Final Agency Determination: FAD-172

FAD-172

Subject: Two requests, dated September 10, 2012, and September 11, 2012, were received requesting a Final Agency Determination for the 2011 crop year and subsequent crop years, regarding the interpretation of definition of “fresh apple production” set forth in section 1 of the Apple Crop Insurance Provisions published at 7 C.F.R. 457.158. This request is pursuant to 7 C.F.R. part 400, subpart X.

Section 1 of the Apple Crop Provisions, published at 7 C.F.R. 457.158 states, in pertinent part:

Fresh apple production –

(1) Apples:

(i) That are sold, or could be sold, for human consumption without undergoing any change in the basic form, such as peeling, juicing, crushing, etc.;

(iv) From acreage that you certify, and if requested by us provide verifiable records to support, that at least 50 percent of the production reported as fresh apple acreage from each unit, was sold as fresh in one or more of the four most recent crop years.

The first requestor interprets the term "sold" as used in section (1)(iv), quoted above, as not meaning delivery or transfer of apples, and that an apple producer's delivery of apples to a packinghouse or processor does not constitute the sale of the subject apples. Instead, the first requestor contends that apples are not "sold" until the producer receives full payment for those apples, even if the apples remain in storage at the packinghouse for some period of time. To this end, the verifiable records submitted by the producer must indicate the ultimate disposition of the apple (fresh, processing or cull) and the price for which the subject apples were "sold" to the end user.

In addition, accordingly, the first requestor believes that the acceptance of apples by a packinghouse, which constitutes a transfer under the Perishable Agricultural Commodities Act ("PACA"), does not mean that the apples were sold for purposes of determining fresh apple production under the Apple Crop Provisions. Similarly, the definition of "sold" as used in the Apple Crop Insurance Provisions is not subject to any other statute administered by the U.S. Department of Agriculture ("USDA") or an agency within USDA.

The second requestor interprets that the specific use of the phrase "sold, or could be sold" specifically acknowledges the common practice of fresh apple growers delivering fresh apples to a fresh apple packer for purposes of storage, packing and sale of those fresh apples. Such a transaction qualifies the packer as the grower's agent under PACA. Accordingly, when fresh apples are grown, insured, and delivered as fresh apples under the Fresh Fruit Option of the Apple Crop Insurance Provisions to a fresh fruit packer, PACA applies to define and regulate that transaction in interstate commerce, not just for purposes of enforcing PACA, but for all considerations under the auspices of the United States Department of Agriculture, which interprets and applies PACA by its decisions in cases seeking reparations under PACA. Once fresh fruit is delivered to a fresh fruit packer and the fresh fruit packer accepts the fresh fruit, the sale is complete and cannot be rejected, title to the fresh fruit transfers, and what the fresh fruit packer does with the fruit is out of the control of the grower. This is true even with an open-price term, as defined under the Uniform Commercial Code. 7 U.S.C. 499b(2); 7 CFR 46.2(bb), (dd); Dew-Gro, Inc. a/t/a Central West Produce v. First National Supermarkets, Inc., 42 Agric. Dec. 2020 (1983); and Cai/Mex Distributors, Inc. v. Tom Lange Company, Inc., 46 Agric. Dec. 1113 (1987). Therefore, because RMA has cited no contrary legal authority for its alleged position that "sold" means final disposition of the fruit, on the contrary, "sold" means acceptance by the fresh fruit packer under an open-price term as a matter of law.

In addition, there is no dispute that crop insurance ceases at the time of harvest, Common Crop Insurance Policy, Section 11(b)(2), as RMA has determined in the past under numerous circumstances. See,e.g., May 26, 2011 letter from William J. Murphy, Administrator, RMA to George Grieg, Acting Secretary, Pennsylvania Department of Agriculture. This policy provision, and the prior determinations of RMA, are on the basis of the possibility that fruit in storage can be damaged or diseased, or degrade simply as a matter of the time and circumstances under which the storage has occurred, including bruising, commingling, and exposure to disease. Therefore, if RMA agrees that insurance coverage cannot extend into storage because of the possibility that the fruit can change in character during storage, then RMA is not in a position to now claim that the final disposition of the fruit out of storage, during which the fruit could have gone from fresh quality at the point of acceptance to processing quality at the time of disposition, can be used for determining the point or nature of the sale of the fresh fruit. Such a position would be inconsistent and contrary to the stated purposes of the Federal Crop Insurance Act to improve "the economic stability of agriculture" through the ready availability of Federal Crop Insurance, and to ensure that claims for losses under the Federal Crop Insurance Program were adjusted "in a uniform and timely manner" 7 U.S.C. 1502, 1508U).

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) agrees with the first requestor’s interpretation. The term “sold” as used in the definition of “fresh apple production in section 1 of the Apple Crop Provision is not defined. Therefore, it must be given its common meaning from the dictionary, which states to mean to give up in violation of duty, trust, or loyalty; to give up (property) to another for something of value (as money). Therefore, simple delivery of the apples to a fresh fruit packer is not the sale of those apples until grower receives payment for the apples. If the fresh fruit packer pays the grower a price commensurate with fresh apples, the apples are considered as fresh apple production. If the fresh apple packer pays a price that is not commensurate with prices generally received for fresh apples, the apples are considered processing apples. If the fresh apple packer does not pay the grower for the apples, then the apples are not considered sold. Thus, sales records that show price paid to the grower and quantity purchased are used to determine when the apples are sold and whether the apples qualify as fresh or processing.

FCIC disagrees with the second requestor’s interpretation that the specific meaning of the phrase "sold, or could be sold" as used in section 1(i) quoted above specifically acknowledges the common practice of fresh apple growers delivering fresh apples to a fresh apple packer for purposes of storage, packing and sale of those fresh apples. Rather, this provision recognizes that insurability does not depend on the management decision of the producer but rather it depends on the quality and condition of the apples. Further, apples may be appraised if such apple production will not be harvested. The loss adjuster’s appraisal will determine the amount of fresh apple production in accordance with FCIC approved loss adjustment procedures. Finally, if apples are harvested after such appraisal, production to count is determined in accordance with section 15(b) of the Basic Provisions. In this instance, records of sold harvested production would then be available to determine if the price received was commensurate with the price of fresh apples.

FCIC agrees with the first requestor that neither the Perishable Agricultural Commodities Act ("PACA") nor its attendant regulations apply to the Federal crop insurance program. Each program within USDA has its own statutes, rules, regulations and procedures. Unless expressly stated, such statutes, rules, regulations and procedures do not apply to other programs within USDA. This is because each program has different eligibility requirements, standards, and purposes. This means that the meaning of one term for one program does not necessarily have the same meaning for another program. If an agency wants a term to have the same meaning as the term in another program, the definitions of the term are cross referenced. The Common Crop Insurance Policy Basic Provisions (7 C.F.R 457.8) and other regulations published by FCIC demonstrates how other program definitions are incorporated into the crop insurance program. Unless a term has been expressly defined with a cross reference to another program that term is given its common meaning found in the standard dictionary. Since the term “sold” is not defined in the policy, and there is no cross reference to PACA,its common meaning is used as stated herein.

In accordance with 7 C.F.R. 400.765(c), this constitutes the Final Agency Determination and is binding on all participants in the Federal crop insurance program for crop years the above stated provisions are in effect.

Date of Issue: Nov 13, 2012