[Federal Register Volume 63, Number 232 (Thursday, December 3, 1998)]
[Rules and Regulations]
[Pages 66715-66717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32155]
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
7 CFR Part 457
RIN 0563-AB62
Common Crop Insurance Regulations; Cotton and ELS Cotton Crop
Insurance Provisions
AGENCY: Federal Crop Insurance Corporation, USDA.
ACTION: Final rule.
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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the
Cotton Crop Insurance Provisions and the Extra Long Staple (ELS) Cotton
Crop Insurance Provisions for the 1999 and succeeding crop years to
provide a prevented planting coverage level of 50 percent of the
insured's production guarantee for timely planted acreage. The intended
effect of this action is to create a policy that better meets the needs
of the insured.
EFFECTIVE DATE: November 30, 1998.
FOR FURTHER INFORMATION CONTACT: Stephen Hoy, Insurance Management
Specialist, Research and Development, Product Development Division,
Federal Crop Insurance Corporation, U.S. Department of Agriculture,
9435 Holmes Street, Kansas City, MO 64131, telephone (816) 926-7730.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
The Office of Management and Budget (OMB) has determined this final
rule to be significant and, therefore, it has been reviewed by OMB.
Cost-Benefit Analysis
A Cost-Benefit Analysis has been completed and is available to
interested persons from the address listed above. In summary, for
prevented planting coverage, Government outlays for producer premium
subsidies are estimated at about $9.9 million; administrative subsidies
are estimated at about $3.5 million; and underwriting costs are
estimated at about $1.2 million. If only the portion of the prevented
planting costs attributable to increasing the payment rate from 45 to
50 percent are included, the total increase in Government outlays is
expected to be about $0.2 million. The analysis indicates that rate
increases for prevented planting coverage vary from region to region,
depending on locally expected indemnities, from 0.3 percent to 0.9
percent. On average, at the 50 percent payment rate, about 0.76
percentage point will be added to cotton and ELS cotton premium rates
to account for the basic prevented planting coverage. Preliminary
analysis suggests that the increase in the payment rate will add about
0.1 percent to total premiums to cover expected losses.
Paperwork Reduction Act of 1995
Under the provisions of the Paperwork Reduction Act of 1995 (44
U.S.C. chapter 35), the collections of information for this rule have
been previously approved by the Office of Management and Budget (OMB)
under control number 0563-0053 through October 31, 2000. The amendments
set forth in this rule do not revise the content or alter the frequency
of reporting for any of the forms or information collections cleared
under the above referenced docket.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform of 1995 (UMRA) establishes
requirements for Federal agencies to assess the effects of their
regulatory actions on State, local, and tribal governments and the
private sector. This rule contains no Federal mandates (under the
regulatory provisions of title II of the UMRA) for State, local, and
tribal governments or the private sector. Therefore, this rule is not
subject to the requirements of sections 202 and 205 of the UMRA.
Executive Order 12612
It has been determined under section 6(a) of Executive Order No.
12612, Federalism, that this rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment. The
provisions contained in this rule will not have a substantial direct
effect on States or their political subdivisions or on the distribution
of power and responsibilities among the various levels of government.
Regulatory Flexibility Act
This regulation will not have a significant economic impact on a
substantial number of small entities. New provisions in this rule will
not impact small entities to a greater extent than large entities. The
amount of work required of the insurance companies will not increase
because the information must already be collected under the present
policy. No additional work is required as a result of this action on
the part of either the insured or the insurance companies. Therefore,
this action is determined to be exempt from the provisions of the
Regulatory Flexibility Act (5 U.S.C. 605), and no Regulatory
Flexibility Analysis was prepared.
Federal Assistance Program
This program is listed in the Catalog of Federal Domestic
Assistance under No. 10.450.
Executive Order 12372
This program is not subject to the provisions of Executive Order
12372 which require intergovernmental consultation with State and local
officials. See the Notice related to 7 CFR part 3015, subpart V,
published at 48 FR 29115, June 24, 1983.
Executive Order 12988
This rule has been reviewed in accordance with Executive Order
12988 on civil justice reform. The provisions of this rule will not
have a retroactive effect. The provisions of this rule will preempt
State and local laws to the extent such State and local laws are
inconsistent herewith. The administrative appeal provisions published
at 7 CFR part 11 must be exhausted before any action against FCIC for
judicial review may be brought.
Environmental Evaluation
This action is not expected to have a significant economic impact
on the quality of the human environment, health, and safety. Therefore,
neither an Environmental Assessment nor an Environmental Impact
Statement is needed.
Background
On Wednesday, September 30, 1998, FCIC published a proposed rule in
the Federal Register at FR 52198-52200 to amend the Common Crop
Insurance Regulations (7 CFR part 457) by revising 7 CFR 457.104 and 7
CFR 457.105 effective for the 1999 and succeeding crop years.
Following filing of the proposed rule at the Federal Register, the
public was afforded 15 days to submit written comments, data, and
opinions. A total of 10 written comments were received from an
insurance service organization, two cotton producer associations, and
three reinsured companies. The comments received and FCIC's responses
are as follows:
Comment: Two producer associations concurred with the proposal to
provide a replant payment for cotton and ELS
[[Page 66716]]
cotton damaged by excess moisture, hail, or blowing sand or soil but
only if no additional premium is added for the coverage. One producer
association recommended that replanting coverage be provided as an
option at the choice of the producer. Two reinsured companies stated
that adding replant payments will substantially increase loss
adjustment expenses, which was not contemplated in the 1999 Standard
Reinsurance Agreement. One reinsured company recommended that data
regarding premium rates and workload requirements be published before
changes are made. Another reinsured company stated that support could
not be provided without knowledge of rate increases. This commenter
also indicated that multiple causes of loss often occur, and,
therefore, it would be nearly impossible to identify damage by cause
and limit replant payments to excess moisture, hail, or blowing sand or
soil.
Response: Additional premium must be charged to provide replanting
coverage because this increases the risk of loss and is not included in
the premium rate. Loss adjustment workload for reinsured companies may
increase due to this provision. However, costs would be recouped
through the additional administrative subsidies as a result of higher
premium. The proposed rule limited the causes of loss on which
replanting payments would be provided in an effort to limit loss
exposure and subsequent impact on premium rates. Based on the negative
comments, FCIC has elected not adopt the proposal, and no replanting
payment will be provided for the 1999 crop year.
Comment: A producer association stated that the 25 percent
deductible in price that must be met before cotton is eligible for
quality adjustment is too high to be useful. The commenter recommended
that quality adjustment be based on physical standards, and FCIC
establish a base quality as is done with grains with a trigger of not
greater than 5 percent adopted. The commenter stated that the quality
adjustment procedure should not be changed unless the proposal is
modified substantially. The commenter also recommended that FCIC adopt
a procedure that does not penalize a producer's APH yield as a result
of quality adjustment. A reinsured company stated that without knowing
specific plans for rate increases, the proposal could not be endorsed.
Response: FCIC must apply a premium rate increase if the quality
adjustment deductible is lowered. Calculating the quality adjustment
factor using any reduction in value due to damage will increase
indemnities, and FCIC has determined that if it adopted the trigger
suggested, a premium rate increase of approximately 5 percent would be
required to compensate for the potential increase in losses. FCIC
concurs with the recommendation that the quality adjustment for cotton
and ELS cotton be based on physical standards; however, this requires a
detailed study to evaluate the appropriate cotton classification
factors for quality adjustment, the deductible to apply, and to measure
the effect on premium rates. FCIC cannot adopt the recommendation that
cotton producer's APH yields should not reflect production to count
after quality adjustment. For all crops that permit a quality
adjustment, a producer's yield is reduced due to quality adjustment for
indemnity purposes, and the yield reduction is retained in the
producer's production history. Cotton should not be an exception. If
the crop insurance program is to be actuarially sound, the producer's
production history must reflect all indemnities paid, including losses
due to quality adjustments. Based on the negative comments, FCIC has
elected not to adopt the proposed change to quality adjustment, and the
quality adjustment determination will remain the same as that available
for the 1998 crop year. However, FCIC will work with the industry to
explore alternatives to the current quality adjustment determination.
Comment: A cotton producer association stated that an analysis
comparing preplanting costs shows that cotton should have a prevented
planting percentage comparable to corn. The commenter stated that
deducting preplanting costs from the prevented planting payment for
each commodity shows that cotton producers fare considerably worse than
either corn or soybean growers, even if cotton producers receive the
proposed 50 percent coverage level, and the inequity is believed
greater when premiums are deducted. The commenter stated that this
analysis indicates that the soybean prevented planting percentage
should be less than cotton and corn and questioned why soybeans were
not included in the Economic Research Service (ERS) study. The
commenter also expressed opposition to the provision that prohibits
planting a substitute crop on prevented planting acreage. The commenter
stated that elimination of the substitute crop provision penalizes
Southern producers who have more numerous cropping alternatives than
producers in the Midwest. The commenter recommended that FCIC raise the
cotton prevented planting coverage level to 60 percent and allow a non-
insurable ghost crop to be planted on the prevented planting acreage.
If these recommendations cannot be implemented with no additional cost
to the producer, the commenter asked that prevented planting coverage
become an option for cotton producers, and any premium reduction due to
the reduced coverage be credited.
Response: FCIC has found that the evidence does not support an
increase in the cotton prevented planting percentage to 60 percent.
Prevented planting coverage levels should be based on estimated
preplanting costs for a crop, and not on equivalency to the coverage
level for other crops. An increase to the 50 percent rate of payment
for prevented planting of cotton is consistent with the basis on which
prevented planting payment rates have been established for other crops.
An adjustment will be made in premium rates for cotton to reflect this
higher value. However, this increase will be proportional to the
increase in coverage, i.e., the cost for the prevented planting
component of the premium rates will increase by approximately 11
percent, or 0.1 percentage point. This higher rate of payment should
not affect the frequency with which prevented planting would occur. The
commenter raised an issue of including crop insurance premium costs in
the preplanting expenses that are analyzed to determine the rates of
payment for prevented planting. Premium is based on the risk associated
with the crop, not the cost associated with planting the crop.
Prevented planting is only intended to cover costs associated with
planting. This issue is interrelated with the issue of the overall
level of cotton premium costs relative to other crops, an issue that
also was raised by commenters (see below). FCIC has committed to work
with interested parties in a detailed review of premium rates for
cotton. FCIC did not request ERS to ignore soybeans in the study of
prevented planting payment rates. The reason soybeans were not included
cannot be determined. History has shown that prevented planting cannot
be provided as an option. This would be inconsistent with the prevented
planting requirement mandated by the Federal Crop Insurance Act. FCIC
removed the substitute crop provision because it discovered that
producers could receive benefits for the crop year that exceeded their
income received for the crop year if the crop produced the approved
yield. This is not the intent of crop insurance. Therefore, for 1998
and
[[Page 66717]]
subsequent crop years, the substitute crop provision was removed from
all prevented planting provisions.
Comment: Two producer associations expressed concern that cotton
premiums substantially exceed other major commodities relative to risk
exposure and the level of coverage provided. One commenter stated that
prior to the Federal Crop Insurance Reform Act of 1994, most cotton
producers chose not to participate in the crop insurance program.
Therefore, the actuarial tables prior to 1995 reflect a very
unrepresentative pool of cotton insurance participants. The commenter
stated that the rating models used by FCIC should reflect the much
larger pool of cotton insurance participants since 1995, which would
result in significantly lower premiums for cotton producers. One
commenter opposed implementation of the proposed rule if the changes
result in any increase in premium costs for cotton producers and
suggested that each of the proposed changes be made optional coverage.
A reinsured company expressed concern that the proposed changes are not
beneficial enough to warrant any additional premium.
Response: FCIC recognizes that many cotton producers believe
premium rates for cotton to be inequitably high for that crop. FCIC
traditionally has based premium rates on its experience in each county.
However, improvements to crop varieties, such as resistance to disease
and insects, changes to cropping patterns due to ``freedom to farm,''
and other changes may be rendering some experience to be unreliable as
a predictor of potential future losses. The Federal Crop Insurance Act
directs FCIC to charge premiums that are adequate to pay expected
losses and build a reasonable reserve. FCIC is reviewing its experience
for cotton to determine if it does in fact provide a basis to meet the
tests set forth in the law. If it does not, adjustments will be made as
appropriate. As stated above, FCIC has eliminated many of the proposed
provisions that would have raised premium rates. However, FCIC has
retained the 50 percent coverage because it concluded the benefits
outweigh the insignificant increase in premium.
In addition to the changes described above, FCIC has amended the
following ELS Cotton Crop Provisions:
1. Sections 10 (d) and (f)--Changed the ELS cotton price quotations
for prices ``A'' and ``B'' and the price used to adjust AUP cotton
harvested or appraised from acreage originally planted to ELS cotton
from the Weekly Cotton Market Review to the Daily Spot Cotton
Quotation. This publication more accurately reflects the value of the
ELS cotton.
Good cause is shown to make this rule effective upon filing for
public inspection at the Office of the Federal Register. This rule must
be effective prior to the November 30, 1998, contract change date to be
effective for the 1999 crop year. Therefore, public interest requires
that FCIC act immediately to make these provisions available.
List of Subjects in 7 CFR part 457
Crop insurance, Cotton.
Final Rule
Accordingly, as set forth in the preamble, the Federal Crop
Insurance Corporation amends 7 CFR part 457 as follows:
PART 457--COMMON CROP INSURANCE REGULATIONS
1. The authority citation for 7 CFR part 457 continues to read as
follows:
Authority: 7 U.S.C. 1506(1), 1506(p).
2. Sec. 457.104, section 11 of the crop provisions is revised to
read as follows:
Sec. 457.104 Cotton crop insurance provisions.
* * * * *
11. Prevented Planting
* * * * *
(b) Your prevented planting coverage will be 50 percent of your
production guarantee for timely planted acreage. If you have limited
or additional levels of coverage, as specified in 7 CFR part 400,
subpart T, and pay an additional premium, you may increase your
prevented planting coverage to a level specified in the actuarial
documents.
3. Sec. 457.105, section 10 of the crop provisions is revised to
read as follows:
Sec. 457.105 ELS Cotton Crop Insurance Provisions.
* * * * *
10. Settlement of Claim
* * * * *
(d) Mature ELS cotton production may be adjusted for quality
when production has been damaged by insured causes. Such production
to count will be reduced if the price quotation for ELS cotton of
like quality (price quotation ``A'') for the applicable growth area
is less than 75 percent of price quotation ``B.'' Price quotation
``B'' is defined as the price quotation for the applicable growth
area for ELS cotton of the grade, staple length, and micronaire
reading designated in the Special Provisions for this purpose. Price
quotations ``A'' and ``B'' will be the price quotations contained in
the Daily Spot Cotton Quotations published by the USDA Agricultural
Marketing Service on the date the last bale from the unit is
classed. If the date the last bale is classed is not available, the
price quotations will be determined when the last bale from the unit
is delivered to the warehouse, as shown on the producers account
summary obtained from the gin. If eligible for quality adjustment,
the amount of production to be counted will be determined by
multiplying the number of pounds of such production by the factor
derived from dividing price quotation ``A'' by 75 percent of price
quotation ``B.''
* * * * *
(f) Any AUP cotton harvested or appraised from the acreage
originally planted to ELS cotton in the same growing season will be
reduced by the factor obtained by dividing the price per pound of
the AUP cotton by the price quotation for the ELS cotton of the
grade, staple length, and micronaire reading designated in the
Special Provisions for this purpose. The prices used for the AUP and
ELS cotton will be the price quotations contained in the Daily Spot
Cotton Quotations published by the USDA Agricultural Marketing
Service on the date the last bale from the unit is classed. If the
date the last bale is classed is not available, the price quotations
will be determined when the last bale from the unit is delivered to
the warehouse, as shown on the producer's account summary obtained
from the gin. If either price quotation is unavailable for the dates
stated above, the price quotations for the nearest prior date for
which price quotations for both the AUP and ELS cotton are available
will be used. If prices are not yet available for the insured crop
year, the previous season's average prices will be used.
* * * * *
4. In Sec. 457.105 section 12 is revised to read as follows:
12. Prevented Planting
* * * * *
(b) Your prevented planting coverage will be 50 percent of your
production guarantee for timely planted acreage. If you have limited
or additional levels of coverage, as specified in 7 CFR part 400,
subpart T, and pay an additional premium, you may increase your
prevented planting coverage to a level specified in the actuarial
documents.
Signed in Washington, DC, on November 30, 1998.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 98-32155 Filed 11-30-98; 2:17pm]
BILLING CODE 3410-08-p
