Final Agency Determination: FAD-63

FAD-63

Subject: By request dated October 2, 2006, the Risk Management Agency was asked for a Final Agency Determination for the 2005 and succeeding crop years, regarding the interpretation of section 12(e) of the Grape Crop Provisions relating to the definition of “variety” as it relates to grapes, as published at 7 C.F.R. 457.138. This request is pursuant to 7 C.F.R. part 400 subpart X.

Section 12(e) of the Grape Crop Provisions states:
12. Settlement of Claim

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(e) Mature marketable grape production may be adjusted for quality deficiencies as follows:

(1) Production will be eligible for quality adjustment if, due to insurable causes, it has a value of less than 75 percent of the average market price of undamaged grapes of the same or similar variety. The value per ton of the qualifying damaged production and the average market price of undamaged grapes will be determined on the earlier of the date the damaged production is sold or the date of final inspection for the unit. The average market price of undamaged production will be calculated by averaging the prices being paid by usual marketing outlets for the area during the week in which the damaged grapes were valued.
(2) Grape production that is eligible for quality adjustment, as specified in subsection 12(e)(1) will be reduced by:

(i) Dividing the value per ton of the damaged grapes by the maximum price election available for such grapes to determine the quality adjustment factor; and
(ii) Multiplying this result (not to exceed 1.000) by the number of tons of the eligible damaged grapes.

In addition, the 2005 Special Provisions of Insurance for San Luis Obispo County include a statement concerning section 12(e) of the Grape Crop Provisions as follows:

In lieu of Section 12(e)(2) of the Grape Crop Provisions (crop provisions), grape production that is eligible for quality adjustment as specified in section 12(e)(1) of the crop provisions will be reduced by:

(i) Dividing the value per ton of the damaged grapes by the value per ton for undamaged grapes (the value of undamaged grapes will not exceed the maximum price election for such grapes); and
(ii) Multiplying this result (not to exceed 1.000) by the number of tons of the eligible damaged grapes.

It is important to define the word “variety” as it relates to grapes. The insurance policy at issue provides that a quality adjustment is available when “(grape) value is less than 75 percent of the average market price of undamaged grapes of the same variety”. Here, the average market price for the 2005 Zinfandel crop in District 8 was $690.77. For Cabernet Sauvignon, the average market price was $815.91. These market prices often fluctuate depending on sugar content/brix levels. Therefore, would a contracted brix level of 21 (degree) constitute a “variety” of Zinfandel?

Zinfandel grapes with a brix, or sugar content level of 21 (degree) constitute a specific ‘variety’ of Zinfandel as defined in the Grape Crop Provisions.

The Federal Crop Insurance Corporation does not agree with the proposed interpretation

The 2005 Special Provisions for the county of San Luis Obispo contain the following varieties: Cabernet Franc, Cabernet Sauvignon, Chardonnay, Chenin Blanc, Gamay, Gewurztraminer, Merlot, Muscat Blanc/M Canelli, Petite Sirah, Pinot Blanc, Pinot Noir, Sauvignon Blanc, Semillon, White Riesling, Zinfandel, Other Varieties, Pinot Gris/Pinot Grigio, Viognier, Red Zinfandel, Syrah/French Syrah-Shiraz, and Sangioveto/Sangiovese.

This means there are only two recognized varieties of Zinfandel grapes: Zinfandel and Red Zinfandel. The Special Provisions for the county of San Luis Obispo also contains the following statement regarding Red Zinfandel grapes:

Zinfandel grapes may be insured as type “red zinfandel (113)” only if the insured has a minimum of four consecutive years of production records and, except as allowed below, all zinfandel production records in the APH database for the unit are verified to have been delivered at 21 percent Brix or higher. Any zinfandel grapes insured as red zinfandel (113) that are damaged by insurable causes and consequently can not be delivered as red zinfandel, will still be eligible to be insured as red zinfandel (113). In addition, if you notify us, or if at any time we determine that appropriate cultural practices were not followed for the production of grapes to be used for red zinfandel wine, we will revise the insured grape type to “zinfandel (094)”.

Therefore, zinfandel grapes with brix level of 21 degree would not constitute a specific ‘variety’ of Zinfandel unless all the criteria for Red Zinfandel are also met. If the criteria are all met, then for the purpose of quality adjustment, the average market price for undamaged grapes would be based on the prices being paid for Red Zinfandel grapes with brix level of 21degree and higher. If all the criteria are not met, then quality adjustment would be based on the average market price for Zinfandel regardless of the sugar content. These prices are determined during the week in which the damaged production is valued.

In accordance with 7 C.F.R. 400.765 (c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2005 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: December 6, 2006