whether you’re a goat owner, a breeder, or just a fan of these wonderful creatures, we’ve got you covered. And now, here’s Deborah Niemann.

Deborah 0:18
Hello everyone, and welcome to today’s episode. Today is a little bit of a partner episode to the one we did a few weeks ago on how to make sure that your raw milk is as safe as possible. Today we’re actually going to talk about how to keep you and your farm as safe as possible in terms of legalities and liabilities if you choose to sell raw milk. And we are joined by Alexia Kulwiec, an attorney and Executive Director of the Farm to Consumer Legal Defense Fund. Welcome to the show today, Alexia.

Alexia 0:48
Thank you so much. Thanks for having me.

Deborah 0:49
Ummm, today one of the main things we’re going to talk about, actually, is herd shares because a lot of people that I talk to think that herd shares are like this little loophole that you can slip through in all 50 states in the U.S., and that’s really not the case. And even if herd shares are legal in your state, or gray, so that you can use them, there are still some things that you need to consider and some things that you need to do to protect yourself legally and in terms of liability. So, first of all, could you explain to our listeners, if people aren’t familiar, what is a herd share? 

Alexia 0:25
Yeah, great place to start. So a herd share is legally actually selling shares in your dairy herd, whether it’s dairy goats, dairy cows, and then having a contract for boarding and other services between the farmer and the consumer. So, the purpose of a herd share is to allow for someone to obtain raw milk in a state in particular that prohibits the sales of raw milk. So, a producer, an agister, can’t sell raw milk in the state, but they can come together and co-own the dairy herd, and so you’re actually selling a share in the dairy herd, and then the producer is also typically providing services like maintenance and boarding and vet bills and feed and all of the other associated costs with maintaining the herd, and the consumer is paying their share for that as well. So it’s an ownership tool, and that means that, in most places, there is something called a personal exemption which is: I can raise animals, and, you know, slaughter animals, and eat them for myself. I might not be able to sell that. So similar in dairy, it’s a method by which I’m actually a part owner in this herd, and therefore I’m obtaining the milk, I’m obtaining product from my own herd, which does not then violate the prohibition on the sales of raw milk.

Deborah 2:50
Ok. And can you explain a little bit about, because that sounds like that should be legal in all 50 states, right? So I understand where people get that. It’s like oh, well, if I’m co-owner of this herd, I should be able to have the milk. But it’s not, so can you talk a little bit about the different laws and how they vary?

Alexia 3:10
Sure. So I will speak somewhat generally, but what I will say is that this is a matter of state law. I suppose the starting place for that, if you’ll bear with me, is that it’s illegal to sell raw milk across state lines. So what happens is each state then gets to regulate how raw milk is produced and sold within their state lines. Some states allow for some sales, some states prohibit it. Similar with herd shares, some states specifically allow herd shares and have specific requirements as to what might be in the contracts that are drafted for herd share agreements. Some states prohibit herd shares, and so instead of just saying that the sales of raw milk is unlawful, they’ll say the sales distribution or obtaining or delivery and have really broad language that further prohibits providing of raw milk to consumers. And so some states actually prohibit herd shares specifically. A good handful of states are silent on the issue, which I take to mean it’s lawful because it’s not prohibited, but they won’t have specific requirements because there’s nothing really on the books for those herd share agreements. So it really is very state-specific, and I highly encourage everyone to investigate and look into their state before they would take this on. I also think it is pretty important that it’s done properly. In other words, with the appropriate contractual documents to establish that someone is actually a part owner, right? If it’s–if it’s just on paper or they just have consumers sign something they don’t understand, your Department of Agricultures are very likely to eh, this is really just the sales of raw milk. You’re just kind of faking it, so to speak, right? And so I do really encourage folks to do it correctly as well.

Deborah 5:01
Yeah, this episode was actually suggested by Tammy Gallagher who is one of your members and said that you drafted her raw milk contract, which I was excited to hear that she did that, because, yeah, I think a lot of people are under the impression that Oh, I’m just going to tell Bob over here–like, Bob is part owner in my herd. But there is nothing on paper. 

Alexia 5:24
Right.

Deborah 5:25
Umm, so what do those contracts usually look like? 

Alexia 5:28
Yeah, so we typically have two different documents in each one of these agreements. One is a bill of sale that actually represents the sale of a share or a couple of shares in the dairy herd. We often recommend producers, of course, keep majority share, but they are selling some share. Separate from the bill of sale is a boarding agreement, or herd share, or bovine agreement, depending on what we call it, which is an agreement by which the now part owner of the herd agrees to pay some proportionate share for housing, feed, maintenance, vet bills, etc. So in other words, they’re paying the producer to care for their share of the herd. And then in exchange, the agreement will set out that they have a right to a proportionate share of, say, fluid milk product as produced on a weekly, bi-weekly, monthly basis. We don’t have that as a certain volume. In other words, they’re getting their proportion of milk on a regular basis. It could approximate to be a gallon, but some months it might be a little less, and that’s ok because they’re getting that proportionate share. 

Deborah 6:41
Ok. So, a little bit more on the legalities of the herd share, because I know that Farm to Consumer Legal Defense Fund has a map on their website because, as you were saying before we started the recording, people love maps. They want to look at the map and say Is it legal here? But people really need to go a lot farther than just looking at that because, like, for example, every raw milk map that I have ever seen as long as we’ve owned goats–which, 2002–has always shown that Illinois is legal to sell raw milk. But things changed dramatically seven or eight years ago because before that, really anybody could sell raw milk, and then six or seven years ago the law changed and now you have to be a certified raw milk dairy. So we’re going to put a link to the map in the show notes, but with a caveat, the map does not tell you everything. 

Alexia 7:35
No. Yeah, and if I can, and I know you’re going to do the link, but it’s just farmtoconsumer.org, and under “Resources,” we have a raw milk map. And, you’re absolutely correct though in that we–we are charged with maintaining a map that shows where it’s lawful or unlawful to sell raw milk and under what circumstances. So, it can vary dramatically, right? Like you have states like Wyoming where it’s lawful to sell raw milk, and then you have states like Illinois where it’s lawful but getting the authorization and registration and licensing can be prohibitive. For example, Arizona, I think we are still showing as lawful, and my understanding–oh, it’s an “Other” now. That’s great. It technically is lawful, but my understanding is to meet the requirements, it’s virtually impossible for any kind of small producer–the cost-prohibitive measures that are in place. So it’s really difficult to just say yay or nay in a color-coded map. And if folks look at our map, below the map we have a chart that gives a little bit more detail as to each state’s requirements. So it shows whether you need to get registration or you need to get certification, and then that local department of ag typically has much greater details talking about the application process, etc. It also gets into a little bit more details on herd shares. So, yes, in a handful of states–a good number of states–allow for the sales of raw milk, but only from the farm. Some will allow it at farmers markets. Some will allow it retail. Some will prohibit it, but allow herd shares. Some states will only allow the sale for pet milk; there’s a couple for pet food, a couple of states like that. So it’s very nuanced and really requires digging into your individual state’s laws and regulations to really understand it. Yeah.

Deborah 9:31
Yeah, exactly. And, just to give an example, like for Illinois, you know, prior to six or seven years ago, you could sell raw milk on the farm if somebody brought their own container.

Alexia 9:44
Right.

Deborah 9:44
And, what that was is because the law was very clear that a bottling plant had to be licensed. And so, if you were not providing a bottle, you were not a bottling plant. 

Alexia 9:58
Right. Right.

Deborah 9:59
And so that’s why it’s, like, why does somebody have to bring you their own bottle? And it’s like, well, because now I’m not a bottling plant. If I have the bottle and put my milk in the bottle, I am a bottling plant. And then six or seven years ago when the law changed, they very specifically made herd shares illegal and the only way that you can sell raw milk now in this state is to be a certified dairy. But our color on that map has always been legal, so I just want to encourage people to not think–because I just hear so often, like, Oh, just do a herd share.

Alexia 10:37
Right. Right. And, I’ll also say, I think it’s important what I described in terms of the bill of sale and then a separate agreement for boarding and maintenance, an agister agreement, is really vital, and I have certainly seen herd share agreements that don’t have all of that contained within it. And I often hear: Can’t I just have like a paragraph? Why is there so much in here? Right? And there’s very good reasons for it. So not only do you need to research it well, but I do encourage people to make sure they are doing their contractual documents appropriately because just writing that on a piece of paper may not protect you. So, we don’t use templates. We work with our members and ask that they contact us and we learn more about their operations and tailor the agreements to them so that we feel confident that they would be held up legally.

Deborah 11:27
Yeah, exactly. So, you talked about protecting themselves and there is more to it than, you know, just how to do it legally in your state. Honestly, what stops me from selling raw milk in Illinois now is not the legalities of it but the liability aspect, because there is not a insurance company that I know of–like, I know my insurance company very specifically, our agent said: Do you sell raw milk? And I said, No, and he said, Good, because we wouldn’t cover you for that. And it is not losing my farm over a gallon of milk. 

Alexia 12:05
Right.

Deborah 12:05
And so many people think, like, oh well my customers would never rat on me. It’s like they don’t need to. You know, if they get a stomach bug and they go to the emergency room, if they think they have any kind of food-born illness, they are going to ask for a list of everything they have eaten, for it’s like three days or five days or something. And, you know, this person is sick, right? They’re not thinking, like, oh, I want to protect my dairy person. They’re going to write down all the things, you know? And that’s exactly how it could happen, and then you might not be in trouble legally, but their insurance company could come after you, their health insurance company. Because I’ve certainly–I know somebody who was taking a gift to her niece for her birthday and she tripped and fell on her front porch, and her health insurance company contacted the niece’s homeowners insurance to pay the emergency room bill. So, it’s not about a customer, you know, blaming you. 

Alexia 13:05
Right. Right. And if I can interject, so they are two different things, right? The herd share agreements as we’ve discussed may protect you from a state agency suggesting that you’re in violation of the law, right? So you get a violation suggesting that you’re in violation of state law or local ordinance necessarily, but then what you’re talking about is liability for illness, injury related to a food-born illness. And it kind of had two reactions to that, right? One is in your examples, if there is an illness, you’re right, the hospitals are actually required to ask for all of that information, and then they will pass on information to your local department of health. So you could still have an investigation from the department of health, and you could still have a cease and desist order or you have to stop operations until they get to the bottom of that. But separate and apart from that is that you as the producer are in fact liable if what you sell someone or provide someone in a herd share causes illness, right? And so, that may or may not have a high cost to it. But you’re absolutely right that it’s very difficult to get insurance to cover production of raw milk. I’ve seen farm policies have specific riders making crystal clear that they don’t cover that, right? And I’ll just say, that because of that, and I know that we talked in the begi–before we hopped on, Deborah, that you do this, I do always encourage farms to put their business as an LLC as opposed to just doing it as a sole proprietor or as a person or a partnership because that at least limits what assets and what financial reserves somebody could go after. And you don’t want to lose your farm, but you certainly don’t want to lose personal assets on top of that. 

Deborah 14:50
Yeah, exactly. There’s a farm lawyer that I know who used to always say, Nobody expects to be the cantaloupe brothers. Which if you haven’t been in the farming world for ten years, you don’t know what that means. But there was this family-owned produce business. What was it? Maybe ten years ago? 

Alexia 15:10
About right. Yeah.

Deborah 15:10
And they had, it was like one of the largest food-born illnesses in the U.S. Like, it just, it was a pretty big operation, so their cantaloupe was being shipped to a lot of places, and the final number was never revealed, but it was tens of millions of dollars, finally. Because there were, like seventy people hospitalized or something. Like it was just really terrible and it ultimately came down to, like, some of the handling equipment was contaminated. And, you know, thankfully, they had another entity so they did not lose their home, you know? Their business went bankrupt, because, you know, nobody ever has insurance to cover that much, but at least they didn’t lose their home, you know? They still had a home at the end of it all. So definitely getting an LLC is a great idea. Because that’s also good–like when people are just coming to your farm, you know, to pick up the milk. Like, if  somebody trips and breaks their arm, you know, I always said, if somebody trips and breaks their arm on my farm, it’s not going to be just some average person, it’s going to be some concert violinist whose arm is worth millions, and she’s going to have permanent nerve damage, and then, you know, we’ll lose the farm. So, it’s really important that you kind of think about, like, the absolute worst case scenario and make sure you’re protected on all of those angles.

Alexia 16:31
Yeah. If, if I could interject here, one thing about in the herd share agreements that we draft that I didn’t mention is we will ask, you know, consumers will very typically sign off on waivers of injury caused by being on the farm. You know, tripping on the farm when they come to pick up their milk, right? And so I think those would be enforceable, and so having some of that extra protection is important. And some states even have some laws for agritourism that protects the producers, because if folks come on to your farmland, obviously there will be hazards just by definition, right? Not all of your land is even. There are animals, and things can happen. So there are also some additional things you can do to protect yourself, but one thing I really wanted to emphasize and failed to mention earlier is some states are very crystal clear, whether it’s in their sales of raw milk, or to be included in herd share agreements, that there be language informing the consumer, or part owner of the herd, that CDC and a local agency discourages consumption of raw milk. So you actually on your label have to say–not on your label, but in the agreements often, give some kind of warning, you know, that there’s risk to drinking and consuming raw milk, right? Now, so many of our members I know, really take fantastic measures to ensure the health of the herd and sanitary conditions, and people understand that it’s a different kind of operation than, you know, than another that the CDC would really disapprove of, but nonetheless, they have to have those warnings in there oftentimes. Not all the time, but I just thought I should mention that at some point that’s necessary as well in some states.

Deborah 18:13
Yeah. Is there anything else that people need to know about, like, becoming an LLC or maybe an S-corp, or maybe just basically some other kind of an entity rather than being a sole proprietor to sell their milk?

Alexia 18:24
Yeah, I mean, I tend to think an LLC tends to be the simplest, and there’s just tax differences between the LLC and the S-corp and how revenue flows and how you pay taxes on it. But the most important thing is there are some corporate formalities, right? You’re going to need to file with the state and have your incorporation documents listing different officers of the corporation, etc. But once you do that, then it’s important to keep the entity separate, say, from your personal finances. So how you conduct yourself in that business will also be important, right? So, you can’t just say it’s an LLC but then when you get money for your milk, you deposit it right in your own personal banking account. Then that won’t work. So there are some corporate formalities to follow, but they really and truly are not that onerous, particularly for LLCs and they do provide that protection. But it has to be done strategically and thought through. Like, what assets will be part of the corporation versus my personal assets. And, a lot of times you might see the LLC, say, lease property from an individual so that the herd is on leased property, but the property is still actually owned by yourself–the producer, the farmer, right? So that is another thing I think I would add to that.     

Deborah 19:40
Ok, great. Thank you so much for that. So then the last part of that puzzle is the possibility of getting insurance, which I know I said I haven’t heard of any insurance companies which will cover you. You said you have heard of a couple. So, if somebody can get insurance that will cover them for the sale of that, that’s always a good thing. There is one farmer I know who had visitors on their farm and the mom was not paying attention and her toddler crawled under the fence into an area where there were horses, and the toddler, like, touched the back leg of the horse, and of course the horse kicked and the toddler went flying across the corral. And the mom sued the farm. And, luckily, you know, they had excellent insurance, and their insurance was, like, No, you know, we know you were not liable for this. The mom should have been paying attention to her toddler. And so the insurance company paid for all the legal costs to fight it, which gets quite huge. You know, lawyers are not cheap, and ultimately they were found to not be liable, which is awesome. You know, their insurance company didn’t have to pay out any money, but they did spend a lot of money on defending them in court. So can you talk a little bit about having insurance?

Alexia 20:57
Yeah, I mean I think having farm insurance generally is very important, right? If you are a slightly larger farm, by the way, and have employees, some states have different cutoffs for when you need workers compensation in agriculture. But that’s also something that I think is very important to have even when not required. But putting aside workers, I think generally farm insurance itself will protect you from those kinds of injuries that you described–somebody coming onto the farmland, or even potential liability from illness from food-born illness or something along those lines. Most insurers will not cover liability for illness caused by raw milk consumption, but most insurance, I do know, and I have seen a few people do it successfully as long as very stringent requirements have been met. But in general, for other products, it will cover those things, and I think it’s very important because people coming onto farmland, there can be injuries, there can be illness, and I think having the farm insured for any of those contingencies–there is farm equipment, there is farm tools, you know–I think it’s pretty important to make sure you protect your farm from that. And the other dangers you’ve talked about are typically going to be covered. It’s really raw milk where we’ve seen a problem in getting that. And so everybody has their own level of risk tolerance with that, right? But I think that it’s, it’s very important to insure the farm. Yeah.

Deborah 22:26
Yeah. Ok, so we’ve talked about the legalities of raw milk and herd shares and how that varies from state to state. We’ve talked about the importance of having–if you have a herd share that it’s completely legitimate with two contracts. We’ve talked about the liability aspect and protecting yourself by having another entity, like an LLC, and then the insurance part. Is there anything else that people need to know about in terms of protecting themselves and their farm? 

Alexia 22:55
Well, that’s a loaded question. I mean I think those are the most important, right? Insurance and being some sort of corporate entity really are important. If you’re doing the raw milk, you really need to research state law. And in some places, you can sell raw milk and you just need to register. Right? Like it’s not necessarily a difficult process like, say, the certification in Illinois today, but it still needs to be done, right? The other thing I think I would say in terms of protecting yourself is understanding that if you open your farm up to the public to be on the farm, that you do run risks, and that it may be better if you have a pick up, say, at your farm to limit where people go and where they pick up their own portion of their milk as opposed to them being able to go anywhere on your property, right? So being wise about who comes on your property when and for what purposes, just because farm property is, like I said, is going to have natural hazards and dangers, right? So I think that’s good to think about as well. You know, as far as liability protection, I think that’s it. I would say in some states, there’s also sometimes further regulation like if you’re selling from the farm, do you need some sort of a permit to do so from a farmstand or a retail store on the farm? So there may be additional business requirements that have to be met. Again, it gets very nuanced state-by-state and an individual’s business, but it’s just something to know that you may not be able to start selling without some sort of official formality with the state.

Deborah 24:28
Thank you for adding that. Those are some really great points. Yeah, you think, like, oh, I’m just going to build this cute little farmstand and be open for business. And, there are sometimes things that you need to do, in terms of zoning or, you know, a lot of stuff. I know somebody who started a farmstand and contacted the county and there were quite a few hoops that she needed to jump through to be able to do that. So. And this is not one of those cases, you know some people will say, you know, oh, it’s better to ask for forgiveness than permission. It’s like, nah, that’s not really the case legally. 

Alexia 25:03
Yeah, yeah, I mean or at least call us and get the consultation and know what the ramifications can be. I mean you certainly don’t want to put yourself in a position where the state is now pressing to shut down your operation, right? We always encourage preventive steps as opposed to begging for forgiveness. Yeah.

Deborah 25:22
Yeah, exactly. Because there is also this little thing that says ignorance of the law is no excuse. 

Alexia 25:27
Yeah. Yep.

Deborah 25:28
So, alright, well this has been a really great conversation. I hope we have cleared up a lot of misconceptions and myths that are floating around out there about selling raw milk, and even just having a business on your farm. So, I am real excited. Thank you so much for joining us today, and we’re going to have links in the show notes in case people are listening to this in their car or when they’re milking their goats. 

Alexia 25:49
Oh, that sounds great. If I can make just a quick plug–Farm to Consumer Legal Defense Fund, or farmtoconsumer.org. If you are producing and selling raw milk, or doing herd shares, I highly encourage you to take a look at us. Consider being a member. We keep our dues quite low. You won’t be able to find legal consultations, probably, for less. So, yeah. Do look into us. 

Deborah 26:11
Yeah, and you guys are also on Facebook and Instagram and X...

Alexia 26:15
We are. 

Deborah 26:16
..LinkedIn and Threads. You’re in all the places.

Alexia 26:19
Threads! Great! I’ve got to look into that.

Deborah 26:22
Alright, great. Thank you so much.

Alexia 26:24
Yeah, thank you. I appreciate it.

Deborah 26:26
And that’s it for today’s show. If you haven’t already done so, be sure to hit the “subscribe” button so that you don’t miss any episodes. To see show notes, you can always visit ForTheLoveOfGoats.com, and you can follow us on Facebook at Facebook.com/LoveGoatsPodcast. See you again next time. Bye for now!