[Federal Register Volume 64, Number 120 (Wednesday, June 23, 1999)]
[Rules and Regulations]
[Pages 33379-33385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15941]
[[Page 33379]]
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
7 CFR Part 457
Common Crop Insurance Regulations; Onion Crop Insurance
Provisions
AGENCY: Federal Crop Insurance Corporation, USDA.
ACTION: Final rule.
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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes
specific crop provisions for the insurance of onions. The intended
effect of this action is to provide policy changes to better meet the
needs of the insured by adding provisions that allow flexibility in
setting stage guarantees, allow optional units by section, section
equivalent or farm serial numbers, modify the termination date for one
county in Oregon and one county in Washington, and reduce the
production to count for ``damaged onions'' that are subsequently sold.
The changes will be effective for the 2000 and subsequent crop years.
EFFECTIVE DATE: June 23, 1999.
FOR FURTHER INFORMATION CONTACT: William Klein, Insurance Management
Specialist, Product Development Division, Federal Crop Insurance
Corporation, United States Department of Agriculture, 9435 Holmes Road,
Kansas City, MO, 64131, telephone (816) 926-7730.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be exempt for the purposes of
Executive Order 12866 and, therefore, has not been reviewed by the
Office of Management and Budget (OMB).
Paperwork Reduction Act of 1995
Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter
35), the collections of information in this rule have been approved by
the Office of Management and Budget (OMB) under control number 0563-
0053 through April 30, 2001.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act 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 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 UMRA.
Executive Order 12612
It has been determined under section 6(a) of Executive Order 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. The amount of work required of
the insurance companies will not increase because the information used
to determine eligibility 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.
Additionally, the regulation does not require any action on the part of
small entities than is required on the part of large entities.
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 for judicial
review of any determination made by FCIC 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.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review Initiative to eliminate unnecessary or duplicate
regulations and improve those that remain in force.
Background
On Thursday, February 18, 1999, FCIC published a notice of proposed
rulemaking in the Federal Register at 63 FR 46706-46708 to revise 7 CFR
457.135, Onion Crop Insurance Provisions, effective for the 2000 and
succeeding crop years.
Following publication of the proposed rule on February 18, 1999,
the public was afforded 45 days to submit written comments and
opinions. A total of 28 comments were received from 2 reinsured
companies, an insurance service organization, a producer association, a
county cooperative association, and an onion producer. The comments
received and FCIC's responses are as follows:
Comment: A reinsured company expressed concern the proposed
language for ``production guarantee'' states in part ``unless otherwise
specified in the Special Provisions'' and likewise the language in the
definition of ``unit division'' references type `` if the type is
designated in the Special Provisions.'' The company stated that these
references make it difficult to fully evaluate the proposed program.
The commenter suggests FCIC take steps to make its intent known on the
specifics of these issues.
Response: An important purpose of the Special Provisions is to
allow modification of certain terms of the policy when such terms are
not appropriate in certain counties because of farming practices used,
the topography, soil conditions, climate, or other factors that may
affect producers of the crop. This is especially important when a
single policy is used nationwide. In this case, the stages included in
the Crop Provisions are generally applicable to all areas but there may
be a location where such amounts are not appropriate. This is the same
for units by type. There are locations where such units are not
appropriate.
Comment: A reinsured company and an insurance service organization
[[Page 33380]]
expressed concern that the proposed language for the definition of
``Production Guarantee'' and the description of stages in Section 3 do
not provide enough stages for the crop. They recommend at least one to
two additional stages be added. They state that this would better
reflect the costs incurred by the producer and the applicable liability
in effect. Specifically, they propose a first stage of 20 percent for
seed onions and 40 percent for transplanted onions through the second
leaf. They point out that additional stages will result in more gradual
changes in the production guarantee. They also questioned why there is
a 10 percent difference between seeded onions (70 percent) and
transplanted onions (60 percent) in the second stage.
Response: FCIC believes that adding additional stages will not
benefit the onion program. When establishing stages and stage
guarantees, FCIC requested production costs from regions throughout the
country. The production cost data and other agronomic and insurance
considerations led FCIC to establish 3 stages rather than 2 or 4
stages, which were also considered. For seeded onions, data indicates a
20 percent production guarantee would probably be too low for most
regions of the country. The proposed stage structure in this rule most
accurately reflects the appropriate guarantees for most regions. By
allowing flexibility in stage percentage guarantees in the Special
Provisions, the percentage guarantee will take into account any
regional differences. The primary reason for distinguishing between
seeded and transplanted onions in the second stage (70 percent versus
60 percent) is that all transplanted onions are hand harvested. Hand
harvesting is more expensive than machine harvesting. Onion data in
budgets provided by agricultural colleges and our field offices
consistently show harvest and harvest related expenses are
approximately 40 percent for hand harvested production. With
approximately 60 percent of the production costs incurred through the
second stage, a 60 percent guarantee for onions that are hand harvested
is appropriate. Therefore, no change has been made.
Comment: A reinsured company and an insurance service organization
acknowledged providing for stage guarantees to be increased through the
Special Provisions is intended to allow for regional differences,
however, they expressed concern that allowing the stage percentages to
be increased in this manner may backfire. They contend that probably no
area will reduce the guarantee below 35 percent but they believe second
stages might be significantly increased, perhaps to as high as 90
percent for the Northeast. The reinsured company contended even
percentage guarantees as high as 70 percent in the second stage seem
excessive when considering the lower input costs a producer has when
the crop is lost early in that stage. In addition, the company stated
that these high percentages could render CAT coverage more attractive
and make it difficult to justify the purchase of buy-up coverage.
Response: While FCIC acknowledges the company's concern, allowing
flexibility in stage guarantees through the Special Provisions enables
FCIC to manage a diverse national program without creating multiple
crop insurance policies on the same crop. Changes will only be made if
justified by the cost data. The existing stages are also based on the
best available cost data. It is possible that such cost will be
incurred at different times during the stage depending on the producer
but it is impossible to tailor the program so narrowly. Therefore no
change has been made.
Comment: A grower association recommended that the definition of
``damaged onion production in section 1 include storage type onions
that do not grade 85 percent U.S. No. 1 Jumbo or Colossal. They
provided 5 years of data for a 5 county area that shows a pack out and
shipping percentage of over 80 percent for Jumbo and larger onions.
They claim that since the larger onions are much more profitable for
them than smaller onions, the latter should be considered ``damaged
onion production.'' Additionally, they recommended that the Special
Provision statements for both damaged onion production and stage
production guarantee percentages apply to only the five county area
because this area is a unique onion producing area with the ability to
track production.
Response: FCIC made a major improvement in the onion policy in 1998
when it went from ``field run'' to insuring only No. 1 onions. FCIC
will consider the 5 county area recommended by the commenter. If
sufficient data exists to justify a change, the Special Provisions in
any applicable area(s) can be revised accordingly. While the policy
definition of damaged production will not be changed based on the
recommendation covering a limited area of the country, this provision
could, as recommended by the onion grower's association, be modified in
the Special Provisions. When FCIC considers areas for modification of
the term ``damaged onion production'' through the Special Provisions,
it will evaluate all areas with the ability to provide complete
production and marketing data.
Comment: A reinsured company expressed concern with adding optional
units by section, section equivalent or FSA number to the onion crop
provisions due to the way the crop is handled, ie. when onions enter
the pack shed, the production is often commingled during the sorting
and packing process causing the production in many cases to lose its
identity after it leaves the field. The commenter expressed concern
that insureds may not maintain accurate production records making the
addition of optional units harder to administer and, therefore it may
not be in the long term best interest of the program.
Response: FCIC recognizes the concerns expressed. However, the
additional effort that is required of producers to keep the damaged
onion production separate does not warrant not allowing optional units
by section, section equivalent, or FSA number. All onion production is
routinely weighed prior to going into the pack shed and appraisals can
be made at that time. FCIC insures a number of crops, including fresh
market vegetables and sugar beets, that are delivered to a processor or
packer and are insured on an optional unit basis and have not
experienced significant problems with inability to determine production
to count on a unit basis. Optional units by section, section equivalent
or FSN is consistent with most other crops FCIC insures and provides
opportunities for producers who only grow one type and have not
previously qualified for optional units to now qualify for optional
units on a section basis. Therefore, no change has been made.
Comment: A reinsured company suggested rates will need to increase
substantially to address the accuracy of loss records that will result
from adding optional units. They believe any inaccuracy will likely
benefit the producer.
Response: FCIC disagrees the rates will need to increase
substantially due to the addition of optional units by section, section
equivalent or FSA number. As with other insurance policies, there will
be a modest increase in rates due to additional unit exposure. It
remains the insured's responsibility to timely report losses and
maintain records of production on a unit basis. When the program is
administered in a manner consistent with the crop policy and loss
procedures, which require timely loss adjustment, the greatest
[[Page 33381]]
potential for risk due to commingling of unit production will be
mitigated. In the event that commingling does occur, the optional units
will be combined into the basic unit from which they came. There will
be no benefit to the producer and therefore no change has been made.
Comment: A New York county cooperative association suggests that
while the addition of optional units by section, section equivalent or
FSN is a step in the right direction, in reality few if any onion
producers will be able to take advantage of the change because a
section is 640 acres and the average size onion farm in his county is a
little over 100 acres and no one in the entire State of New York farms
1280 acres of yellow onions. The association recommends that producers
be able to separately insure noncontiguous acreage that is 1 or more
miles apart.
Response: Based on producer and company requests, FCIC included
optional units by section in the proposed rule. It is not necessary to
have a full 1,280 acres (two 640 acre sections) to be eligible for two
optional units. To qualify for two optional units, the acreage planted
to onions simply needs to be located in two separate sections, section
equivalents or FSNs and meet the other unit division requirements.
There are no minimum acreage requirements for optional units. Allowing
optional units by section, section equivalent or FSN accomplishes the
same thing as if optional units based on non contiguous land more than
1 mile apart were allowed. Therefore, no change has been made.
Comment: A western onion growers' association recommended that
units be added for individual fields in addition to ownership, and
color (yellow, red, and white). They claim that most producers in their
association grow more than one field and could sustain significant
damage to a field in one area and be ineligible for compensation if
onions in another field offset the damage. The commenter states that
since premium is being paid over all the acres, compensation should be
based on the smallest feasible definable division, which would be an
individual field, ie. each field should stand on its own and premium
and loss compensation paid accordingly.
Response: This rule provides for optional units by section, section
equivalent or FSN, which will benefit producers represented by this
growers' association and others. Premium rates are established taking
into account the unit structure for a crop. Field-by-field insurance
would substantially increase rates, and could adversely affect program
integrity. Therefore no change has been made.
Comment: A New York county cooperative association expressed
dissatisfaction with the presence of stages in the onion crop policy.
The comment contends that stage percentage guarantees exist in only 6
other crop insurance policies. While New York stages were set higher
than the remainder of the country for this past crop year, the
commenter was concerned that FCIC could always revert to the lower
policy levels in the future. The commenter ``fundamentally rejects a
Staged Production Guarantee as being arbitrary and unfair * * * it
should either be in all policies or removed from all policies. * * *''
The commenter acknowledges that no other onion growing area has voiced
opposition to the stage guarantees, but believes this is the result of
onion producers in these areas not realizing how bad the MPCI policy is
and that, in general, the onion industry does not have a cohesive and
well financed lobby as do the program crops.
Response: Stages would not be appropriate for most row crops where
a majority of the costs are incurred early in the growing season.
Stages are generally utilized for high liability crops that have varied
production costs throughout the season, particularly late in the
season. Onions in most regions of the country have extensive production
costs during mid-season and high harvest costs. Removal of stages that
reflect cumulative production costs at various points during the season
would result in significant premium rate increases. Flexibility in
modifying stage guarantees through the Special Provisions is designed
to allow the onion program to fit regional differences. FCIC will not
lower the stage guarantee percentages unless they have cost of
production evidence that supports lower stage percentage guarantees.
Therefore, no change has been made.
Comment: A New York county cooperative association expressed
concern that a staged production guarantee increases the loss
threshold. The commenter believes that the statute requires a 50
percent production loss to qualify for CAT coverage. However, the
commenter argues that with a staged guarantee the loss deductible for
stage 1 is 82.5 percent and for stage 2, 65 percent and questions how
this is legally justified.
Response: Section 508(b)(2)(B) of the Federal Crop Insurance Act
specifically authorizes FCIC to reduce the indemnity paid that is
proportional to the out-of-pocket costs not incurred by the producer.
To accomplish this, the guarantees are adjusted to reflect costs not
incurred. Therefore, no change has been made.
Comment: A New York county cooperative association expressed
concern over the change in language in section 3(b)(1)(i), which the
commenter believes has extended the stage 1 to the 4th leaf with the
percentage of coverage remaining the same. The commenter believes that
this change ignores the realities of the New York onion producers who
have heavy front-end loaded production costs. Stage guarantees, the
commenter maintains, are totally inappropriate for onions in New York
and this change worsens an already bad provision in the policy.
Response: This rule did not affect when the second stage begins.
The second stage begins under both the current provisions and for the
proposed provisions with the emergence of the fourth leaf. The language
in the current provisions regarding the first stage reads * * * through
the emergence of the third leaf and the second stage begins with the
emergence of the fourth leaf. The proposed rule language regarding the
first stage reads * * * until the emergence of the fourth leaf and the
second stage thus begins with the emergence of the fourth leaf. The
only difference is between the words ``through'' and ``until'' which
were changed as a result of comments that this would make the provision
clearer. If the cost of production evidence is available to support an
even higher first stage for New York producers, FCIC will make that
percentage of coverage available for onion producers via the Special
Provisions.
Comment: A New York county cooperative association cites section
3(b)(2) which reads ``the second stage extends, for all onions, from
the end of the first stage until the acreage has been subjected to
topping and lifting.'' The association contends that the final stage is
of little value to New York onion producers, since ``this stage only
exists for 3 to 4 days in August when the onions are drying in the
field. The commenter states that since no farmer lifts and tops his
onions when it looks like rain storm, it is safe to assume New York
onion farmers will not collect 100 percent of this policy.'' The
commenter states this circumstance violates the statutory language and
intent of the program.
Response: FCIC disagrees that the third stage exists only for the
3-4 days while the onions are drying. Due to insurable damage, a
significant percentage of harvested onions may not grade number 1 and
consequently the
[[Page 33382]]
loss will result in an indemnity based on the final stage guarantee.
FCIC acknowledges New York onions are normally dried for a shorter
period of time than onions in other regions of the country. FCIC has
significantly increased New York's second stage production guarantee in
part to recognize the costs they have incurred up to harvesting the
onions. FCIC is unaware of any provision in this proposed rule that
violates either statutory language or the intent of the program.
Comment: A New York onion producer stated that as late as January,
1999, the New York onion producers were promised that stages, which
they consider to be outrageous and fraudulent, would be removed when
the Onion Crop Insurance Provisions proposed rule was published in the
Federal Register. They were ``shocked'' to learn stage guarantees
remained and that another key issue for them, production to count was
even worse than before. In their opinion, the proposed rule will even
further decrease the value of the MPCI onion policy. The commenter
states that this will only weaken the ``safety net,'' which Secretary
Glickman has repeatedly stated needs to be ``stitched stronger.''
Response: Stage guarantees are necessary in this policy in order to
protect the integrity of the program and allow for affordable premium
rates. Furthermore, there were no comments to the proposed rule from
outside New York requesting that stages be removed. Adding provisions
in section 1 to specify a different stage guarantee in the Special
Provisions clearly benefits New York onion producers who have provided
FCIC with cost data to justify higher first and second stage guarantees
than contained in the policy. Further, as stated above, the production
to count provisions have been greatly improved by allowing for quality
adjustments that will reduce the production to count when ``damaged
production'' as described in section 13(d) is subsequently sold. This
change will benefit all onion producers. Units by section, section
equivalent or FSN will also benefit New York onion producers who farm
in more than one section or FSN. On balance, the producer safety net
will be stronger under the amended onion policy than under the existing
policy.
Comment: An onion growers' association maintains the price election
is too low for their counties since outside of a loss year most of
their onions grade Jumbo or Colossal. They claim the 5 year Jumbo price
averaged $13.22 per cwt which translates to $8.22 for the producer.
They state that the Colossals typically command an even higher price.
The commenter argues that their price election for the 1999 crop year
is $5.00, thus the price election needs to be raised.
Response: FCIC establishes the price for onions through the
actuarial documents rather than in a regulation such as this. FCIC will
consider this information for the 2000 and future crop years. Any
change to the established price election for onion will be stated in
the actuarial documents.
Comment: A grower's association recommended the percentage stage
guarantees be raised in a five county area of the western United States
to better reflect the producer's cost of production and that supporting
stage language be slightly modified. They recommended that Stage 1
should be through the third leaf, and should have a guarantee of 60
percent. Further, the commenter suggested that the second stage should
be ``up to topping and lifting'' and should have a guarantee of 90
percent. They provided a Yellow Onion Data Sheet and pointed out their
stage guarantee recommendations are based on the land charge,
management, general overhead, and one-half of the operating capital
interest shifted into the first stage.
Response: FCIC welcomes producer data that helps establish the
appropriate stage guarantee percentages for the various areas. This
rule allows for stage percentage guarantees in the Special Provisions
to modify the Crop Provisions in cases where this is warranted and FCIC
will consider this information for future changes.
Comment: A western onion growers' association requested a more
timely disclosure of their options once a loss has occurred. They do
not believe that their agents and adjusters understand the policy
sufficiently to advise them on all of their options, particularly as to
whether to continue on with a damaged crop or to destroy the crop in
the present stage. The association contends extensive producer
investment requires the producer to be informed of all options.
Response: Producers, in an event of a loss, must be timely informed
of all their options. FCIC requires companies to train their agents and
loss adjusters and to provide a copy of the crop insurance provisions
to each insured. Section 3(c) of the Crop Provisions now specifies when
onions damaged in the first or second stage are deemed to be destroyed.
FCIC also intends to provide additional guidelines in the loss
procedures to further clarify when onions are deemed to have been
destroyed. This should assist producers with their decision whether to
continue to care for the crop.
Comment: A western onion growers' association asked for
clarification of the provisions in section 3(c) that address onions
damaged in the first or second stage to the extent that producers in
the area would not normally further care for the crop. They would like
to know how to determine when onions are ``deemed to be destroyed.''
Response: There are a number of criteria to be applied when
determining whether producers in the area would normally continue to
care for the crop. Such criteria includes whether the Extension Service
considers continued care to be a good farming practice, whether the
insured would make the same decision in the absence of insurance, etc.
This criteria will be included in the loss adjustment procedure.
Comment: A reinsured company expressed concern over how to handle a
peril that transcends stages, such as dry conditions that persist
through the growing season. The commenter stated that such perils cause
producer concern that they can never insure for the full value of the
crop.
Response: Section 3(c) of the Onion Crop Provisions addresses this
issue and states ``any acreage of onions damaged in the first or second
stage, to the extent that producers in the area would not normally
further care for the onions, will be deemed to have been destroyed even
though you may continue to care for the onions.'' It further reads that
the production guarantee for the acreage will not exceed the production
guarantee for the stage in which the damage occurred. This language
prevents insureds from continuing to care for a crop when it is not
practical to do so, simply to advance the stage guarantee. The intent
of the staged production guarantee is to generally cover the costs of
production up to the time the onions are lost and not provide an
indemnity for costs that have not been incurred. FCIC has routinely
used stage guarantees for those crops that normally incur significant
costs later in the growing season. Onions are another such crop and the
use of stages makes the onion policy more affordable and results in a
more manageable program. Therefore, no change has been made.
Comment: An insurance service organization expressed concern about
moving the termination date one month later for one county in Oregon
and one county in Washington. They claim that this results in different
cancellation and termination dates for these counties. The commenter
believes that this will
[[Page 33383]]
lead to difficulties. For example, transfers must be requested by the
cancellation date, but if the previous carrier terminates the policy
for non-payment of premium, the new carrier will have done a month's
work on the policy only to have it terminated. The commenter states
that the program is easier to administer when the cancellation and
termination dates are the same. They suggested that the solution to
avoid different cancellation and termination dates in these counties is
to move the spring acreage reporting date to mid-May instead of June
30, allowing 60 days between billing and termination.
Response: While it is easier to administer the program when the
cancellation and termination dates are the same, it is not always
feasible. Several options were considered to provide insureds with a
period of time greater than the current 30 days between billing and
termination in these counties. Changing the termination date was the
least disruptive. Several years ago the acreage reporting dates varied
for spring crops in these counties. At the request of the companies
operating in this area, a common acreage reporting date of June 30 was
established for spring crops in these counties. Currently no crops with
either a November 30 or December 31 cancellation date have an acreage
reporting date earlier than June 30. It would be more disruptive and
generate more work if there are separate acreage reporting dates.
Therefore, no change has been made.
Comment: An insurance service organization recommended changing one
of the criteria for replanting onions in section 11 from 7 percent of
the final stage production guarantee to perhaps 10 or 20 percent
because this would be easier to remember and easier for the loss
adjuster to figure. The commenter would also like to see the same
percentage for all or most crops. They also recommended minor language
changes in this section to avoid repetition.
Response: The percentage of the final stage production guarantee
(production guarantee in many crops) is based on the approximate cost
of replanting. Seven percent of the final stage production guarantee is
appropriate for onions. For lower liability crops, 10 or 20 percent may
be more appropriate. Standardizing these percentages for all crops
could result in a replant payment that is either too high or too low.
The provisions in section 11 were expanded to cover all the criteria
that must be considered when determining a replant payment. Previously,
field personnel were confused because part of the criteria for replant
payments was in the Basic Provisions and part in the Crop Provisions.
FCIC believes this language makes the onion replant provisions clear.
Therefore, no change has been made.
Comment: A New York county cooperative association takes exception
with the language in section 13(d) that reads when ``damage to
harvested or unharvested onion production exceeds the percentage shown
in the Special Provisions for the type, no production will be counted
for the unit or portion of a unit unless such damaged onion production
from that acreage is sold. The association expressed concern that, if
sold, the damaged onion production will be counted on a pound-per-pound
basis regardless of the quality. The commenter points out that based on
this language, any production grading less than number 1 including
undersized onions, if sold, are counted on a pound-per-pound basis. The
commenter suggests it would be more advantageous for the producer to
dump these onions than to sell them at a substantially lower price. The
commenter's short term solution is to either count number 1 onions
only, or if the onions were sold at less than the price election,
reduce the onion production to count by a quality adjustment factor
which would be derived by dividing the dollar per hundred weight sold
by the established market price.
Response: FCIC originally established this provision in response to
producers who stated that onions from fields that sustained damage
exceeding 50 percent that could not be separated in a cost effective
manner and consequently could not be sold. They stated the normal
practice is to destroy the onions in the field. Producers made the case
that under these circumstances no onion production should be counted
against them even though there were some undamaged onions in the field.
In implementing this concept, FCIC must not pay a full crop insurance
indemnity when producers harvest, sort, and sell the damaged onions.
Therefore, the first sentence of section 13(d) will not be changed.
However, FCIC accepts the commenter's recommendation to adjust the
production to count based on the price received for the damaged onion
production and has amended the second sentence in 13(d) as follows ``*
* * If sold, the hundred weight of production to be counted will be
adjusted by dividing the price received for the damaged onions by the
price election and multiplying the resulting factor times the hundred
weight sold.''
Comment: A New York county cooperative association contends
``production to count'' is a fundamental problem with this policy as
well as other MPCI policies. The association contends it violates the
statuary language and ``eviscerates'' the value of the indemnities. The
commenter further maintains no other policies, whether private crop
insurance or insurance for home, property, etc. contain a feature like
production to count, which subtracts what the policy is not covering
from what it is covering. They argue that the proposed onion policy
actually makes the production to count provision worse than it was in
the previous policy.
Response: FCIC has statutory requirements with respect to what
percent of the value it can insure. Section 508(c)(4) of the Federal
Crop Insurance Act (Act) authorizes FCIC to offer up to an 85 percent
coverage level. At this time FCIC limits onions to a 75 percent
coverage level. This results in a minimum deductible of 25 percent. If
there were no production-to-count provisions, the legally-required
deductible could be breached, resulting in the combined indemnity and
producer-sold production exceeding the total value of the crop. This
situation is called overinsurance. Even with homeowners and automobile
insurance, there is usually a deductible that must be met before an
indemnity is paid. In addition, a set value is placed on the home to
prevent overinsurance. FCIC has revised section 13(d) of the policy to
permit reduction of production to count for quality adjustment. This
process is used in many other crop policies.
Comment: A New York county cooperative association recommended a
modification to the way FCIC considers production-to-count. The
commenter suggested that FCIC only count the percentage of producer
``salvaged production'' that exceeds the deductible. Under this plan,
the production guarantee plus salvaged production could not exceed 100
percent of the approved actual production history (APH). The commenter
states that the advantage is that this would enable a producer to reach
100 percent of their APH approved yield in a disaster year. They state
that with expenses for growing onions consuming up to 60 percent of the
farmer's gross income, the crop insurance policy must count damage
towards the ``insured portion'' of the crop first. Further they claim
that, this way, a producer can be assured in the event of loss that he
will be able to at least cover all or a portion of his expenses, and
then assess how much risk he is willing to accept. The
[[Page 33384]]
commenter maintains the current crop insurance policy ``guarantees a
minimum loss'' if the producer collects on his insurance, because
salvaged production counts as production to count. They state that with
high production costs, producers do not need a ``guaranteed loss'' from
the government. The producer does acknowledge this concept might make
higher levels of coverage too expensive to offer but the commenter
believes that producers would be more willing to accept the possibility
of a loss from the weather rather than a guarantee of a loss from the
government.
Response: There is no authority to adopt this recommendation. Under
the Act, crop insurance only covers the loss in excess of the
producer's deductible. Therefore, the guarantee can not exceed more
than the coverage level times the APH. To operate a sound insurance
program all production that is sold must be included as production to
count. Under the policy as revised, all undamaged onions are included
as production to count and the total production of damaged onions as
defined in section 13(d), that are subsequently sold, are reduced by a
factor determined by dividing the price received by the price they
elected. Under the previous policy, such hundredweight of production
was counted on a pound-per-pound basis. This is certainly a benefit to
the producer.
Comment: A western onion growers' association recommended that the
provisions in section 13(d) be modified because it is unfair to count
all onions sold equally with no regard to reduction in price of the
damaged onions.
Response: As discussed above and as the comment recommended, FCIC
has amended the second sentence in 13(d) to allow adjustment of the
production to count based on the reduced price for damaged onions.
Comment: An insurance service organization expressed concern about
the language in section 13(d) that refers to ``* * * the percentage
shown in the Special Provisions for the type.'' The commenter
recognizes the language provides flexibility by type for geographical
areas, but believes it would be simpler if the factor for ``damaged
onions'' was standardized. In addition, the comment stated that loss
adjusters would be able to use the factors more correctly and
effectively if they were included in the crop's loss adjustment
standards. The commenter suggested the following language ``* * * no
production will be counted for that unit or portion of a unit if the
production is destroyed in a manner acceptable to us.'' The comment
stated that if the damaged production is sold, it would be counted on a
pound-per-pound basis.
Response: It is not practical to include a single factor for all
onions. The onion policy is used nationwide for different kinds of
onions. The percentage that applies for any area and type is based on
the percent of damage below which the onions normally cannot be sorted
and sold. The percentage shown in the Special Provisions must be
flexible to accommodate different situations. As stated above, FCIC has
revised the provision regarding sold damaged production to permit a
quality adjustment.
Comment: An insurance service organization recommended the
prevented planting guarantee be changed to 30 percent of the final
stage production guarantee for timely planted acreage instead of the
current 45 percent. They contend that since the first stage guarantee
for a loss is 35 percent, it doesn't seem appropriate to pay more than
that for not planting. The commenter also questions whether the last
sentence ``Additional prevented planting coverage levels are not
available for onions'' is necessary. Instead, they recommend removing
the current sentence that increased levels may be allowed in the
actuarial documents. The commenter further recommends that the
prevented planting guarantee should be based on a set dollar amount
shown in the Special Provisions for all crops with prevented planting
coverage. They contend that eligibility would be determined by
subtracting this year's actual prevented planted acres for all
insurable crops from the highest number of all insurable planted acres
by crop year in the four prior Actual Production History (APH) years.
Response: When the prevented planting provisions were revised for
the 1998 crop year, all preventing planting levels were raised 10
percent for the applicable crops including onions, which was raised
from 35 percent to 45 percent. FCIC determined not to reduce the basic
prevented planting coverage for onions, but determined that buy-up
prevented planting (up to 55 percent of the final stage production
guarantee) was not appropriate based on the economics of onions. Since
other crops allow buy-up prevented planting, the last sentence in
section 14 makes it clear that buy-up prevented planting is not
available for onions. The commenter's recommendation to modify the way
eligible prevented planting acreage is determined will be considered.
However, not all crops are based on APH and basing a prevented planting
payment on all insured crops, verses a single crop, would meet producer
opposition. Therefore, no change has been made.
Comment: A New York county cooperative association cites the
proposed rule language that reads in part ``the intended effect of this
action (Onion Crop Insurance Provisions Proposed Rule) is to modify the
existing policy so that it is actuarially sound and better meets the
needs of the insureds.'' The association contends that the President
and lawmakers have used the ``actuarially sound'' requirement as a
justification to write valueless policies, and as a result the proposed
onion policy changes do not meet the needs of insured onion producers.
Response: Foremost, the Federal Crop Insurance program is an
insurance program. Therefore, the premium charged must cover the
anticipated losses. FCIC must balance the need to create an affordable
program with the need to provide meaningful coverage. This rule makes
major strides toward meeting the needs of New York and other onion
producers, by allowing flexibility in setting stage guarantees, adding
optional units by section, section equivalent or FSN, and reducing the
production to count by allowing a quality adjustment for ``damaged
onions'' that are subsequently sold. We note that an actuarially sound
policy includes a government subsidy approaching 50 percent. Since,
overall indemnities paid by the Corporation exceed the premium paid by
the producer, the program is hardly valueless.
Comment: A New York county cooperative association recommended an
adjustment to the approved APH yield process. They recommended that if
a county has been officially declared a disaster area, producers should
be allowed to use the county average instead of their actual yield.
They also suggested that with the disaster designation, the drop in the
county yield should be cupped at 10 percent. They claim that this would
lessen the effect of successive disaster years. The commenter states
that under the current APH rules the producer's APH continues to drop
drastically resulting in producers being unable to purchase an adequate
amount of insurance.
Response: Actual Production History (APH) regulations are published
at 7 C.F.R. Subpart G. Changes to APH cannot be considered in this
regulation. Therefore, no change has been made in the Onion Crop
Insurance Provisions.
In addition to the changes described above, FCIC has made minor
editorial changes.
[[Page 33385]]
Good cause is shown to make this rule effective upon publication in
the Federal Register. This rule must be effective prior to the June 30
contract change date to be effective for the 2000 crop year. Therefore,
public interest requires the agency to act immediately to make these
provisions available.
List of Subjects in 7 CFR Part 457
Crop insurance, Onion.
Final Rule
Accordingly, as set forth in the preamble, the Federal Crop
Insurance Corporation amends the Common Crop Insurance Regulations (7
CFR part 457) by amending 7 CFR 457, for the 2000 and succeeding crop
years, to read 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(l), 1506(p).
2. Revise the introductory text to section 457.135 to read as
follows:
Sec. 457.135 Onion Crop Insurance Provisions.
The onion crop insurance provisions for the 2000 and succeeding
crop years are as follows:
* * * * *
Sec. 457.135 Onion Crop Insurance Provisions.
a. Amend section 1 of the Onion Crop Provisions to add definitions
for ``direct seeded'' and ``transplanted'' and to revise the definition
of ``production guarantee (per acre)'' as follows:
1. Definitions.
* * * * *
Direct seeded. Placing onion seed by machine or by hand at the
correct depth, into a seedbed that has been properly prepared for
the planting method and production practice.
* * * * *
Production Guarantee (per acre):
(a) First stage production guarantee--Thirty-five percent (35%)
of the final stage production guarantee for direct seeded storage
and non-storage onions and 45 percent of the final stage production
guarantee for transplanted storage and non-storage onions, unless
otherwise specified in the Special Provisions.
(b) Second stage production guarantee--Seventy percent (70%) of
the final stage production guarantee for direct seeded storage
onions and 60 percent of the final stage production guarantee for
transplanted storage onions and all non-storage onions, unless
otherwise specified in the Special Provisions.
* * * * *
Transplanted. Placing of the onion plant or bulb, by machine or
by hand at the correct depth, into a seedbed that has been properly
prepared for the planting method and production practice.
* * * * *
b. Revise Section 2 of the Onion Crop Provisions to read as
follows:
2. Unit Division.
In addition to, or instead of, establishing optional units as
provided in section 34 of the Basic Provisions, optional units may
be established by type, if the type is designated in the Special
Provisions.
* * * * *
c. Revise sections 3(b)(1) and (2) of the Onion Crop Provisions to
read as follows:
3. Insurance Guarantees, Coverage Levels, and Prices for
Determining Indemnities.
* * * * *
(b) * * *
(1) First stage extends:
(i) For direct seeded storage and non-storage onions, from
planting until the emergence of the fourth leaf; and
(ii) For transplanted storage and non-storage onions, from
transplanting of onion plants or sets through the 30th day after
transplanting.
(2) Second stage extends:
(i) For direct seeded storage and non-storage onions, from the
emergence of the fourth leaf; and
(ii) For transplanted storage and non-storage onions, from the
31st day after transplanting.
* * * * *
d. Revise section 5 of the Onion Crop Provisions to read as
follows:
5. Cancellation and Termination Dates.
In accordance with section 2 of the Basic Provisions, the
cancellation and termination dates are:
------------------------------------------------------------------------
State & County Termination Date Cancellation Date
------------------------------------------------------------------------
All Georgia Counties; Kinney,..
Uvalde, Medina, Bexar, Wilson,.
Karnes, Bee, and San Patrico
Counties,.
Texas, and all Texas Counties August 31........ August 31.
lying south thereof..
Umatilla County, Oregon; and
Walla.
Walla County, Washington....... August 31........ September 30.
All other states and counties.. February 1....... February 1.
------------------------------------------------------------------------
e. Revise section 11(b) of the Onion Crop Provisions to read as
follows:
11. Replanting Payment.
* * * * *
(b) The maximum amount of the replanting payment per acre will
be your actual cost for replanting, but will not exceed the lesser
of:
(1) 7 percent of the final stage production guarantee multiplied
by your price election for the type originally planted and by your
insured share; or
(2) 18 hundredweight multiplied by your price election for the
type originally planted and by your insured share.
* * * * *
f. Revise section 13(d) of the Onion Crop Provisions to read as
follows:
13. Settlement of Claim.
* * * * *
(d) If the damage to harvested or unharvested onion production
exceeds the percentage shown in the Special Provisions for the type,
no production will be counted for that unit or portion of a unit
unless such damaged onion production from that acreage is sold. If
sold, the hundredweight of production to be counted will be adjusted
by dividing the price received for the damaged onion production by
the price election and multiplying the resulting factor times the
hundredweight sold.
* * * * *
g. Revise section 14 of the Onion Crop Provisions to read as
follows:
14. Prevented planting.
Your prevented planting coverage will be 45 percent of your
production guarantee for timely planted acreage. Additional
prevented planting coverage levels are not available for onions.
Signed in Washington, D.C., on June 18, 1999.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 99-15941 Filed 6-22-99; 8:45 am]
BILLING CODE 3410-08-P
