Common Crop Insurance Regulations; Basic Provisions, 36979-36983 [06-5809]

Agencies

• DEPARTMENT OF AGRICULTURE
• Federal Crop Insurance Corporation

[Federal Register Volume 71, Number 125 (Thursday, June 29, 2006)]
[Rules and Regulations]
[Pages 36979-36983]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-5809]



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Federal Register / Vol. 71, No. 125 / Thursday, June 29, 2006 / Rules 
and Regulations

[[Page 36979]]



DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 457

RIN 0563-AC07


Common Crop Insurance Regulations; Basic Provisions

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the 
Common Crop Insurance Regulations; Basic Provisions to conform to the 
requirements of section 780 of the Agriculture, Rural Development, Food 
and Drug Administration, and Related Agencies Appropriations Act, 2006 
(2006 Appropriations Act) regarding written agreements and the use of 
similar agricultural commodities.

DATES: Effective Date: This rule is effective June 29, 2006.

FOR FURTHER INFORMATION CONTACT: Erin Reid, Risk Management Specialist, 
Product Management, Product Administration and Standards Division, Risk 
Management Agency, United States Department of Agriculture, 6501 Beacon 
Drive, Stop 0812, Room 421, Kansas City, MO 64133-4676, telephone (816) 
926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
rule is non-significant for the purposes of Executive Order 12866 and, 
therefore, it has not been reviewed by OMB.

Paperwork Reduction Act of 1995

    Pursuant to the provisions of the Paperwork Reduction Act of 1995 
(44 U.S.C. chapter 35), the collections of information in this rule 
have been approved by OMB under control number 0563-0053 through 
November 30, 2007.

Government Paperwork Elimination Act (GPEA) Compliance

    FCIC is committed to compliance with the GPEA, which requires 
Government agencies, in general, to provide the public with the option 
of submitting information or transacting business electronically to the 
maximum extent possible. FCIC requires that all reinsured companies be 
in compliance with the Freedom to E-File Act and section 508 of the 
Rehabilitation Act.

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 the UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, or on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.

Regulatory Flexibility Act

    FCIC certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. Written 
agreement requirements for the Federal crop insurance program are the 
same for all producers regardless of the size of their operations. For 
instance, all producers requesting this type of written agreement must 
submit production history for at least the most recent three crop years 
in which the crop was planted during the base period, if they produced 
the crop for three years. If any producer has not produced the crop for 
three years, he or she may submit evidence of production history for a 
similar crop, or for a combination of production history for the crop 
and a similar crop, provided a total of three years of production 
history is provided. Whether a producer has 10 acres or 100 acres there 
is no difference in the kind of information required for requesting a 
written agreement. To ensure crop insurance is available to small 
entities, the Federal Crop Insurance Act authorizes FCIC to waive 
collection of administrative fees from limited resource farmers. FCIC 
believes this change helps ensure that small entities are given the 
same opportunities as large entities to manage their risks through the 
use of crop insurance. A Regulatory Flexibility Analysis has not been 
prepared since this regulation does not have an impact on small 
entities, and, therefore, this regulation is exempt from the provisions 
of the Regulatory Flexibility Act (5 U.S.C. 605).

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 interim 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. With respect to any direct action taken by FCIC 
or to require the insurance provider to take specific action under the 
terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 must be exhausted before any 
action against FCIC for judicial review may be brought.

Environmental Evaluation

    This action is not expected to have a significant economic impact 
on the quality of the human environment, health, or safety. Therefore, 
neither an Environmental Assessment nor an

[[Page 36980]]

Environmental Impact Statement is needed.

Background

    This rule finalizes changes to the Common Crop Insurance 
Regulations; Basic Provisions, mandated by the 2006 Appropriations Act, 
that were published by FCIC on November 30, 2005, as a notice of 
interim rulemaking in the Federal Register at 70 FR 71749--71751. The 
public was afforded 60 days to submit written comments and opinions. 
The email address listed on the interim rule and the Federal 
eRulemaking Portal address were not operational during that time 
period, therefore, FCIC published a notice in the Federal Register at 
71 FR 8923 on February 22, 2006, extending the comment period for an 
additional 30 days, until March 24, 2006.
    A total of 11 comments were received from 4 commenters. The 
commenters were a reinsured company, an attorney, an agent, and an 
insurance service organization. The comments received and FCIC's 
responses are as follows:
    Comment: A commenter stated that under the Administrative Procedure 
Act (APA), a substantive rule becomes effective 30 days after ``the 
required publication'' unless good cause is found by the agency. FCIC 
contends good cause existed and, therefore, the Interim Rule ostensibly 
became effective upon filing with the Office of the Federal Register 
(OFR). Filing a rule with the OFR is not ``publication'' within the 
meaning of APA; the appearance of the rule in the Federal Register is. 
Though the Interim Rule may now be effective, its effective date was 
November 30th, the date of publication, not November 25th, the date of 
filing.
    Response: There have been instances where good cause has been shown 
to allow a rule to be effective upon filing with the Federal Register. 
However, with respect to this rule, this issue is moot because, not 
only was it filed before November 30, 2005, it was published on 
November 30, 2005. Therefore, there can be no dispute that the interim 
rule was effective for crops with a contract change date on or after 
November 30, 2005.
    Comment: One commenter stated they believe written agreements which 
represent an exception to the standards established by FCIC, are 
actuarially unsound and expose both FCIC and approved insurance 
providers to unnecessary risks and moral hazard. In addition and 
recognizing the statutory mandate to which FCIC is subject, they oppose 
further expansion of written agreements.
    Response: No written agreement can be approved unless there is 
actuarially sound data acceptable to FCIC upon which to base coverage 
and determine the appropriate premium rate. The interim rule and this 
final rule simply allow data from other similar crops to be used. It 
does not change the standards that must be met for RMA to offer and 
approve a written agreement. Further, FCIC is monitoring the 
performance of its written agreements to ensure that program integrity 
is protected and appropriate changes are made when problems arise. If 
the commenter has specific examples where written agreements are not 
properly underwritten, the commenter should notify the RMA Regional 
Office serving the area so appropriate action can be taken.
    Comment: Two commenters expressed concern that FCIC and the 
industry will be insuring a producer who has never grown the crop 
before in a county in which the crop has rarely been raised before. 
Because the crop is new to the area, the county extension office might 
not be familiar with the growing requirements of the crop (For example, 
the best time to apply chemicals, fertilizers, etc.). Insuring crops 
that have rarely been grown in a county by a producer who has never 
grown the crop before is not actuarially sound. One commenter stated 
that FCIC is mandated to have an actuarially sound insurance program 
and questioned how the insurable risk is determined for a crop that has 
not been grown by the person making the request. The commenters stated 
that a person who had never grown the crop before would still be 
eligible for the Noninsured Crop Disaster Assistance Program (NAP); 
therefore, the producer would not be without a safety net until they 
accumulate the required three years of history.
    Response: Although a particular crop may not have been grown 
extensively in a county, growing conditions in the county are generally 
known, including rainfall amounts and other weather conditions, soil 
productivity, length of growing season, etc. The major risk factors are 
also generally known in the county, such as freeze, adverse weather, 
etc. Information regarding growing requirements and risk susceptibility 
for a particular crop is also generally available from other sources, 
even if not personally known to the county extension office. Since the 
information needed to determine crop adaptability is generally known or 
readily available, it is possible to determine the proper coverage and 
underwriting standards for the written agreement. Further, the new 
provisions require evidence of three years of verifiable production 
records from the producer for a crop with similar growing requirements. 
This production data, an assessment of the likely risks and the effect 
on the crop, and other generally available information are then used to 
offer written agreements in an actuarially sound manner. FCIC agrees if 
insurance is not offered, NAP coverage may be available. However, 
providing insurance coverage at actuarially sound rates gives the 
producer the opportunity to tailor the coverage to better meet the risk 
management needs of the producer.
    Comment: One commenter asked whether the ``similar crop'' 
provisions apply to all crops/plans using the Basic Provisions or only 
to those crops under the actual production history (APH) plan of 
insurance. The commenter states while section 18(f)(2)(i) applies only 
to policies under APH, section 18(f)(2)(ii) is also revised by the 
Written Agreement Amendatory Endorsement and refers to ``Acceptable 
production records for at least the most recent three crop years* * 
*'', which could apply to non-APH crops.
    Response: FCIC agrees that the provision as drafted could suggest 
that section 18(f)(2)(i) only applies to APH crops. However, this is 
not the intent. The requirement to provide a completed APH form was 
intended to apply only to APH and all the other requirements, including 
the new provisions to require evidence of three years of verifiable 
production records was intended to apply to all crop policies that 
authorize written agreements. The provisions have been revised for 
clarification.
    Comment: One commenter stated even though the Written Agreement 
Amendatory Endorsement amends sections 18(f)(2)(i) & (ii) of the Basic 
Provisions, it does not take priority over the applicable Crop 
Provisions that might have specific provisions that replace or revise 
those in the Basic Provisions. For example, the various Income 
Protection (IP) crop provisions state written agreement provisions do 
not apply for IP policies. Presumably the Written Agreement Amendatory 
Endorsement should not be considered to supersede the Crop Provisions 
in this case. The commenter states this could be misunderstood since 
the order of precedence at the beginning of the Basic Provisions does 
not address policy endorsements other than the CAT Endorsement, which 
takes priority over all other policy provisions.
    Response: Unlike other endorsements that modify existing terms of 
the Basic Provisions or Crop Provisions only when the endorsement is 
selected by the

[[Page 36981]]

producer, such as the Catastrophic Risk Protection Endorsement or the 
Nursery Rehabilitation Endorsement, the Written Agreement Amendatory 
Endorsement modifies the existing terms of the Basic Provision for all 
producers. It operates no different than any other change made and 
incorporated directly into the Basic Provisions. Because the terms of 
the Written Agreement Amendatory Endorsement are incorporated into all 
producers' Basic Provisions, its terms will apply to all crop policies 
that authorize written agreements. It was referred to as an endorsement 
only as a means to allow its distribution to producers without having 
to copy and redistribute the entire Basic Provisions. However, FCIC 
realizes that using the term ``endorsement'' implies that it has the 
same meaning as other existing endorsements, which do affect the 
priority. Therefore, FCIC is removing the term ``endorsement'' and is 
now calling it the ``Written Agreement Amendment.''
    Comment: Two commenters questioned why FCIC chose to keep the 
existing three-year production record requirement with the addition of 
the similar crop provisions. Actuarial data is available for these 
similar crops so markets are already known, yield potential is already 
known, and quality adjustment factors are already known. One commenter 
recommended requiring one year of production records. One year of 
production records may not reflect the producer's ability to grow the 
crop in the long term, but it would at least provide an indication of 
the producer's potential and of the expected risk as a basis for 
accepting or rejecting the request. One commenter stated having to get 
three years of production records for a specific crop may require the 
producer to go back many years.
    Response: FCIC agrees that if the producer has been insuring the 
similar crop in the county or area for at least the three previous crop 
years, there is no need to provide the actual production records. Such 
records would only be useful in determining whether a similar crop can 
successfully be produced in the area and would not be used for the 
actual basis for insurance. Insurance would be based on information 
relating to the crop to be insured in an area that is similar and in 
which the crop is already insured. Therefore, for similar crops that 
have been insured, certified yields will be sufficient. However, the 
producer must still retain those production records under the terms of 
the crop insurance policy applicable to such similar crop and the 
producer may be required to produce such records.
    Comment: One commenter stated if the similar crop provisions are 
retained, there are questions and concerns about exactly what 
constitutes a similar crop. For instance: (1) Would a farmer whose 
previous experience in growing wheat be given a written agreement to 
insure sunflowers (if the other requirements are met also) because they 
are both row crops; (2) Would apple history serve as the basis for a 
written agreement to insure pecans because they are both tree crops; 
and (3) Would burley tobacco be considered similar to other tobacco 
types even though the production practices and values are not similar? 
Another commenter raised concerns about exactly what constitutes a 
``similar crop.'' The commenter recommended tightening the definition 
of ``similar crop'' or adding more details in the Written Agreement 
Handbook.
    Response: The type of crop, i.e. row crop, tree crop, etc., is only 
one of the factors to be considered when determining whether the crop 
is similar. Other factors to be considered are the growing season, 
agronomic conditions (e.g. comparable soil and water needs) and risk 
factors associated with the crops production. If the applicable factors 
are comparable, then the crop can be considered a similar crop. FCIC 
believes that these factors provide sufficient guidance to determine a 
similar crop and that tightening the provisions even further would be 
too restrictive. No change has been made.
    Comment: A commenter asked whether three years of data are 
sufficient to establish reliable yield history and enable FCIC to 
calculate the appropriate premium rates. The commenter recommended the 
requirement be increased to five years of data because a request for a 
written agreement may involve the insuring of a crop not already 
included in the crop insurance program.
    Response: Insurance can not be provided for a crop unless there is 
already a crop insurance program in place for it in another county. 
Therefore, this additional data is also used in determining the 
appropriate premium rate. The three years of production records from 
the producer is intended to show that the crop, or a crop with similar 
characteristics, can be produced in the county or area and allow the 
premium rate offered to the producer to be refined for that producer. 
Requiring more years of data would unnecessarily reduce the ability to 
make insurance offers to producers. If there is not sufficient 
information available to determine an appropriate premium rate, the 
written agreement is denied. No change has been made.
    Comment: A commenter indicated written agreement requests utilizing 
``similar crops'' had been accepted in the past and asked if it is 
possible to tell how many of those requests were approved and how many 
were rejected.
    Response: Data is kept regarding the number of written agreement 
requests for crops in counties without actuarial documents and how many 
of those were denied. However, there is no breakdown between those 
submitted with verifiable production records for a similar crop and 
those submitted with verifiable production records for the crop to be 
insured. In 2001 (one year when similar crop data was accepted), the 
RMA Regional Offices received 4,276 requests and of those requests 
2,968 were approved and accepted by the insured, for 69 percent. In 
2005 (one year when similar crop data was not accepted), the Regional 
Offices received 1,638 requests and of those requests 1,192 were 
approved and accepted by the insured, for 73 percent. However, this 
comparison may not be reflective of what may take place under the new 
similar crop provisions because the standards for determining what 
constitutes a similar crop are different.
    Comment: A commenter recommended that the rule distinguish between 
irrigated and non-irrigated crops. A distinction also should be made 
between crops produced using organic methods. Moreover, even with the 
criteria established by the Interim Rule, opinions may vary as to 
whether a crop is similar. The commenter was also aware FCIC has 
developed or is developing a chart that identifies the ``requested 
crop'' and the ``similar crops.'' The commenter notes some crops have 
multiple ``similar crops'' whereas others have only one ``similar 
crop.'' Because the chart is an agency statement of general or 
particular applicability and future effect designed to implement, 
interpret, or prescribe law or policy, the commenter considers it to be 
a substantive rule that must be published for public comment.
    Response: FCIC agrees that irrigated and non-irrigated practices or 
organic and non-organic practices should be distinguished and reported 
on the request for a written agreement. However, each situation must be 
evaluated on a case-by-case basis because there may be instances where 
a different practice may perform just as well or better and would 
permit approval of the written agreement. FCIC does not agree 
procedures specifying which crops are considered to be similar have to 
be published for public comment. The chart is for informational 
purposes only and developed using the

[[Page 36982]]

standards that have been established through the rulemaking process. 
The chart will not have the force of law or policy because there may be 
circumstances where the designated similar crop on the chart may not be 
appropriate because of unique circumstances on the farm. It is still up 
to the approved insurance provider and FCIC to determine whether the 
crop qualifies as a similar crop.
    Comment: A commenter suggested rewriting the parenthetical phrase 
in section 18(f)(2)(i)(B)(1)(iii) so the word ``needs'' does not follow 
the list-ending ``etc.'' The commenter suggested rewriting the 
parenthetical as ``(e.g., comparable needs for water, soil, etc.)'.
    Response: FCIC agrees with the commenter and has revised 
redesignated section 18(f)(2)(ii)(E) accordingly.
    In addition to the changes listed above, FCIC has determined 
verifiable production records from the crop or similar crop planted in 
the area can be used if a producer has not actually planted the crop or 
similar crop in the county. There may be cases where the farm crosses 
county lines or the more representative planting of the insured crop or 
similar crop is located across county lines and limiting the records to 
the insured crop or similar crop planted in the county may be too 
restrictive. Section 508(a)(4)(B) of the Act authorizes FCIC to ``offer 
to enter into a written agreement with an individual producer operating 
in the area for insurance coverage.'' The Basic Provisions define 
``area'' as ``Land surrounding the insured acreage with geographic 
characteristics, topography, soil types and climatic conditions similar 
to the insured acreage.'' Using this definition will add the needed 
flexibility to use the best available records to establish insurance 
while still ensuring the producer has the capability of producing the 
crop or a similar crop in the county or area where the producer intends 
to produce the insured crop.
    Good cause is shown to make this rule effective upon publication in 
the Federal Register. Good cause exists when the 30 day delay in the 
effective date is impracticable, unnecessary, or contrary to the public 
interest.
    With respect to the provisions of this rule, it would be contrary 
to the public interest to delay its implementation. The changes made by 
this rule clarify existing provisions to ensure that written agreements 
based on similar crops are implemented in an actuarially sound manner 
and to eliminate any potential confusion regarding the requirements for 
such written agreements. Delaying the implementation of these 
provisions, which make a sounder, more stable program, would be 
contrary to the public interest.
    If FCIC were required to delay the implementation of this rule 
until 30 days after the date it is published, the provisions of this 
rule could not be implemented until the next crop year for those crops 
having a contract change date prior to the effective date of this 
publication.
    For the reasons stated above, good cause exists to make these 
policy changes effective upon publication in the Federal Register.

List of Subjects in 7 CFR Part 457

    Crop insurance, Reporting and recordkeeping requirements.

Final Rule

0
Accordingly, as set forth in the preamble, the Federal Crop Insurance 
Corporation amends 7 CFR part 457 effective for the 2007 and succeeding 
crop years for all crops with a contract change date on or after the 
effective date of this rule and for the 2008 and succeeding crop years 
for all crops with a contract change date prior to the effective date 
of this rule, as follows:

PART 457--COMMON CROP INSURANCE REGULATIONS

0
1. The authority citation for 7 CFR part 457 continues to read as 
follows:

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

Sec.  457.8  [Amended]

0
2. Amend Sec.  457.8 by revising sections 18(f)(2)(i) and (ii) to read 
as follows:
    18. Written Agreements
* * * * *
    (f) * * *
    (2) * * *
    (i) For a crop you have previously planted in the county or area 
for at least three years:
    (A) A completed APH form (only for crops that require APH) based on 
verifiable production records for at least the three most recent crop 
years in which the crop was planted; and
    (B) Verifiable production records for at least the three most 
recent crop years in which the crop was planted:
    (1) The verifiable production records do not necessarily have to be 
from the same physical acreage for which you are requesting a written 
agreement; and
    (2) Verifiable production records do not have to be submitted if 
you have insured the crop in the county or area for at least the 
previous three crop years and have certified the yields on the 
applicable production reports or the yields are based on your insurance 
claim (although you are not required to submit production records, you 
still must maintain production records in accordance with section 21);
    (ii) For a crop you have not previously planted in the county or 
area for at least three years:
    (A) A completed APH form (only for crops that require APH) based on 
verifiable production records for at least the three most recent crop 
years for a similar crop from acreage:
    (1) In the county; or
    (2) In the area if you have not produced the crop in the county; 
and
    (B) Verifiable production records for at least the three most 
recent crop years in which the similar crop was planted:
    (1) The verifiable production records for the similar crop do not 
necessarily have to be from the same physical acreage for which you are 
requesting a written agreement; and
    (2) Verifiable production records do not have to be submitted if 
you have insured the similar crop for at least the three previous crop 
years and have certified the yields on the applicable production 
reports or the yields are based on your insurance claim (although you 
are not required to submit production records, you still must maintain 
production records in accordance with section 21);
    (C) If you have at least one year of production records, but less 
than three years of production records, for the crop in the county or 
area but have production records for a similar crop in the county or 
area such that the combination of both sets of records results in at 
least three years of production records, you must provide the 
information required in sections 18(f)(2)(i)(A) & (B) for the years you 
grew the crop in the county or area and the information required in 
sections 18(f)(2)(ii)(A) & (B) regarding the similar crop for the 
remaining years; and
    (D) A similar crop to the crop for which a written agreement is 
being requested must:
    (1) Be included in the same category of crops, e.g., row crops 
(including, but not limited to, small grains, coarse grains, and oil 
seed crops), vegetable crops grown in rows, tree crops, vine crops, 
bush crops, etc., as defined by FCIC;
    (2) Have substantially the same growing season (i.e., normally 
planted around the same dates and harvested around the same dates);
    (3) Require comparable agronomic conditions (e.g., comparable needs 
for water, soil, etc.); and

[[Page 36983]]

    (4) Be subject to substantially the same risks (frequency and 
severity of loss would be expected to be comparable from the same cause 
of loss);
* * * * *

    Signed in Washington, DC, on June 23, 2006.
Eldon Gould,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 06-5809 Filed 6-28-06; 8:45 am]
BILLING CODE 3410-08-P