[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