Final Agency Determination: FAD-67

FAD-67

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 average market price, 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.

Would the District 8 Price Statistics constitute the average market price from the “usual marketing outlets” as per Section 12(e) of the grape crop provisions?

District 8 price statistics qualify as an adequate representation of ‘average market price’ as defined in Section 12(e) of the Grape Crop Provisions.

The Federal Crop Insurance Corporation disagrees with the submitter’s interpretation. Section 12(e)(1) requires approved insurance providers to determine the prices of undamaged production by averaging the prices being paid by usual marketing outlets for the area during the week in which damaged production is valued. District 8 price statistics are not published weekly. They are published well after the harvest and the time most claims are settled. Further, the prices used may not be limited to the marketing outlets where the producer usually markets the grapes and, therefore, may not be representative of the price the producer could have received had the grapes not been damaged when they were. Therefore, District 8 price statistics do not meet the requirements to be used to determine the average market price for undamaged production. Approved insurance providers must collect prices from the market outlets in the area where the grapes are usually marketed for the earlier of the week in which damage production was sold or the final inspection for the unit occurred.

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