Final Agency Determination: FAD-77

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FAD-77

Subject: By request dated April 21, 2007, the Risk Management Agency was asked for an interpretation for the 2005 and succeeding crop years of policy and procedure regarding establishing optional units as specified in section 34 of the Common Crop Insurance Policy Basic Provisions (Basic Provisions) published at 7 C.F.R. 457.8 and the loss adjustment procedures.

Sections 34(b) and (c) of the Basic Provisions state in relevant parts:

(b) Unless limited by the Crop Provisions or Special Provisions, a basic unit as defined in section 1 of the Basic Provisions may be divided into optional units if, for each optional unit, you meet the following:

(1) You must plant the crop in a manner that results in a clear and discernible break in the planting pattern at the boundaries of each optional unit;

(2) All optional units you select for the crop year are identified on the acreage report for that crop year (Units will be determined when the acreage is reported but may be adjusted or combined to reflect the actual unit structure when adjusting a loss. No further unit division may be made after the acreage reporting date for any reason);

(3) You have records, that are acceptable to us, for at least the previous crop year for all optional units that you will report in the current crop year (You may be required to produce the records for all optional units for the previous crop year);

(4) You have records of marketed or stored production from each optional unit maintained in such a manner that permits us to verify the production from each optional unit, or the production from each optional unit is kept separate until loss adjustment is completed by us; and

(c) Each optional unit must meet one or more of the following, unless otherwise specified in the Crop Provisions or allowed by written agreement:

(1) Optional units may be established if each optional unit is located in a separate section. In the absence of sections, we may consider parcels of land legally identified by other methods of measure such as Spanish grants, as the equivalents of sections for unit purposes. In areas which have not been surveyed using sections, section equivalents or in areas where boundaries are not readily discernible, each optional unit must be located in a separate FSA farm serial number;

(2) In addition to, or instead of, establishing optional units by section, section equivalent or FSA farm serial number, optional units may be based on irrigated and non-irrigated acreage. To qualify as separate irrigated and non-irrigated optional units, the non-irrigated acreage may not continue into the irrigated acreage in the same rows or planting pattern. The irrigated acreage may not extend beyond the point at which the irrigation system can deliver the quantity of water needed to produce the yield on which the guarantee is based, except the corners of a field in which a center-pivot irrigation system is used may be considered as irrigated acreage if the corners of a field in which a center-pivot irrigation system is used do not qualify as a separate non-irrigated optional unit. In this case, production from both practices will be used to determine your approved yield; and Paragraph 55 of the FCIC-25010, 2005 Loss Adjustment Manual (LAM) Standards Handbook (2005 LAM) states in relevant part:

A Guidelines. Each insured crop has its own unit structure defined in the policy and/or respective endorsement. However, the CAT Endorsement generally limits the units available for each insured crop to BASIC units determined ONLY by the crop share arrangement on the date coverage begins for the crop year. Further unit division (examples: type, noncontiguous land, FSA FSN, etc.) as defined in the applicable crop endorsement, policy provisions, or Special Provisions are not allowed under the CAT Endorsement. See the CAT Endorsement for the unit definition. All insurable acreage of each insured crop within the unit is the basis for determining coverage, premium, and indemnities.

D Unit Structures for Most Crops. For most other crops, the basic unit structures in the policies are as follows, except the CAT Endorsement limits to basic units. Refer to subparagraph E for dry beans. (Refer to applicable policy and crop provisions.)

(1) * * *

(2) Optional Units

When the policy allows, land that would otherwise be one basic unit may be divided into optional units according to the optional unit definition contained in the crop's Basic Provisions, crop provisions, and/or Special Provisions. Optional units may be available when the acreage of the insured crop is located in separate, legally identifiable sections, section equivalents, or FSA/FSNs, whichever applies. Some perennial crops allow optional units for acreage of the crop grown on non-contiguous land . . .

(a) Qualification Requirements. To qualify for optional units, all of the following must be met:

1 For Actual Production History (APH) crops, by the Production Reporting Date, the insured must file acceptable production reports

1/ for all planted insurable acreage for at least the most recent APH crop year in the base period that have been arranged according to the optional units that will be requested for the current crop year. (Refer to 4 below for exceptions.) The insured must have supporting records which can be independently verified, of planted acreage and production used to determine the insured's production guarantee for each optional unit.

1/ "File acceptable production reports," as used above, refers to the most recent APH crop year in the base period. When assigned yields are used for the most recent crop year of the base period, optional unit provisions DO NOT apply for the crop/county.

2 * * *

3 The crop must be planted in a manner that results in a clear and discernable break in the planting pattern at the boundaries of each optional unit unless a written agreement is provided for this purpose by the RMA RO. Planting means the original planting, including any reseeding or replanting. (Cultivating, disking, mowing, etc., between sections, section equivalents, FSA FSNs, irrigated and non-irrigated practices, etc., after planting or harvesting does not qualify the acreage for optional units.)

However, for center pivot irrigation systems only, planting end rows either before or after planting the crop or cultivation, disking, mowing, etc., after the crop was planted between the irrigated acreage and the non-irrigated corners of a center pivot system may be used to establish breaks between irrigated and non-irrigated planting patterns for optional unit purposes. Such breaks will be acceptable only if completed on or before the acreage reporting date for the crop and are clearly discernable if a subsequent inspection is required during the crop year (appraisal, claim for indemnity, APH review, etc.). In addition, if irrigated and non-irrigated practices are carried out within a single section, section equivalent, or FSA FSN:

a Proper planting and fertilization practices must be carried out for each respective practice; and

b Records of harvested production must also be maintained separately for each practice.

Interpretation Submitted

Since the policy and procedures direct how an optional unit structure is established, the procedures require the Approved Insurance Provider (AIP) to apply unit guidelines to consider individual sprinkler locations which cross section lines into the next section as one unit. The submitter provided the following example. Assume there is a county that exists under the Rectangular Survey System and the insured reported optional units by section location. Section lines are clearly visible under FSA photos. The crop is planted in a manner that crossed section lines on individual sprinklers, which continue into another section with the same crop and practice. All reported acres are of the same practice and for the same entity. The insured does not seek a written agreement that would allow unit determination other than by section. The insured also fails to have supporting records of planted acreage and production for the previous crop year for each of the optional units the insured reported for these two sections. Under these circumstances, the insured does not meet unit reporting requirements to maintain optional units.

Final Agency Determination

The Federal Crop Insurance Corporation agrees that the policy provisions and procedures direct how optional units are structured. Section 34(b) of the Basic Provisions authorizes basic units to be divided into optional units, unless otherwise specified in the Crop Provisions or Special Provisions, provided ALL of the provisions contained in section 34(b) have been met. If one or more of the provisions contained in section 34(b) have not been met, the basic unit cannot be further divided into optional units.

In order to qualify for optional units by section or for optional units by irrigated and non-irrigated acreage, the insured first has to meet the requirements in section 34(b)(2) and (3). Section 34(b)(2) specifies the insured must select the optional units on his or her acreage report and no further unit division may be made after the acreage reporting date for any reason, but the units may be adjusted or combined to reflect the actual unit structure when adjusting a loss.

Therefore, if an insured reported optional units by section on his or her acreage report, the insured could not later revise the acreage report to report units by irrigated or non-irrigated acreage. To qualify for optional units, the insured would have to meet all the requirements for optional units by section or the reported optional units must be combined. Conversely, if the insured reported optional units by irrigated and non-irrigated acreage on the acreage report, the insured could not later revise the acreage report to report optional units by section and the insured must meet all the requirements for optional units by irrigated and non-irrigated acreage.

In accordance with section 34(b)(3), one of the requirements to qualify for optional units is that the insured have records, acceptable to the AIP, for at least the previous crop year for all optional units that the insured will report in the current crop year. Therefore, if a producer reported optional units for the 2005 crop year based on separate sections, but the producer commingled the 2004 crop year production from the two sections, the insured would not qualify for optional units and the reported optional units would be combined. Conversely, if the insured reported optional units for the 2005 crop year based on irrigated and non-irrigated acreage, but the insured commingled the production from the irrigated and non-irrigated acreage for the 2004 crop year, the insured would not qualify for optional units and the reported optional units would be combined.

In accordance with section 34(b)(1), another requirement to qualify for optional units is that the insured plant the crop in a manner that results in a clear and discernible break in the planting pattern at the unit boundary. This means that if the insured reported optional units by section, there must be a clear and discernible break in the planting pattern at the section boundary or the provisions contained in section 34(b)(1) would not have been met and the insured would not qualify for optional units.

Conversely, if the insured reported optional units by irrigated and non-irrigated acreage, the non-irrigated acreage cannot continue into the irrigated acreage in the same rows or planting pattern. Paragraph 55 of the 2005 LAM clarifies what it means for acreage not to continue in the same row or planting pattern. For irrigated acreage with a center pivot, the discernible break can be established by planting end rows either before or after planting the crop or cultivation, disking, mowing, etc., after the crop was planted between the irrigated acreage and the non-irrigated corners of a center pivot system. If all of the criteria for a discernable break between the irrigated and non-irrigated acreage are met, the acreage may qualify as separate optional units by irrigated and non-irrigated acreage provided the rest of the requirements in 34(b) are met. This would be true even if such acreage crossed section lines with no discernable break between the section lines because section 34(c)(2) states: "In addition to, or instead of, establishing optional units by section . . .optional units may be based on irrigated and non-irrigated acreage.. . ." However, if there is no clear and discernable break in the planting pattern between the irrigated and non-irrigated acreage the acreage must be considered as one optional unit.

Even though 7 C.F.R. part 400, subpart X is only applicable to provisions of the Federal Crop Insurance Act and the regulations promulgated thereunder, and the Crop Revenue Coverage (05-CRC) and Revenue Assurance (05-RA) policies have not yet been codified in the Code of Federal Regulation, to the extent those provisions are identical or nearly identical, this Final Agency Determination applies accordingly to assure consistent, uniform, and equitable treatment to all producers insured under the same policy 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 in which the interpreted language remains in effect. Any appeal of this determination must be made in accordance with 7 C.F.R. 400.768(g).

Date of Issue: July 17, 2007