Final Agency Determination: FAD-74

FAD-74

Subject:: Request dated January 11, 2007, the Risk Management Agency was asked for a Final Agency Determination for the 2005 and succeeding crop years, regarding the interpretation of section 10(a)(1) of the Grape Crop Provisions as published at 7 C.F.R. 457.138. This request is pursuant to 7 C.F.R. part 400 subpart X.

Background

Section 10(a)(1) of the Grape Crop Provisions states:
10. Cause of Loss

(a) In accordance with the provisions of section 12 (Cause of Loss) of the Basic Provisions, insurance is provided only against the following causes of loss that occur during the insurance period:

(1) Adverse weather conditions

Contracting for sale of harvested grapes is often done after crop insurance has been obtained. If a contract calls for a minimum brix percent level, yet fails to reach that level because of “adverse weather” conditions, does this trigger a crop insurance claim under section 10 of the Grape Crop Provisions?

A crop insurance claim is triggered when, because of adverse weather, grapes do not reach contracted for brix levels. This is true as long as the brix levels contracted for are reasonable based on the previous two to three years of crop production. This claim is triggered even if the contract for the sale of grapes is formed after crop insurance is obtained.

The Federal Crop Insurance Corporation does not agree with the proposed interpretation. A claim may be triggered when an insurable cause of loss, (i.e. adverse weather conditions), results in a reduction in the amount or quality of the crop. Failure to meet a contracted brix level is not in itself an insurable cause of loss. Further, the Grape Crop Provisions do not require a producer to have a contract in order for the grapes to be insured, nor do they require grapes to obtain a specified brix level. Whether the grapes are under contract and the contracted brix level are immaterial to the determination of whether a claim is triggered.

A claim may be triggered if the grapes that do not meet the contracted brix level, due to an insured cause of loss, are eligible for quality adjustment in accordance with section 12(e) of the Grape Crop Provisions, which states:

(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.

Under these provisions, if low brix levels for the variety and area are due to an insured cause of loss, a claim may be payable only if the value of such damaged grapes is less than 75 percent of the average market price of undamaged grapes for the same or similar variety. The contract for brix levels are not relevant to this determination. The only relevant factors are the market prices for damaged and undamaged grapes.

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: March 27, 2007