Final Agency Determination: FAD-022

FAD-022

Subject: On May 27, 2003, the Risk Management Agency was asked for a Final Agency Determination, applicable for the 2003 and succeeding crop years, regarding the interpretation of section 5(b) of the Cotton Crop Insurance Provisions in the Code of Federal Regulations (C.F.R.) at 7 C.F.R. 457.104 and the Special Provisions of Insurance (SPOI) statement limiting coverage of cotton on non-irrigated acreage from which a hay crop or a small grain crop is harvested or that is grazed past March 15. This request is submitted pursuant to 7 C.F.R. part 400, subpart X.

Background

Section 5 of the Cotton Crop Insurance Provisions states:

5. Insured Crop
In accordance with section 8 (Insured Crop) of the Basic Provisions ( 457.8), the crop insured will be all the cotton lint, in the county for which premium rates are provided by the actuarial documents:
. . .

(b) That is not (unless allowed by the Special Provisions or by written agreement):
. . .

(4) Grown on acreage from which a hay crop was harvested in the same calendar year unless the acreage is irrigated; or
(5) Grown on acreage on which a small grain crop reached the heading stage in the same calendar year unless the acreage is irrigated or adequate measures are taken to terminate the small grain crop prior to heading and less than fifty percent (50%) of the small grain plants reach the heading stage.

The SPOI statement in question states:

Insurance shall not attach or be considered to have attached on any acreage that is non-irrigated and 1) from which a hay crop is harvested (including a harvested small grain hay crop regardless of the percentage of small grain plants that reached the headed stage); or 2) was grazed past March 15.

1. The SPOI statement takes precedence over the Cotton Crop Provisions. If there is a conflict or inconsistency between the SPOI General Statement and section 5(b), the SPOI supersedes the policy provision.

2. Sections 5(b)(4) and (5) of the Cotton Crop Provisions, as clarified by the SPOI statement, precludes insurance from attaching to non-irrigated cotton in two scenarios, one pertaining to the harvesting of a hay crop and the other pertaining to the heading of a small grain crop.

3. Sections 5(b)(4) of the Cotton Crop Provisions precludes insurance from attaching to non-irrigated cotton if planted on the same acreage from which a hay crop was harvested (in the same calendar year), regardless of whether the hay crop or any percentage of the hay crop reached the heading stage. Hay crop includes a small grain crop and traditional hay crops, such as alfalfa, Sudan, and sudex.

4. Section 5(b)(5) of the Cotton Crop Provisions means that insurance does not attach to non-irrigated cotton if it follows a headed small grain crop unless the producer takes "adequate measures" to destroy the small grain crop before 50 percent of the small grain crop has reached the heading stage. However, if more than 50 percent of the small grain crop has headed, insurance will not attach to the non-irrigated cotton regardless of whether the small grain crop was destroyed by "adequate measures."

5. Grazing is an "adequate measure" of destruction only if it occurs before March 15.

The Federal Crop Insurance Corporation (FCIC) agrees that the applicable SPOI statement takes precedence over the Cotton Crop Provisions.

FCIC also agrees that sections 5(b)(4) and (5) of the Cotton Crop Provisions are applicable to two different scenarios. The first is when cotton is planted on the same acreage as a hay crop in the same calendar year and the second is when cotton is planted on the same acreage as a small grain crop in the same calendar year.

FCIC agrees that section 5(b)(4) of the Cotton Crop Provisions precludes insurance when non-irrigated cotton is planted on acreage on which a hay crop was harvested in the same calendar year. FCIC agrees that hay crop includes traditional crops such as alfalfa, sudan, and sudex. Further, under the SPOI, hay crops include small grain crops harvested for hay and, unlike the insurability of cotton planted after a small grain crop produced for grain the percentage of small grain hay crop plants that reach the headed stage is not material to the issue of insurability.

FCIC disagrees that section 5(b)(5) of the Cotton Crop Provisions precludes insurance when non-irrigated cotton is planted on the same acreage as a small grain crop that has reached the heading stage in the same calendar year, unless the producer takes adequate measures to destroy the crop before 50 percent of the plants have reached the heading stage. This interpretation implies non-irrigated cotton would be insurable if a chemical is applied for termination purposes immediately prior to 50 percent of the small grain plants reaching the heading stage.

Section 5(b)(5) of the Cotton Crop Provisions states that adequate measures must be taken to terminate the crop before heading and before 50 percent of the crop has reached the heading stage. This means that there are two separate requirements and both requirements must be met for the crop to be insurable. The first is the application before the heading of the measures to terminate the crop. The second is that the crop must be terminated before 50 percent of the crop has reached the heading stage. Heading occurs when the plant head emerges from the leaf sheath and is visible to the naked eye. Termination means the death of the plant. Therefore, if the measures to terminate the crop are applied after heading, the crop is not insurable. Further, if the crop fails to die before 50 percent of the crop has reached the heading stage, the crop is also not insurable.

RMA disagrees that grazing is an adequate measure of terminating the small grain crop if it occurs before March 15. This issue was addressed in Manager's Bulletin No.: MGR-01-022, dated August 24, 2001. In that Bulletin, the Cooperative State Research, Education and Extension Service (CSREES) was consulted regarding the effect of grazing on the small grain crop. CSREES concluded that grazing is not an adequate measure to terminate the crop before it reaches the heading stage.

Under the common usage of the term, "termination" of the crop means putting an end to it or killing it. Grazing, by itself, seldom "terminates" the crop. Growing plants usually remain after the grazing animals are removed, especially if removed on or before March 15. To be insurable, the producer must take measures to actually kill the small grain crop. This usually requires chemical or mechanical means.

The insurability requirements for non-irrigated cotton are different, depending on whether a previously planted small grain crop is hayed, grazed, or planted for harvest as grain. If the small grain crop is harvested for hay, the non-irrigated cotton crop is not insurable. If the small grain crop is produced for grain, the non-irrigate cotton crop is not insurable unless adequate measures are taken to eliminate the crop before 50 percent of the small grain plants have headed. If the small grain crop is grazed, the non-irrigated cotton crop is not insurable unless (1) the grazing ceases on or before March 15 and (2) adequate measures are taken to terminate the crop before 50 percent of the small grain plants have headed.

In accordance with 7 C.F.R. 400.765(c), this constitutes the Final Agency Determination and is binding on all participants in the Federal crop insurance program for the 2003 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: August 25, 2003