Tobacco (Quota Plan) Crop Insurance Regulations; and Common Crop Insurance Regulations; Quota Tobacco Crop Insurance Provisions

DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Parts 435 and 457

RIN 0563-AB47

Tobacco (Quota Plan) Crop Insurance Regulations; and Common Crop

Insurance Regulations; Quota Tobacco 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 quota tobacco. The

provisions will be used in conjunction with the Common Crop Insurance

Policy, Basic Provisions, which contain standard terms and conditions

common to most crops. The intended effect of this action is to provide

policy changes to better meet the needs of the insured, include the

current tobacco (quota plan) crop insurance regulations with the Common

Crop Insurance Policy for ease of use and consistency of terms, and to

restrict the effect of the current tobacco (quota plan) crop insurance

regulation to the 1998 and prior crop years.

EFFECTIVE DATE: July 27, 1998.

FOR FURTHER INFORMATION CONTACT: Gary Johnson, Insurance Management

Specialist, Research and Development, 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 for this rule have been approved by

the Office of Management and Budget (OMB) under control number 0563-

0053 through October 31, 2000.

Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public

Law 104-4, 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. Thus, 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 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 included in this

rule will not impact small entities to a greater extent than large

entities. Under the current regulations, a producer is required to

complete an application and acreage report. If the crop is damaged or

destroyed, the insured is required to give notice of loss and provide

the necessary information to complete a claim for indemnity.

The amount of work required of insurance companies delivering and

servicing these policies will not increase significantly from the

amount of work currently required. The rule does not have any greater

or lesser impact on the producer. 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 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 duplicative

regulations and improve those that remain in force.

Background

On Tuesday, May 13, 1997, FCIC published a notice of proposed

rulemaking in the Federal Register at 62 FR 26248-26252 to add to the

Common Crop Insurance Regulations (7 CFR part 457), a new section, 7

CFR 457.156, Quota Tobacco Crop Insurance Provisions. The new

provisions will be effective for the 1999 and succeeding crop years.

These provisions will replace and supersede the current provisions for

insuring quota tobacco found at 7 CFR part 435 (Tobacco (Quota Plan)

Crop Insurance Regulations). FCIC also amends 7 CFR part 435 to limit

its effect to the 1985 through 1998 crop years.

Following publication of the proposed rule, the public was afforded

30 days to submit written comments and opinions. A total of 510 signed

petitions were received from North Carolina and Virginia tobacco

producers, and 88 comments were received from an insurance service

organization and reinsured companies. The comments received and FCIC's

responses are as follows:

Comment: Two reinsured companies and an insurance service

organization recommended that the definition of ``amount of insurance''

be revised to read, ``the dollar amount determined by multiplying the

insured poundage quota by the current year's support price or the

percentage of the current year's support price you select.'' This

revision addresses the possibility of insureds selecting price

elections of less than 100 percent.

Response: FCIC agrees with the comment and has amended the

definition accordingly. FCIC also has revised this definition to

address the possible reduction in the amount of

[[Page 34779]]

insurance for late planted acreage in accordance with section 14.

Comment: An insurance service organization recommended that FCIC

either revise or delete the definition of ``approved yield.'' The

commenter mentioned that since quota tobacco currently is not an Actual

Production History (APH) crop, the definition will be questioned by

insureds who do not receive a copy of the Code of Federal Regulations

with their crop insurance policies.

Response: ``Approved yield'' is referenced in section 3 of the crop

provisions, so it must be defined. Section 3 clearly indicates that an

approved yield is not necessary unless required by the Special

Provisions. As written, if the FSA quota tobacco support price program

is discontinued and quota tobacco becomes an APH crop in the future,

the Special Provisions could be amended easily to require an approved

yield. Therefore, no changes have been made.

Comment: A reinsured company and an insurance service organization

made the following recommendations to revise the definition of

``effective poundage marketing quota'': (1) Remove the words ``minus

the amount of any carryover tobacco'' because crop insurance is

designed to cover the tobacco crop actually grown the current crop

year, and the restriction of yield times acres in the definition of

``insured poundage quota'' would take care of any allowance the

producer made for carryover tobacco; (2) Clarify whether any additional

poundage the producer intends to produce must be leased or if it can be

grown without any marketing quota; (3) Add language to the definition

of ``effective poundage marketing quota'' from section 7(b), which

states that effective poundage marketing quota may not include any

tobacco that would be subject to a marketing quota penalty under the

United States Department of Agriculture (USDA) Tobacco Marketing Quota

Regulations; and (4) Revise the definition to exclude the word

``county'' because the farm marketing quota is established by the Farm

Service Agency (FSA) on a Farm Serial Number (FSN) basis.

Response: (1) Although, producers will normally reduce the number

of acres grown in the current crop year to account for carryover

production from the prior years, they may instead elect to reduce

inputs (fertilizer, etc.), thereby producing fewer pounds per acre. To

maintain the appropriate relationship between the number of planted

acres and the effective poundage marketing quota, the amount of any

carryover production should be removed from the effective poundage

marketing quota. Therefore, no change has been made. (2) FCIC agrees

with the recommendation and has clarified the definition of ``effective

poundage marketing quota'' to include any additional (above quota)

poundage as allowed by the USDA Tobacco Marketing Quota Regulations.

Under current (FSA) procedures, a minimal percentage of additional

poundage is allowed to be marketed. (3) FCIC agrees and has revised the

definition of ``effective poundage marketing quota'' accordingly. (4)

The definition has been clarified to refer to the FSA office for the

county and the effective poundage marketing quota for the FSN.

Comments: A reinsured company and an insurance service organization

expressed concerns with the definition of ``good farming practices,''

which makes reference to ``cultural practices generally in use in the

county * * *'' recognized by the Cooperative State Research, Education,

and Extension Service as compatible with agronomic and weather

conditions in the county.'' The commenters questioned whether cultural

practices exist that are not necessarily recognized (or possibly not

known) by the Cooperative State Research, Education, and Extension

Service. The commenters also indicated that the term ``county'' in the

definition of ``good farming practices'' should be changed to ``area.''

Response: FCIC believes that the Cooperative State Research,

Education, and Extension Service (CSREES) recognizes farming practices

that are considered acceptable for producing quota tobacco. If a

producer is following practices currently not recognized as acceptable

by CSREES, there is no reason why such recognition cannot be sought by

interested parties. The term ``area'' is less definitive than the term

``county'' and would cause insurance providers to make determinations

more subjective in nature. Therefore, no change has been made in

response to this comment, except that the definition of ``good farming

practices'' has been moved to the Basic Provisions.

Comments: A reinsured company and an insurance service organization

recommended revising the definition of ``harvest'' to include a

requirement that at least 20 percent of the production guarantee must

be cut on each acre to qualify as harvested. Commenters also

recommended that a minimum appraisal of 35 percent of the amount of

insurance be established to encourage producers to harvest damaged

tobacco. In some cases, it will be difficult to verify unharvested

production due to deterioration of the leaves before the adjuster works

the final claim. The commenters believe that removal of these

requirements from the current crop provisions will result in a

significant increase in premium rates. Commenters expressed concern

that FCIC may have overreacted if the changes were made because of one

lawsuit.

Response: FCIC has determined that the requirement that at least 20

percent of the production guarantee be cut on each acre to qualify as

harvested and the 35 percent minimum appraisal for unharvested acreage

is too severe. Producers should not be forced to incur the costs

associated with harvesting tobacco acres that may not be marketable. In

addition, FCIC cannot ignore a court ruling that such provisions are

unenforceable. Therefore, no change has been made in the final rule

provisions.

Comments: A reinsured company and an insurance service organization

noted that the definition of ``harvest'' refers to the phrase

``removing tobacco from the field.'' They believe this is a

determination of when coverage ceases, which is already included in

section 9(c) of these provisions.

Response: Definitions are included in the crop provisions for

clarification of policy provisions. The definition of harvest is needed

because this term and its opposite ``unharvested'' are used repeatedly

in section 12 (Settlement of Claim) (redesignated as section 13). The

insurance period is defined in section 9 (redesignated as section 10).

When the crop is harvested does not solely determine when coverage

ceases. Therefore, no change has been made.

Comments: An insurance service organization asked why the phrase

``the average auction price * * *'' in the definition of ``market

price'' was changed to ``the previous years' season average price

published by National Agricultural Statistics Service * * *''

Response: The phrase was changed for clarification. In practice the

``average auction price'' has been interpreted consistently as the

previous years'' season average price published by National Agriculture

Statistics under the current crop provisions. Therefore, no change has

been made.

Comments: An insurance service organization recommended deleting

``marketing window'' from the definition of ``practical to replant.''

The commenters stated that quota tobacco is unlike other crops, such as

processor and fresh market crops, where the producer only has a certain

amount of time to market the crop.

Response: FCIC agrees that the concept of a ``marketing window'' is

[[Page 34780]]

most applicable to processor and fresh market crops and recognizes that

quota tobacco is unlike these crops. However, the Federal Agriculture

Improvement and Reform Act of 1996 mandated that FCIC consider

marketing windows in determining whether it is feasible to require

planting during a crop year. Therefore, no change has been made, except

that the definition of ``practical to replant'' has been moved to the

Basic Provisions.

Comments: A reinsured company and an insurance service organization

expressed concern about the terms ``replace'' and ``replacing'' in the

definition of ``replanting.'' Commenters stated that the terms, as

used, seem awkward and cumbersome.

Response: FCIC believes that the definition of ``replanting''

clearly describes the steps required to replant the crop. However, FCIC

has replaced the phrase ``growing a successful tobacco crop'' with

``producing at least the quota,'' for clarity.

Comments: An insurance service organization recommended that the

definition of ``support price'' be amended to read ``type 31 tobacco''

since type 31 is the only type of tobacco that is insurable under these

provisions.

Response: FCIC believes that the definition is clearly stated. The

term ``type'' is written for the flexibility of insuring other types of

tobacco if designated in the Special Provisions.

Comment: A reinsured company and an insurance service organization

recommended moving the definition of ``unit'' to section 2 for

consistency.

Response: All policy definitions are contained in section 1 for

uniformity. Therefore, no change has been made in this regard. FCIC has

changed the term ``unit'' to ``Basic Unit,'' however, to conform to

recent changes in the Basic Provisions.

Comments: An insurance service organization and 510 growers

recommended that the unit division guidelines of these provisions be

the same as currently specified for Guaranteed Tobacco. Those

provisions define basic units by share and optional units by Farm

Serial Number (FSN). Commenters believe that this change would resolve

the current conflict between basic units (by share) as defined for

Catastrophic Risk Protection (CAT) and basic units (by FSN) for buy-up

policyholders.

Response: FCIC acknowledges that adopting the unit division rules

contained in the Common Crop Insurance Policy for quota tobacco would

resolve the conflict between unit definition for catastrophic coverage

and additional coverage that now exists. However, the current unit

definition for quota tobacco was adopted beginning with the 1985 crop

year to resolve a vulnerability that exists in this program. Prior to

that time, units were defined similarly for guaranteed and quota

tobacco. Consider a landlord who share rents a portion of the quota to

a tenant and also produces quota tobacco on the Farm Serial Number

(FSN). Under the basic unit definition of the Common Crop Insurance

Policy, two basic units are established for the landlord (a 100 percent

share and the share with the tenant). One basic unit is established for

the tenant. Under the definition contained in the Quota Tobacco Crop

Provisions, one basic unit is established for each producer by FSN.

The insured quantity under these provisions is the insured

marketing quota, a quantity that is independent of acreage if a

sufficient number of acres are planted. Premium is charged only on the

amount of insured marketing quota. Under the ``Basic unit'' definition

contained in the Quota Tobacco Crop Provisions, the landlord's share of

all production from the FSN is counted against the landlord's share of

the quota. Under the ``Basic unit'' definition contained in the Common

Crop Insurance Provisions, there is greater opportunity to plant

additional acreage and manipulate production within the FSN so that the

entire quota may be produced and sold, yet a loss be paid on one unit.

However, premium will not be collected on the additional acreage.

Due to a large number of comments on this particular issue, FCIC

will review any additional information that may support a different

approach to establishing units for quota tobacco. All such information

must specifically address the concern described herein and demonstrate

how it will be alleviated by the proposed unit definition. Pending the

submission of such information, FCIC will implement the basic unit

definition contained in the proposed rule and will consider any changes

at such date as the information may be available. If warranted, the

unit definition can be changed for the 2000 or a subsequent crop year.

Comment: A reinsured company and an insurance service organization

recommended removing any references to ``annual production reports''

for the APH plan. The commenters contend that if the FSA quota tobacco

support program is changed or eliminated, it will be necessary to

revise several provisions of the policy.

Response: Section 3 of these provisions requires annual production

reports only when required by the Special Provisions. The current

method of establishing farm yields will continue for the 1998 crop

year. If the quota tobacco support price program is discontinued or

modified in future years, these provisions provide an alternative

method for establishing the production guarantee. Therefore, no change

has been made. However, FCIC has amended the definition of ``support

price'' to include the possibility that the tobacco support program may

be changed. If there is no tobacco support program, FCIC will announce

the average price per pound for the type of tobacco.

Comments: A reinsured company and an insurance service organization

recommended deleting the word ``carryover'' in section 6(a). Commenters

stated that the basic premise of multiple peril crop insurance coverage

is to insure actual planted acreage of the crop. Subtracting the

carryover poundage would take coverage away from a planted crop which

is legally insurable (i.e., the carryover poundage has value and is

exposed to perils). This could have additional unwanted consequences by

making the insurance providers responsible for tracking and placing

value on carryover poundage.

Response: Although producers normally reduce the number of acres

grown in the current crop year to account for carryover production from

the prior year, they may instead elect to reduce inputs (fertilizer,

etc.), thereby producing fewer pounds per acre. Further, to maintain

the appropriate relationship between the number of planted acres and

the effective poundage marketing quota, the amount of any carryover

production should be removed from the effective poundage marketing

quota. Therefore, no change has been made.

Comments: A reinsured company and an insurance service organization

recommended that section 6(a) be revised to remove the phrase, ``once

submitted, you may not revise the acreage report,'' because section

6(c), now 6(d), of the Basic Provisions already states, ``* * *you may

not revise this report after the acreage reporting date without our

consent.'' The commenter inquired about the impact of changes in

information between the time an acreage report is submitted and the

actual acreage reporting date. The commenter stated that, if this

sentence remains in the crop provisions, tobacco insureds will wait

until the last day to report acreage.

Response: FCIC agrees that section 6(d) of the Basic Provisions is

adequate and has deleted this language from the Crop Provisions.

[[Page 34781]]

Comments: A reinsured company and an insurance service organization

recommended revising section 7(a) to read ``type 31 tobacco designated

in the Special Provisions, in which you have a share.'' Commenters

noted that the current quota policy refers to only type 31 tobacco.

Response: FCIC agrees that the current quota tobacco policy only

refers to type 31 tobacco. However, section 7(a) (redesignated as

section 8(c)) is intended to allow the flexibility of insuring other

types of tobacco if they are designated in the Special Provisions.

Therefore, FCIC has not revised section 7(a). FCIC has changed section

12(d) (redesignated as section 13(d)) to refer to ``U.S. Official

Standard Grades for the insured type of tobacco,'' rather than ``U.S.

Official Standard Grades, Burley Tobacco, U.S. Type 31,'' for

consistency.

Comments: A reinsured company and an insurance service organization

asked if the provisions in section 8(c) are intended to allow written

agreement requests for a type not rated in the actuarial documents.

Response: Section 8(c) (redesignated as section 9(c)) only

references a method of planting. Therefore, section 9(c) does not

authorize written agreements for types not rated.

Comments: A reinsured company and an insurance service organization

questioned why section 9(a) is not as precise as section 11(a) of the

Basic Provisions, which specifies ``total destruction * * * on the

unit.''

Response: FCIC has revised section 9(a) (redesignated as section

10(a)) to refer to total destruction of the tobacco on the unit.

Comment: A reinsured company and an insurance service organization

asked if the current requirement that notice be given without delay if

any tobacco is damaged and will not be sold through an auction

warehouse was removed intentionally from section 11.

Response: Section 14(a)(2) of the Basic Provisions states ``* *

*you must * * *give us notice within 72 hours of your initial discovery

of damage* * *'' FCIC believes this requirement is substantially the

same as requiring a notice ``without delay,'' so the latter requirement

of section 11 was removed in the proposed rule.

Comment: Two reinsured companies and an insurance service

organization recommended that section 12(b)(1) reference price

elections less than 100 percent of the support price. The commenters

indicated that the language as written could be taken to mean that the

insured poundage quota will be multiplied by 100 percent of the support

price even for CAT policies.

Response: FCIC agrees with the recommendation and has amended

section 12(b)(1) (redesignated as section 13(b)(1)) to read

``multiplying the insured poundage quota by your elected percentage of

the current year's support price.''

Comments: Two reinsured companies and an insurance service

organization recommended the following: (1) Add the word ``resulting''

in section 12 (b)(2); and (2) Remove the reference to ``section

12(b)(2)'' from section 12(b)(3) because it is not necessary to

reference the previous item by number.

Response: The recommendations do not add any additional

clarification to the provision. Therefore, no changes have been made.

Comments: Two reinsured companies and an insurance service

organization recommend removing the words ``acceptable production

records'' from section 12(c)(1)(D), if these words relate to other APH

references in these provisions.

Response: As stated in earlier responses, section 12(c)(1)(D)

(redesignated as section 13(c)(1)(D)) will only apply if annual

production reports are required by the Special Provisions, and the

provision has been so clarified.

Comments: Two reinsured companies and an insurance service

organization expressed concern that section 12(c)(1)(iii) of these

provisions allows the insured to defer settlement and wait for a later,

generally lower appraisal.

Response: Section 12(c)(1)(iii) (redesignated as section

13(c)(1)(iii)) allows deferment of a claim only if the insurance

provider agrees that representative samples can be left or if the

insured elects to continue to care for the entire crop. In either case,

if the insured does not provide sufficient care for the remaining crop,

appraisals for uninsured causes of loss may be made. Therefore, no

change has been made.

Comments: Two reinsured companies and an insurance service

organization expressed concern that there are no instructions in

section 12(c) and (d) on how to value appraised production.

Response: Section 12(c)(1)(iv) (redesignated as section

13(c)(1)(iii)(A)) has been rewritten to more clearly specify the

valuation of harvested and appraised production.

Comments: Two reinsured companies and an insurance service

organization opposed any reference to the word ``carryover'' in section

12(h).

Response: Section 12(h) (redesignated as section 13(h)) eliminates

the adjustment of next year's quota when the insurance provider agrees

that any carryover or current years' tobacco has no market value due to

an insured cause of loss. It also eliminates the opportunity to falsely

report that carryover and current years' tobacco has no value and thus

increase the indemnity payment. This provision is consistent with FSA's

requirement that tobacco having no value be destroyed. Therefore, no

change has been made.

Comments: Two reinsured companies and an insurance service

organization suggested that requiring a written agreement to be renewed

each year should be removed in section 14(d). Terms of the agreement

should be stated in the agreement to fit the particular situation for

the policy, or if no substantive changes occur from one year to the

next, allow the written agreement to be continuous.

Response: Written agreements are temporary and intended to address

unusual situations. If the condition creating a need for written

agreement remains from year to year among producers it should be

incorporated into the policy, the Special Provisions, or the actuarial

documents. Therefore, no change has been made, except the provisions

for written agreements have been moved to the Basic Provisions.

Comments: Two reinsured companies and an insurance service

organization asked: (1) Is the Late Planting Agreement Option no longer

available; and (2) Why are the late and prevented planting language

provisions not included in the proposed rule as they have been in other

crops?

Response: A new section 14 has been added to provide for late

planting coverage. Under the new section 15, prevented planting

coverage will not be provided for quota tobacco as set out in the Basic

Provisions because the high cash value per acre and the hand labor

required to transplant tobacco on relatively small acreage enables

producers to plant sufficient acreage to maintain their effective

poundage marketing quota even under extremely adverse conditions that

would prevent planting of most other crops.

In addition to the changes indicated above, FCIC has made the

following changes:

1. Section 1. Removed definitions of ``days,'' ``FSA,'' ``final

planting date,'' and ``USDA,'' because these definitions were moved to

the Basic Provisions. Changed the definition of ``unit'' to ``basic

unit.''

2. Section 7 (Annual Premium). Added to modify section 7 of the

Basic Provisions to calculate premium, in part, based on the producer's

amount of insurance. As defined in these crop provisions, the

definition of ``amount of insurance'' takes into consideration the

insured poundage quota, current year's

[[Page 34782]]

support price, and late planting adjustments unique to quota tobacco.

3. Section 12(b) (redesignated as Section 13(b)). Revised for

clarification. Also, added an example of an indemnity calculation for

illustration purposes.

List of Subjects in 7 CFR Parts 435 and 457

Crop insurance, Quota tobacco, Tobacco (quota plan) crop insurance

regulations.

Final Rule

Accordingly, as set forth in the preamble, the Federal Crop

Insurance Corporation hereby amends the Tobacco (Quota Plan) Crop

Insurance Regulations (7 CFR part 435) and the Common Crop Insurance

Regulations (7 CFR part 457) as follows:

PART 435--TOBACCO (QUOTA PLAN) CROP INSURANCE REGULATIONS;

REGULATIONS FOR THE 1985 THROUGH 1998 CROP YEARS

1. The authority citation for 7 CFR part 435 is revised to read as

follows:

Authority: 7 U.S.C. 1506(1), 1506(p).

2. The part heading is revised as set forth above.

Subpart Heading [Removed]

3. The subpart heading ``Subpart--Regulations for the 1985 and

Succeeding Crop Years'' is removed.

4. Section 435.7 is amended by revising the introductory text of

paragraph (d) to read as follows:

Sec. 435.7 The application and policy.

* * * * *

(d) The application is found at subpart D of part 400--General

Administrative Regulations (7 CFR 400.37, 400.38). The provisions of

the Tobacco (Quota Plan) Insurance Policy for the 1985 through 1998

crop years are as follows:

* * * * *

PART 457--COMMON CROP INSURANCE REGULATIONS; REGULATIONS FOR THE

1998 AND SUBSEQUENT CONTRACT YEARS

5. The authority citation for 7 CFR part 457 continues to read as

follows:

Authority: 7 U.S.C. 1506(1), 1506(p).

6. Section 457.156 is added to read as follows:

Sec. 457.156 Quota tobacco crop insurance provisions.

The Quota Tobacco Crop Insurance Provisions for the 1999 and

succeeding crop years are as follows:

FCIC policies:

United States Department of Agriculture

Federal Crop Insurance Corporation

Reinsured policies:

(Appropriate title for insurance provider)

Both FCIC and reinsured policies:

Quota Tobacco Crop Insurance Provisions

If a conflict exists among the policy provisions, the order of

priority is as follows: (1) the Catastrophic Risk Protection

Endorsement, if applicable; (2) the Special Provisions; (3) these

Crop Provisions; and (4) the Basic Provisions with (1) controlling

(2), etc.

1. Definitions.

Amount of insurance. The dollar amount determined by multiplying

the insured poundage quota by the current year's support price or

the percentage of the current year's support price you select less

any adjustments for late planting as specified in section 14.

Approved yield. The yield calculated in accordance with 7 CFR

part 400, subpart G, if required by the Special Provisions.

Basic unit. In lieu of the definition in the Basic Provisions, a

basic unit is all insurable acreage of an insurable type of tobacco

in the county in which you have a share on the date of planting for

the crop year and that is identified by a single FSA farm serial

number at the time insurance first attaches under these provisions

for the crop year.

Carryover tobacco. Any tobacco produced on the land identified

by a FSA farm serial number in previous years that remained unsold

at the end of the most recent marketing year.

County. In lieu of the definition in the Basic Provisions,

county is defined as the county or other political subdivision of a

state shown on your accepted application including any land

identified by a FSA farm serial number for such county but

physically located in another county.

Discount variety. Tobacco defined as such under the provisions

of the United States Department of Agriculture tobacco price support

program.

Effective poundage marketing quota. The farm marketing quota as

established and recorded by the local FSA office for the land

identified by the FSA farm serial number plus any additional

poundage, as allowed by the USDA Tobacco Marketing Quota

Regulations, that you intend to produce for each unit in that crop

year minus the amount of any carryover tobacco. The term may not

include any tobacco that would be subject to a marketing quota

penalty under USDA Tobacco Marketing Quota Regulations. For any crop

year in which there are no effective USDA Tobacco Marketing Quota

Regulations, the effective poundage marketing quota will be the

pounds obtained by multiplying the applicable approved yield per

acre by the lower of the reported or insured acreage on the basic

unit, unless otherwise provided by the actuarial documents.

Fair market value. The current year's tobacco season average

price for the applicable type of tobacco obtained from the sale of

the tobacco through a market other than an auction warehouse.

Farm yield. The yield per acre used by FSA to establish the

effective poundage marketing quota for land identified by a FSA farm

serial number, unless we have estab lished a yield for that land in

the actuarial documents.

Harvest. Cutting and removing all insured tobacco from the field

in which it was grown.

Hydroponic plants. Seedlings grown in liquid nutrient solutions.

Insured poundage quota. The lesser of:

(1) The product (in pounds) obtained by multiplying the

effective poundage marketing quota for the land identified by a FSA

farm serial number by your selected coverage level; or

(2) The farm yield or approved yield, as applicable, adjusted

for late planting in accordance with section 14, if applicable,

multiplied by the appropriate number of insured acres and by your

selected coverage level.

Late planting period. In lieu of the definition in section 1 of

the Basic Provisions, the period that begins the day after the final

planting date for the insured crop and ends 15 days after the final

planting date, unless otherwise specified in the Special Provisions.

Market price. The previous years' season average price published

by National Agricultural Statistics Service for the applicable type

of tobacco in the area.

Marketing year. The marketing year published by National

Agricultural Statistics Service for the applicable type of tobacco

in the area.

Planted acreage. Land in which tobacco seedlings, including

hydroponic plants, have been transplanted by hand or machine from

the tobacco bed to the field.

Pound. Sixteen ounces avoirdupois.

Replanting. In lieu of the definition in section 1 of the Basic

Provisions, performing the cultural practices necessary to replace

the tobacco plant, and then replacing the tobacco plant in the

insured acreage with the expectation of producing at least the

quota.

Support price. The average price per pound for the type of

tobacco as announced by the USDA under its tobacco price support

program, or, if there is no such program, as announced by FCIC.

Tobacco bed. An area protected from adverse weather, in which

tobacco seeds are sown and seedlings are grown until transplanted

into the tobacco field by hand or machine.

2. Unit Division.

A unit will be determined in accordance with the definition of

basic unit contained in section 1 of these Crop Provisions. The

provision in the Basic Provisions regarding optional units are not

applicable, unless specified by the Special Provisions.

3. Insurance Guarantees, Coverage Levels, and Prices for

Determining Indemnities.

In addition to section 3 of the Basic Provisions, a production

report, if required by the Special Provisions, must be filed in

accordance with section 3(c) of the Basic Provisions.

4. Contract Changes.

In accordance with section 4 of the Basic Provisions, the

contract change date is November 30 preceding the cancellation date.

5. Cancellation and Termination Dates.

[[Page 34783]]

In accordance with section 2 of the Basic Provisions, the

cancellation and termination dates are March 15.

6. Report of Acreage.

In addition to the requirements of section 6 of the Basic

Provisions:

(a) You must report the effective poundage marketing quota and

specify any amount of carryover tobacco, if applicable.

(b) You must provide a copy of any written lease agreement

between you and any landlord or tenant showing the amount of the

effective poundage marketing quota allocated to you. The written

lease agreement must:

(1) Identify all other persons sharing in the effective poundage

marketing quota; and

(2) Be submitted to your local insurance provider's office on or

before the acreage reporting date.

(c) In the event of a loss, if the written lease agreement has

been submitted timely, we will distribute the effective poundage

marketing quota in accordance with the terms of the written lease

agreement. If the written lease agreement is not submitted timely,

we will prorate the effective poundage marketing quota across the

FSA farm serial number to all insured and uninsured persons based on

planted acres within land identified by the FSA farm serial number.

7. Annual Premium.

In lieu of paragraph (c) of section 7 of the Basic Provisions,

your annual premium amount is determined by either:

(a) Multiplying the amount of insurance by the rate, your share,

and any premium adjustment percentages that may apply; or

(b) If no support price program exists, multiplying the approved

yield by the coverage level, the support price, the acres, your

share, and any premium adjustment percentages that may apply.

8. Insured Crop.

(a) In accordance with section 8 of the Basic Provisions, the

crop insured will be any of the tobacco types designated in the

Special Provisions for the county, in which you have a share, that

you elect to insure, and for which a premium rate is provided by the

actuarial documents.

(b) In addition to section 8 of the Basic Provisions, the crop

insured will not include any poundage above the effective poundage

marketing quota or the insured poundage quota.

9. Insurable Acreage.

In addition to the provisions of section 9 of the Basic

Provisions, we will not insure any acreage under these crop

provisions that is:

(a) Planted to a discount variety;

(b) Planted to a tobacco type for which no premium rate is

provided by the actuarial documents;

(c) Planted in any manner other than as provided in the

definition of ``planted acreage'' in section 1 of these Crop

Provisions, unless otherwise provided by the Special Provisions or

by written agreement; or

(d) Damaged before the final planting date to the extent that

most of the producers of tobacco acreage with similar

characteristics in the area would normally not further care for the

crop, unless such crop is replanted or we agree that replanting is

not practical.

10. Insurance Period.

In accordance with the provisions of section 11(b) of the Basic

Provisions, insurance ceases at the earliest of:

(a) Total destruction of the tobacco on the unit;

(b) Weighing-in at the tobacco warehouse;

(c) Removal of the tobacco from the field where grown except for

curing, grading, packing, or immediate delivery to the tobacco

warehouse; or

(d) The February 28 immediately following the normal harvest

period.

11. Causes of Loss.

In accordance with the provisions of section 12 of the Basic

Provisions, insurance is provided only against the following causes

of loss that occur during the insurance period:

(a) Adverse weather conditions;

(b) Fire;

(c) Insects, but not damage due to insufficient or improper

application of pest control measures;

(d) Plant disease, but not damage due to insufficient or

improper application of disease control measures;

(e) Wildlife;

(f) Earthquake;

(g) Volcanic eruption; or

(h) Failure of the irrigation water supply, if caused by a peril

specified in section 11 (a) through (g) that occurs during the

insurance period.

12. Duties In The Event of Damage or Loss.

In accordance with the requirements of section 14 of the Basic

Provisions, any representative samples we may require of each

unharvested tobacco type must be at least 5 feet wide (at least two

rows) and extend the entire length of each field in the unit. The

samples must not be harvested or destroyed until after our

inspection.

13. Settlement of Claim.

(a) We will determine your loss on a unit basis. In the event

you are unable to provide separate acceptable production records, we

will allocate any commingled production to such units in proportion

to our liability on the harvested acreage for each unit.

(b) In the event of loss or damage covered by this policy, we

will settle your claim by:

(1) Multiplying the insured poundage quota by your elected

percentage of the current year's support price.

(2) Subtracting the total value of the production to be counted

(see section 13(c)) from the amount of insurance; and

(3) Multiplying the result in section 13(b)(1) by your share.

For example:

You have 100 percent share of type 31 quota tobacco in the unit,

with an insurable poundage quota of 1,000 pounds and a support price

of $1.73 per pound. The amount of insurance equals $1730.00 (1,000

insurable poundage quota x $1.73 support price). You are only able

to harvest 600 pounds. The value of the total production to count

equals $1038.00 (600 harvested pounds x $1.73 support price). Your

indemnity would be calculated as follows:

(1) $1730.00 (amount of insurance)-$1038.00 (value of the total

production to count) = $692.00 loss

(2) $692.00 loss x 100 percent = $692.00 indemnity payment

(c) The value of the total production to count (pounds of

appraised or harvested production) for all insurable acreage on the

unit will include:

(1) All appraised production as follows:

(i) Not less than the amount of insurance per insured acre for

the unit for any acreage:

(A) That is abandoned;

(B) Put to another use without our consent;

(C) That is damaged solely by uninsured causes; or

(D) For which you fail to provide acceptable production records,

if required by the Special Provisions;

(ii) The value of production lost due to uninsured causes which

is the number of pounds of such production multiplied by the support

price;

(iii) The value of potential production on unharvested insured

acreage that you intend to put to another use with our consent, if

you and we agree on the number of pounds of such production to count

which will be multiplied by the support price. Upon such agreement,

the insurance period for that acreage will end when you put the

acreage to another use or abandon the crop. If agreement on the

appraised amount of production is not reached:

(A) If you do not elect to continue to care for the crop, we may

allow you to put the acreage to another use if you agree to leave

intact, and provide sufficient care for, representative samples of

the crop in locations acceptable to us (The value of production to

count for such acreage will be the number of pounds of harvested or

appraised production taken from samples at the time harvest should

have occurred multiplied by the support price. If you do not leave

the required samples intact, or you fail to provide sufficient care

for the samples, the value of production to count will be our

appraisal made prior to giving you consent to put the acreage to

another use multiplied by the support price); or

(B) If you elect to continue to care for the crop, the value of

production to count for the acreage will be the harvested

production, or our reappraisal multiplied by the support price if

additional damage occurs and the crop is not harvested;

(2) All harvested production from insurable acreage multiplied

by:

(i) The average price for any tobacco sold on a warehouse floor;

and

(ii) Fair market value for all other tobacco sold or not sold.

(d) Mature tobacco production that is damaged by insurable

causes will be adjusted for quality based on the USDA Official

Standard Grades for the insured type of tobacco.

(e) To enable us to determine the fair market value of tobacco

not sold through auction warehouses, you must give us the

opportunity to inspect such tobacco before it is sold, contracted to

be sold, or otherwise disposed. Failure to provide us the

opportunity to inspect such tobacco may result in rejection of any

claim for indemnity.

(f) If we consider the best offer you receive for such tobacco

to be inadequate, we may obtain additional offers on your behalf.

(g) Once we agree that any carryover or current year's tobacco

has no market value

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due to insured causes, you must destroy it. If you disagree and

refuse to destroy the tobacco with no value, we will determine the

value and count it as production to count.

14. Late Planting.

(a) In lieu of late planting provisions in the Basic Provisions

regarding acreage initially planted after the final planting date,

insurance will be provided for acreage planted to the insured crop

after the final planting date as follows:

(1) For each acre or portion thereof planted during the first 10

days after the final planting date, the farm yield will be reduced

by 1 percent per day; and

(2) For each acre or portion thereof planted during the 11th

through the 15th day after the final planting date, the farm yield

will be reduced by 2 percent per day.

(b) If you plant enough acreage to fulfill the effective

poundage marketing quota, there will be no reduction in the insured

poundage quota as a result of any late planted acreage.

15. Prevented Planting.

The prevented planting provisions in the Basic Provisions are

not applicable to quota tobacco.

Signed in Washington, D.C., on June 19, 1998.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance Corporation.

[FR Doc. 98-16968 Filed 6-25-98; 8:45 am]

BILLING CODE 3410-08-P