Final Agency Determination: FAD-055

Subject: Meaning of the term "marketable" as used in sections 1 and 12(c) of the Apple Crop Provisions (7 C.F.R. § 457.158).

On August 18, 2005, the Risk Management Agency was asked for a final agency determination, applicable for the 2005 and subsequent crop years, regarding the meaning of the term "marketable" as used in section 1 and 12 (c) of the Apple Crop Provisions (7 C.F.R. § 457.158), as it pertains to production to count, which states:

Section 1 of the Apple Crop Provisions defines "marketable" to mean "apple production that is not damaged apple production". In addition, section 12, entitled 'settlement of Claim," provides, as here pertinent:

(c) The total production to count (in boxes or bushels) from all insurable acreage on the unit will include:

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(2) All harvested marketable apple production from the insurable acreage.

Neither section 1, Definition of "marketable" nor section 12(c) of the 7 C.F.R. § 457.158 Apple Crop Provisions address the situation in which a producer markets Extra Fancy, Fancy or U.S. No. 1 (Processing) apples that are damaged or did not grade as Extra Fancy, Fancy or U.S. No. 1 (Processing).

The requestor notes that the Risk Management Agency addressed this issue in Final Agency Determination: FAD-10, issued on November 8, 2001. However, RMA has since revised the Apple Crop Provisions and did not incorporate the interpretation set forth in FAD-10. The requestor interprets the term "marketable" as used in section 12 (c)(2) to apply to each individual apple. Thus, although a bin of apples may receive a grade below U.S. No. 1 (Processing), certain individual apples in that bin may be of a higher grade and sorted out. These apples, if sold, are to be considered as having been graded at the grade for which they ultimately were sold.

Furthermore, in the requestor's opinion, the intent of section 12(c)(2), like former section 11(c)(2) of the 7 C.F.R. § 457.158 Apple Crop Provisions is to account for all apple production of value, which includes apples that are marketed and sold. Accordingly, any apple that a producer actually sells as U.S. No. 1, U.S. No. 2, Cider, or better must be considered to have been graded at the grade for which they were sold. Moreover and in this connection, because the Extra Fancy and Fancy grades are higher that the U.S. No. 1 grade, any apple marketed or sold as an U.S. Extra Fancy or U.S. Fancy apple must be considered to a class of U.S. No. 1 (Processing) apples for purposes of section 12(c)(2).

The Federal Crop Insurance Corporation (FCIC) agrees with the requester's interpretation.

Section 1 of the Apple Crop Provisions defines "apple production" as "all production of fresh apples and processing apples from the insurable acreage." Section 1 also defines "marketable" as "apple production that is not damaged apple production." "Damaged apple production" is defined, in relevant part, as "the percentage of fresh or processing apple production that fails to grade U.S. No. 1 Processing or better in accordance with the grade standards, within each lot, bin, bushel or box, as applicable."

Since the term "apple production" refers to the actual fresh or processing apples, this means that the percentage of the individual apples that do not qualify as damaged apple production are considered as marketable production. For example, if 20 percent of the bin of apples fails to grade U.S. No. 1 Processing or better, this means that the other 80 percent of the apples in that bin that do grade U.S. No. 1 Processing or better qualify as marketable. This would also apply to losses calculated under section 14 of the Apple Crop Provisions. The percentage of apples that grade U.S. Fancy or better must be considered as marketable.

FCIC also agrees that one way to determine whether the apples graded U.S. No. 1 Processing or better is the grade at which they were sold. If apples are sold as U.S. No. 1 processing or better, or U.S. Extra Fancy or U.S. Fancy, they cannot be considered as damaged apple production because such grades are equal to, or better than U.S. No. 1 Processing. Such apples must be also considered as marketable. In addition, apples that are not graded but later sold as U.S. No. 1 Processing or better are considered marketable.

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 2005 and succeeding crop years.

Date of Issue: November 7, 2005