July 25, 1997 INFORMATIONAL MEMORANDUM: R&D-97-058 TO: All Reinsured Companies All Risk Management Field Offices FROM: Tim B. Witt /s/ R. E. Waggoner (for) Deputy Administrator SUBJECT: Macadamia Nut Crop Insurance Provisions FCIC has published new macadamia nut crop insurance provisions that will attach to the Common Crop Insurance Policy Basic Provisions for the 1999 and succeeding crop years. These changes will result in the 1998 crop year being incorporated into the 1997 and 1999 policies. For the 1999 crop year, insurance coverage under the new macadamia nut crop provisions will attach on January 1, 1998, and the end of the insurance period will be June 30, 1999. Coverage against insured causes of loss will be provided on all macadamia nut blooms and nuts normally produced during the production year that extends from July 1 to June 30 of the next calendar year. From January 1 to June 30 of the first calendar year of each insurance period, coverage against insured causes of loss will only be provided on the macadamia nut blooms and immature macadamia nuts that normally produce mature nuts during the production year that will start July 1. The current Macadamia Nut Crop Insurance Regulations provide crop insurance coverage from January 1, 1997, through December 31, 1997, for the 1997 crop year. The 1998 macadamia nut industry production year extends from July 1, 1997, to June 30, 1998. An interim final rule was published to amend the Macadamia Nut Crop Insurance Regulations (7 CFR part 455) to extend insurance coverage for the 1997 crop year. The extended insurance coverage period for the 1997 crop year will begin on January 1, 1998, and the calendar date for the end of the insurance period will be June 30, 1998. The extension will provide macadamia nut coverage for the latter 6 months of the production year that began July 1, 1997. Thereafter, each crop insurance period will include a complete production year. No additional premium or administrative fee will be due for catastrophic risk protection, limited coverage, or additional coverage insurance that is extended for the 1997 crop year as a premium or fee has been paid for the 1997 crop year, and there will be no 1998 crop year. Attached is a copy of the Macadamia Nut Crop Insurance Provisions effective for the 1999 and succeeding crop years. The following is a brief description of the significant changes to these provisions. The provisions are also available on the Reporting Organization (RO) Server. Please refer to the provisions for complete information. - The contract term between the producer and the insurance provider is amended to provide continuous coverage. The current policy is not a continuous contract. This change removes the requirement of annually filing an application. - Section 1 adds definitions for the terms "age," "days," "direct marketing," "good farming practices," "graft," "interplanted," "irrigated practice," "non-contiguous," "pound," "production guarantee (per acre)," "rootstock," and "written agreement" for clarification. The definition of "crop year" clarifies that the crop year is designated by the calendar year in which the insurance period ends. - Section 2 describes the guidelines under which basic units may be divided into optional units consistent with other perennial crops offering optional units. These provisions incorporate the requirement that each optional unit must contain at least 80 acres of bearing macadamia trees or be located on non-contiguous land. - Section 2(e) modifies the language to clarify optional unit requirements. For each optional unit, the producer must have provided records of acreage and production by the production reporting date and maintain records of marketed production or measurement of stored production for each crop year. Each optional unit must also meet specific criteria unless otherwise specified by written agreement. - Section 3(a) specifies that the insured may select only one price election for all the macadamia nuts in the county insured under the policy, unless the Special Provisions provide different price elections by type, in which case the insured may select one price election for each macadamia nut type designated in the Special Provisions. The price elections selected are required to have the same percentage relationship to the maximum price offered for each type. - Section 3(b) specifies the reporting requirements when any circumstance occurs that may reduce the expected yields and when the insured crop is interplanted with another perennial crop to ensure that the guarantee accurately reflects the production capabilities of the acreage and to maximize the number of acres which are insurable so that such acreage need no longer be covered by NAP. - Section 3(c) clarifies that the producer's production guarantee will be determined according to the APH regulations unless damage or changes to the orchard or trees require establishment of the yield by another method. - Section 3(d) clarifies that instead of reporting the previous year's production, a 1-year lag period will occur. Base period production data will be reported for 2 production years preceding the current policy crop year (a lag year). For example, on the 1999 crop year production report, the producer will provide 1997 production year data. - Section 4 establishes August 31 as the contract change date. Previously, the policy contained no contract change date since it was not a continuous policy. - Section 5 establishes December 31 as the cancellation date. Previously, the policy contained no cancellation date since it was not a continuous policy. - Section 6(d) allows insurance coverage for macadamia nuts produced on trees that have not reached the fifth growing season, provided they have produced at least 200 pounds (wet, in-shell) per acre in a previous crop year, and the insurance provider agrees in writing to provide such coverage in order to increase the number of acres that are insurable without adversely affecting the actuarial soundness of the program. - Section 6(e) specifies that the crop insured will be macadamia nuts that are produced from blooms that normally occur during the calendar year in which insurance attaches and that are harvested prior to the end of the insurance period. - Section 7 allows insurance for macadamia nuts interplanted with another perennial crop in order to conform with other perennial crops and increase the number of acres available for insurance coverage. - Section 8 changes the calendar date for the end of the insurance period from December 31 to the second June 30 of the crop year. The date insurance attaches remains January 1 of each crop year. - Section 8(a) specifies that if the application is received after December 22 but prior to January 1, insurance will attach on the tenth day after the insured's properly completed application is received in the insurance provider's local office unless the acreage is inspected during the 10-day period and it is determined that insurability requirements are not met. The calendar date for the end of the insurance period is the second June 30 after insurance attaches. - Section 8(b) adds provisions to clarify the procedure for insuring acreage when an insurable share is acquired or relinquished on or before the acreage reporting date. - Section 9 clarifies that wildlife is an insurable cause of loss, unless proper measures to control wildlife have not been taken. Disease and insect infestation are excluded causes of loss unless adverse weather prevents the proper application of control measures, causes control measures to be ineffective when properly applied, or causes disease or insect infestation for which no effective control mechanism is available to be consistent with other crop provisions. - Section 10(a) specifies the notice requirements if the orchard has suffered a loss and the crop will not be harvested in order to permit a timely appraisal of any loss and accurately determine production to count. - Section 10(b) requires the producer to give notice at least 15 days prior to harvest so a preharvest inspection can be made if the insured intends to engage in direct marketing to consumers in order to permit a timely appraisal and determine production to count. - Section 10(c) requires the producer to give at least 15 days notice prior to the beginning of harvest or immediately if damage is discovered during harvest so damaged production may be inspected. Also, the producer must not destroy the damaged crop until after the insurance provider has given written consent to do so. - Section 12 adds provisions for providing insurance coverage by written agreement. FCIC has a long standing policy of permitting certain modifications of the insurance contract by written agreement for some policies. This amendment allows FCIC to tailor the policy to a specific insured in certain instances. The new section will cover the procedures for and duration of written agreements. Attachment