The financial distress that has engulfed much of farm country -- high interest rates and production costs, soft prices and falling land values -- has spawned still another controversy of a different sort.

The generator of this controversy is Richard C. Hollerud, a Chicago-based real estate man with a widely publicized plan that he says will help debt-burdened farmers out of their troubles.

Hollerud is trying to get Securities and Exchange Commission approval for an idea he calls Consolidated Family Farms, a venture that would allow farmers to trade their land for shares in the organization and then rent it back.

Consolidated Family Farms (CFF) has had much publicity in the Midwest and, according to Hollerud, "thousands" of farmers have inquired about it. CFF envisions taking over tens of thousands of acres of farm land that is under threat of foreclosure, bankruptcy or distress sale.

But Hollerud's idea has been bitterly criticized by major farm organizations and farmer-advocacy groups; it has been attacked at a U.S. Senate hearing and is likely to be attacked again if the House Agriculture Committee proceeds with plans to investigate it this fall.

The CFF proposal is under intensive fire from farm leaders as a misleading scheme that will convert family farmers into tenants, forcing them to give up equity with no assurance that they can regain control of their land, and bring more outside investors seeking tax advantages in agriculture.

At a July Senate hearing called by Sen. Larry Pressler (R-S.D.), he and Sen. Max Baucus (D-Mont.) raised numerous questions about CFF and expressed concern that it might erode family control over farming operations.

Witnesses at the hearing went even further.

DeVon Woodland, head of the National Farmers Organization, denounced CFF as "nothing more than a complicated scheme to shelter income of rich people from taxes, to take advantage of down-and-out farm families unable to sell their farms in a depressed market . . . and to allow these groups to cash in later on appreciation in the value of the farm land through the capital gains tax provision."

"We believe that plans of this kind will speed up the trend toward complete absentee ownership of this nation's farm land," Woodland said.

Questions and concerns have also been expressed by Cy Carpenter, National Farmers Union president; Edward Andersen, national master of the Grange; Greg Cusack of the National Catholic Rural Life Conference, and Marty Strange of the Center for Rural Affairs, Walthill, Neb.

Another witness at the Pressler hearing, Jeffrey S. Southard, deputy attorney general of Kansas, said that his state had issued a cease-and-desist order against CFF operations there because of legal questions.

"CFF appears to be an arrangement by which control of agricultural land is obtained by outside investors, who are called upon to actually invest very little of their own capital," Southard said. "Farmers, on the other hand, are required to turn over their real property and assets, and effectively become 20th-century sharecroppers."

A storm similar to this one was stirred in the mid-1970s when Continental Illinois Bank of Chicago proposed that pension and profit-sharing funds buy Midwest farms. After congressional hearings and protests by farm groups, the bank dropped its scheme.

Although federal law apparently does not prevent a CFF type of operation, state laws banning corporate ownership of farms would prevent it in Iowa, Nebraska and possibly Wisconsin.

Participating farmers would deed land to CFF and get shares in the land pool. In giving up their land, 10 percent of equity would be forfeited to cover CFF costs and other fees. "In that no real injection of capital is occurring by anyone except the farmer, the only way debt can be paid off is for the lender to accept depository units [CFF shares] as payment for its loan," Southard said.

If it wins SEC approval, CFF intends to trade shares on the open market, thus opening the way for tax-shelter seekers and nonfarm investors to acquire agricultural land.

The criticism and state legal obstacles seem not to have deterred Hollerud. He said recently that CFF is amending its prospectus to answer some of the criticisms by Pressler and Baucus.

"Much of the criticism has come before people really knew what we were proposing. Maybe we did overlook a few things," Hollerud said. "We're not a tax shelter. We're not a scheme. We're not a ruse. But in some states we've become a political Ping-Pong ball . . . . It is somewhat discouraging, but we're pressing ahead."