INFORMATIONAL MEMORANDUM:  R&D-96-069
    
TO:       All Reinsured Companies
          All Risk Management Field Offices
          FSA Headquarters, Program Delivery and Field Operations
     
FROM:     Tim B. Witt                    /s/ Roberta Waggoner (for)
          Acting Deputy Administrator    10/30/96
               
SUBJECT:  Destruction of Harvested Production Having Zero Value
     
ISSUE:
     
Should harvested production with zero value be destroyed prior to
finalization of a claim?
     
DISCUSSION:
     
There have been requests to clarify whether the Loss Adjustment Manual
(LAM) requires destruction of zero-valued harvested production prior to
finalization of a claim.
    
ACTION:
     
The following provides clarification of how claims involving zero-valued
harvested production are to be handled:
     
1    Zero-valued harvested production must be destroyed prior to
     finalization of the claim.  
     
2    A Certification Form is to be used to record the insured's
     certification that the production  has been destroyed and must be
     received by the insurance provider with such certification prior
     to the claim being finalized.
     
3    Every effort should be made by the insured and insurance provider
     to find a market for the production before it is declared zero. 
     Communication through the Risk Management Regional Service Offices
     and appropriate Multiple Peril Crop Insurance (MPCI) committees is
     essential to ensure that insurance providers are aware of
     available markets for damaged production.  The following items are
     to be followed when trying to find a market for the zero-value
     production:
     
     (A)  Determine if there are buyers outside of local marketing
          areas (within a reasonable distance).  Transportation costs
          (in excess of costs to local market) incurred as a result of
          transporting production outside the insured's normal
          marketing area in order to obtain a higher value will be
          considered in determining:

          (1)  the value of the damaged production (see the LAM), or
    
          (2)  for crops using Reduction in Value (RIV),
               transportation costs will be considered in determining
               the RIV of the damaged production (see the Special
               Provisions for the specific crops).
    
          (B)  Determine if the production can be sold directly to cattle
               or poultry feeding operations (for some crops, there may be
               other types of buyers, such as manufacturers who use
               potatoes for starch products).
          
          (C)  Determine if the damaged production can be conditioned and
               sold.  Conditioning costs will be considered in determining
               the value of the damaged production; or as applicable, for
               some crops, the RIV of the damaged production.  See the LAM.
     
          (D)  If a market still cannot be found after the determinations
               in 3A-C have been made, insurance providers may delay
               finalization of claims if there is a reasonable probability
               that there will be a market for the damaged production
               within the next 2 to 3 weeks.  This may happen if the
               markets have bought enough higher quality grain to enable
               them to buy the lower quality grain.
          
          (E)  The insured may offer a value for the production rather than
               having to destroy the production IF it has been determined
               that there are no markets or other outlets that will offer a
               value for the production.  A value cannot be accepted for
               mycotoxin-infected grain that CANNOT be disposed of in a
               manner that will not exceed advisory levels.  See the LAM.
     
          (F)  Document all determinations made in 3A-E above, including
               names and locations  of marketing outlets, values quoted for
               the damaged production, any information pertinent to
               possible conditioning of the damaged production, any
               allowable transportation costs of the damaged production,
               etc.  If multiple above-zero-values are determined, use the
               highest obtainable value (after allowable adjustments for
               conditioning or transportation costs, if applicable).
     
4    Prior to the finalization of the claim, zero-value production must
     be destroyed in accordance with any applicable Environmental
     Protection Agency (EPA) regulations (depending on the type of
     production and/or the type of damage, the EPA may or may not have
     any specific regulations pertaining to destruction).  See the LAM
     for additional information pertaining to mycotoxin-infected
     grains.