Final Agency Determination: FAD-66

FAD-66

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 concerning quality adjustment, 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

***
(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.

We see no reference in either FCIC’s “Grape Loss Adjustment Standards Handbook” nor the “Grape Crop Provisions” to a provision requiring losses to only be payable during a smaller (assumed quantative) crop year, or if the crops fall below “US Department of Agriculture” standards. As far as we can see, Section 12 of the insurance contract states that a quality adjustment is allowed when the “value is less than 75 percent of the average market price of undamaged grapes of the same or similar variety…” We have not found a citation to any requirement that the grape marketability be precluded or reduced completely. Please confirm the same.

There is no requirement within the Grape Crop Provisions that a “quality adjustment” be allowed only in seasons with a lower quantitative number of grapes harvested.

The Federal Crop Insurance Corporation agrees with the requester’s interpretation. There is no requirement within the Grape Crop Provisions that quality adjustment be allowed only in seasons where there has been a reduction in the number of grapes harvested. It is possible that certain causes of loss or the timing of such causes will result in a reduction of the quality but not the quantity of the grapes produced and such reduction is covered under the policy.

However, in accordance with section 14(e) of the Common Crop Insurance Policy Basic Provisions, the producer must establish that any loss of production or reduction in quality occurred during the insurance period, and that the loss of production or quality was directly caused by one or more of the insured causes specified in the Grape Crop Provisions.

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 19, 2005