JIMMAlTOX Attorney**General**

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AnEqualOpportunity/ Affirmalive Acllon Employer 

# The Attorney General ofTexas

April 9, 1985

Arthur G. Ransen, Ph.D. Chancellor Opinion No. JM-305
Texas A6HUniversj.tp System College Station. Tems 77843 Re: Whether the sale of “gin trash” by agin is exempt under section 141.002(c)(4) of the Agriculture Code
Dear Dr. Eansen:
Youask us the following twoquestions:

Canacotton gin be considered s representative or agent of the farmer In disposal of the cotton plant by-product ‘gin trash’ under the circumstances outlined and thus be exempt from the economic provisions of the statute under section 141.002(~:11:4)? Does it makeanydifference if the gin is a cooperative of farmers?
Weconclude that the answer to your first question will depend upon the facts in each :.ustance. If title to the produce passes from the farmer to the ginner, the subsection (c)(4) exemption from the code’s registration, 1abe:lKng and inspection requirements for commercial agricultural feed, does not follov the produce in a subsequent sale. If. on **the** other hand, title does not paw. the subsection (c)(4) exemption **remains** operable. Weanswer your second question in the affirmative. Chapter 141 **of** the Agriculture Code governs the registration, labeling. and Inspection of commercial agricultural feed. Section 141.002(c) restricts the definition of “commercial feed” for purposes of this chapter:

The foAlowing sre not conunarcial feeds subject to this chapter: 

### (1) unground hay;

co uhole grain or whole seed not containing torrins or chemical adulterants; (3) unadulterated cottonseed, peanut, or rice hulls:

p. 1385Arthur G. Nansen- Page 2 (~i+f-:)()5)

(4)

(5)

(6) a feed product produced and sold by a farmer; -

an individual mineral substance not mixed with another inaterial; or

a material furnished by a purchaser for use in s customer-formula feed that was produced by the purchaser or acquired by the purchaser from asource other than the person whose!services are engaged in the milling. m:.r:iag, or processing of a customer-formula feed. (Emphasis added).
Under the following subm:tssion of facts, you essentially wish to knowunder what circumstances .thesale of “gin trash” can be held to be the sale of “a feed product produced andsold by a farmer.”

Fanners produce the cotton plant, harvest it and deliver the harrested mixture to a cotton gin which, for a charge or fee, performs a processing service. Thecotton mixture is divided into three basic fractions dur%rlgthe ginning process: lint, cottonseed, andgin trash.
The lint, which 1s formed into bales, is carefully identified such that each farmer is paid exactly according to the amountgenerated fromhis cotton and **the** grade quality **of** same. The ginner mayeither buy the cotton bales directly from the farmer on behalf 01:a third party, act as broker for the farmer, or merely transfer the bales to a warehouse for storage pending later sale. The ginner charges a f ’!e for the transport to warehouse. Upon warehousing, the farmer is issued negotiable receipts :for his cotton. While the quantity of cottonseed generated from a particular lot 0:: cotton is recorded, the seed from one lot are co,-mingled in bulk with that of other lots andmarketed as such by the gin. The proceeds from sale of seed extracted from a particular l.ot of cotton are prorated directly back to the gin service charges madeto afarmer. Specific records of the quantity of gin trash from s particular lot of cotton are not maintained. While the farmer has the option of receiving the gin trash from his lot of cotton, the impracticality c#fhandling the gin trash most frequently results in its disposal by the gin. Any proceeds are applied against gin operating

p. 1386Arthur G. Hansen **- Page**  **3 (311-305)** 

costs and assist In keeping ginner service costs downto aminimumlevel. Inmanycases the cotton gin is a cooperative of farmers whojointly sell the gin **trash** to lower their costs of production.
Gin trash is Irimarlly being sold to cattle feedlot operations to be used in finished rations for animals ownedby their clientele.
Gin trash is a low density nutrient which is not utilized as a~?rimsrysource of protein or fat in an animal ratica as are most feed ingredients, but more for its ",ulk' or fiber content. In this respect gin trash is similar to unadulterated cottonseed hulls, peanut hulls and rice hulls, which are currently exempted from the act under section 141.002(c) (,4).
The Ginners Association maintains that cotton gins act on beha,lf of the farmer, offering a service which is an extension of the harvesting process. It is further maintained that a farmer relinquishes ownership only when the disposition of lint, seed andgin trash is completed. The gin management actsf#>:c the grower in delivering gin trash. to the point of its disposal, whether that disposal beIto channels of the feed trade. in distribution across farmland, to s landfill.~ or otherwise. This disposal service is provided as part andparcel of' the ginning service andin many cases mayprovide a.return to the farmers in lower **fees** or charges.
The guiding principle of statutory construction is to ascertain legislative intent. Jessem Associates, Inc. v. Bullock, 531 S.W.2d 593 (Tex. 1975). -- Fromreading chapter 141 as a whole, It is clear that the legislature intendocl to set upacomprehensive scheme for the registration, labeling, ar.d. inspection of commercial agricultural feed. Section 141.002 sets forth certain specific exceptions to such requirements. The subsection (c)(4) exemption applies only to "a feed product produced and sold by a farmer." (Emphasis added). It is clear that the exemption:, intended to reach a farmer only whenhe sells his product; **he** is then removed **from** the ambit of the rezration. labeling, and inspection requirements. Once ownership of the giu trash passes from thf! farmer, however, the subsection (c) (4) exemption ceases to operet~r. It is unclear in your letter whether, and if so when. such title passes. The determination of your first question will finally deperdi on the facts involved in each instance. If title passes from the farmer to the ginner. **then** clearly the subsection (c)(b) exemptlot. does not extend to the ginner **when** there is a subsequent sale by the ginner. The ginner would perforce be required to comply with th'c provisions of chapter 141. Onthe other

p. 1387Arthur G. Eansen- Page 4 (m-305)

hand, if the ginner acts as abroker pursuant to someform of agency contract or accepts the cotton unde!: some form of consignment agreement, the subsection (c)(4) exemption maystill be operable.
You inform us that in manyinstar,ces, a gin is operated as a cooperative of farmers. Therefore, you further ask whether the subsection (c)(4) exemption would extend to gin trash processed at a gin so operated. In section 51.004 of the Agriculture Code, a farmers’ cooperative society is empoweredto “act as anegent for its members in selling the members’ agricul.tural products.

. . ." (Emphasis added). Agric. Code 151.004(a)(3). In such an instance, courts will look to the intention of the parties to the contract at issue andexamine the contract as awholr rather than rely on the mere **form** of the contract. In Texas Certified Cottonseed Brieders’ Ass’n v. Aldridge. 61 S.W.2d 79 (Tex. 1933). ,theTexas SupremeCourt held that a marketing contract by which a cotton producer delivered cottonseed for resale to a co-bperstive marketing &sociation did not effect an absolute sale, even though the agreement specifically provided that the association “buys” snd the producer “sells and agrees to deliver” the produce. Thecour't declared:

The members of the association. in order to promote their welfare, delivere,d their seed to the association. They constitutejd the association their agent with broad and ~rxclusive powers to handle end sell their commodity. This was necessary to accomplish the very purposes for which it wss created. It being the clear intention of the members to create a true co-operative marketing association, under the powers enumerated by lawandby the contracts, to perform certain services exclusivelv for Its members, andto hold in the face of this intention that the delivery of the seei; to the association was an absolute sale would destroy it as a co-operative marketing asso&%. The members have conferred on this association, as their selling **agent,** such title to the cottonseed with plenary powers to handle and dzlspose of same. but the a&&.ation handles the proceeds thereoi for the benefit of itself and its%mbers. (Emphesis added).
Id. at 83. - In another context, this office has previously determined that farm products held by a farm co-operative remain in the hands of the producer for purposes of article VIII. section 19 of the Texas Constitution which exempts from aii valorem taxation "(flarm products

. . . in the hands of the producer.

. . ." Attorney General Opinions R-938 (1977); M-632 (1970); O-5404 (1943). The opinions concluded that **farm** products held by a co-operative remained in the

p. 1388**Arthur C.**  **Ransen** - Pago 5 (JM-305)

hands of **the** producer becauec! the producers, in effect, constituted the co-operative as **their** agent. Noabsolute title to such products passed from the farmers to **ocher** parties. Analogously, ue conclude that “gin **trash ”**  held byagin operated as a farmers’ co-operative may still receive the benefit of the subsection (c)(4) exemption because title to such product remeinn with the farmer with the co-operative acting merely as the producere’ agent.

“Gin trash” In the control of a cotton ginner falls within thlz ambit of the section 141.002(c)(4) Agriculture Code exemption from registration. labeling, and inspection requirements for commerci;%:lagricultural feed only If title to such feed product has not passed from the farmer to another party. “Gin trash” in the control of a cotton **&inner** which is operated as a farmers’ co-operative does fall within the examption provisions.

- JIM MANTT0X Attorney General of Texas
TOMGREEN First **Assistant** Attorney Gene,cal

. . DAVIDR. RICEARDS Executive Assistant **Attorney** General
RICXGILPIN Chairman, Opinion Conunittee Prepared by JimMoellinger Assistant **Attorney** General
APPROVED: OPINIONCOMMITTEE
Rick Cilpin. Chairman Jon Bible Colin Carl SusanGarrison TonyGuillory JimMoellinger Jennifer Riggs NancySutton