[Federal Register Volume 69, Number 166 (Friday, August 27, 2004)]
[Rules and Regulations]
[Pages 52583-52594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19596]



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  Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Rules 
and Regulations  

[[Page 52583]]



DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 457

RIN 0563-AB92


Common Crop Insurance Regulations; Apple Crop Insurance 
Provisions

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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

SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes 
amendments to the Apple Crop Insurance Provisions. The intended effects 
of this action are to provide policy changes and clarify existing 
policy provisions to better meet the needs of the insured and to 
restrict the effect of the current Apple Crop Insurance Regulations to 
the 2004 and prior crop years.

DATES: Effective August 30, 2004.

FOR FURTHER INFORMATION CONTACT: Gary Johnson, Risk Management 
Specialist, Research and Development, Product Development Division, 
Risk Management Agency, United States Department of Agriculture, 6501 
Beacon Drive, Stop 0812, Room 426, Kansas City, MO, 64133-4676, 
telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

    This rule has been determined to be not-significant for the 
purposes of Executive Order 12866 and, therefore, it 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 
OMB under control number 0563-0053 through February 28, 2005.

Government Paperwork Elimination Act (GPEA) Compliance

    In its efforts to comply with GPEA, FCIC requires all insurance 
providers delivering the crop insurance program to make all insurance 
documents available electronically and to permit producers to transact 
business electronically. Further, to the maximum extent practicable, 
FCIC transacts its business with insurance providers electronically.

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. Program 
requirements for the Federal crop insurance program are the same for 
all producers regardless of the size of their farming operation. For 
instance, all producers are required to submit an application and 
acreage report to establish their insurance guarantees and compute 
premium amounts, or a notice of loss and production information to 
determine an indemnity payment in the event of an insured cause of crop 
loss. Whether a producer has 10 acres or 1000 acres, there is no 
difference in the kind of information collected. 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 waiver helps to ensure 
small entities are given the same opportunities 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 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 
under the terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 and 7 CFR part 400, subpart J for 
the informal administrative review process of good farming practices, 
as applicable, must be exhausted before any action for judicial review 
of any determination or action 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.

Background

    On March 29, 2004, FCIC published a notice of proposed rulemaking 
in the Federal Register at 69 FR 16181-16186 to revise 7 CFR 457.158 
Apple Crop

[[Page 52584]]

Insurance. Following publication of the proposed rule, the public was 
afforded 30 days to submit written comments and opinions. 182 comments 
were received from reinsured companies, agents, State agriculture 
associations, insurance service organizations, producers, trade 
associations, and other interested parties. The comments received and 
FCIC's responses are as follows:
    Comment: An insurance service organization commented there was a 
lack of information on how premium rates will be affected by the 
proposed changes regarding the increase of minimum standards from U.S. 
Cider Grade to U.S. No. 1 Processing Grade, and the additional causes 
of loss insured under the basic apple policy instead of under a Fresh 
Fruit Option. They also stated the proposed changes obviously increase 
potential losses and are likely to result in increased loss ratios 
unless the premium rates are revised. The proposed rule provides no 
information on what the premium rates will be as a result and whether 
RMA has conducted a rate analysis on the impact of the changes in this 
proposed rule and, if so, what are the results.
    Response: In accordance with section 508(d) of the Federal Crop 
Insurance Act (Act), FCIC is required to set premiums at levels to 
cover anticipated losses and a reasonable reserve. FCIC has conducted a 
routine periodic premium rate review for the 2005 crop year that 
incorporates apple insurance loss data from the most recent years. Due 
to inclusion of this updated information, premium rate adjustments will 
occur for the 2005 crop year with general premium rate increases in 
many areas. Further, FCIC reviewed the effect on losses due to the 
specific change from U.S. Cider Grade to U.S. No. 1 Processing Grade in 
the basic apple policy and determined a relatively small premium rate 
increase is necessary to cover such losses. In addition, FCIC 
determined that the proposed changes to add additional perils under the 
Optional Coverage for Fresh Quality Adjustment will likely result in 
additional losses and premium rates will be increased to cover these 
anticipated losses. However, the amount of such increases is dependent 
on the area since certain areas may have a greater frequency of insured 
perils or the amount of damage may be more severe than in other areas 
and section 508(i)(1) of the Act.
    Comment: An insurance service organization and an insurance 
provider stated with the current apple program experiencing a five-year 
loss ratio of 117 percent, a ten-year loss ratio of 106% (which 
included 5 years of CAT business of approx. 50 percent of total 
premium), and a premium rate factor of up to 1.60 for U.S. No. 1 
Processing Grade apples with zero buy-back, it would appear the rates 
would need to be significantly higher. Additionally, the proposed 
policy covers additional perils not currently insured against under 
Quality Option A and asked whether allowing apple producers to insure 
only fresh apples under the Fresh Fruit Quality Option will lead to 
adverse selection when opting to insure one's worst blocks as fresh 
apples.
    Response: Consistent with its statutory mandate, FCIC is adjusting 
premium rates to cover anticipated losses and a reasonable reserve, and 
a premium rate increase will be implemented in many areas as a result 
of program performance and the changes made to the policy in this rule, 
consistent with section 508(i)(1) of the Act. Further, additional 
causes of loss should not affect the producer's behavior with respect 
to insuring acreage as fresh or processing. The guarantee for fresh and 
processing is the same in the basic apple policy. It is only the price 
election that is different between fresh and processing. Only 
designated fresh apples are available under the Optional Coverage for 
Fresh Fruit Quality Adjustment. In addition, designation of apples as 
fresh or processing occurs on the acreage report, which is prior to the 
bloom. Therefore, it is highly unlikely that a producer could determine 
which block is worse at the time of designation. If producers do 
misreport, then misreporting procedures will apply in accordance with 
Basic Provisions and standard loss adjustment procedures. The Apple 
Loss Adjustment Standards Handbook is being updated to further address 
these issues.
    Comment: An insurance service organization commented apple 
producers often complain the premium is too high for the Fresh Fruit 
Option B under the current apple policy. If the proposed apple policy 
and quality option are rated properly, it does not seem that it can (or 
should) be any cheaper.
    Response: The current Fresh Fruit Option B may have resulted in 
indemnities paid for causes of loss not covered under Fresh Fruit 
Option B. Consequently, program history has caused the premium rates to 
increase to their current levels. However, the commenter is correct 
that since the proposed changes include additional causes of loss, it 
will likely result in premium rates increases and in some instances 
rate decreases due to favorable experience.
    Comment: An insurance service organization commented as to the 
effect of the change from U.S. Cider Grade to U.S. No. 1 Processing 
Grade on existing APH databases and asked whether there be a conversion 
factor for existing databases to reflect the change in what is 
considered production to count.
    Response: FCIC has attempted to determine whether the amount of 
Cider Grade apples could be determined so a conversion factor could be 
constructed. It discovered that there is not likely to be a large 
quantity of Cider Grade apples in the producer's APH and there is 
little or no information upon which to determine the amount of Cider 
Grade apples. Therefore, it could not determine an appropriate 
conversion factor. No change has been made.
    Comment: An insurance service organization commented as to the 
effect of change from U.S. Cider Grade to U.S. No. 1 Processing Grade 
on existing APH databases and asked whether apples delivered to a 
juicer or packing shed warehouse will be assumed not to have made U.S. 
No. 1 Processing Grade.
    Response: To obtain an indemnity, producers must prove that the 
apples did not meet the standards contained in the policy due to an 
insurable cause of loss. This means the mere fact that apples are 
delivered to either the juicer or packing shed warehouse is not 
relevant. The issue will be the grade of such apples and if a grade is 
not provided, they will be considered to be U.S. No. 1 Processing 
Grade.
    Comment: An insurance service organization commented as to the 
effect of change from U.S. Cider Grade to U.S. No. 1 Processing Grade 
on existing APH databases and asked whether companies will have to wait 
until packing is complete and not count the culls as production. In the 
past, they have used records of bins or pounds delivered to the juicer 
or packing shed warehouse, but there will be no records available by 
production reporting date to show what apples made U.S. No. 1 
Processing Grade.
    Response: Companies will not have to wait until packing is 
complete. FCIC has received information from juicers or packing shed 
warehouses indicating that apples delivered to the juicer or packing 
shed warehouse have been at least U.S. No. 1 Processing Grade or better 
or they are not accepted. Further, records of bin or pounds delivered 
to the juicer or packing shed warehouse will be available by the 
production reporting date. Therefore, these delivery records can be 
used without adjustment.
    Comment: An insurance service organization commented as to an 
apparent increased administrative

[[Page 52585]]

burden regarding the following: (1) Potential for an increased number 
of company inspections and field appraisals; (2) determining the amount 
of processing production to count for loss and APH purposes; (3) 
determining the amount of damage due to failure to color properly; and 
(4) providing acceptable production reports for APH and unit purposes.
    Response: FCIC acknowledges there will be some increase in 
administrative burden because of the proposed changes. However, with 
the exception of task 3, the listed tasks are current insurance 
procedures. In addition, this proposed rule combines several options 
from the current program into one option and overall simplifies the 
apple crop insurance program, which should provide some program 
savings.
    Comment: An insurance service organization and reinsured company 
stated that according to the proposed language for the basic apple 
coverage, the standard is U.S. No. 1 Processing Grade (change from U.S. 
Cider Grade) and U.S. Fancy Grade for the Fresh Fruit Quality Option `` 
* * * or such other standard contained in the Special Provisions.'' The 
commenters asked what other standards might be considered and in what 
regions. The commenters state that making such a change in the Special 
Provisions (which are not published for public comment) could have a 
significant impact on the policy in terms of marketing, risk 
management, premium, liability, and loss ratios.
    Response: FCIC added the language about standards contained in the 
Special Provisions to provide for the use of existing or acceptable 
apple grade standards that are approved and enforced by individual 
states, regions, or organizations. This is to prevent producers from 
being penalized because their state or area uses a slightly different 
standard. For example, Washington Fancy Grade is comparable to U.S. 
Fancy Grade. Such standards will be included in the Special Provisions, 
and any appropriate premium rate adjustment will be made as necessary. 
However, for the purposes of determining damage, only those standards 
comparable to U.S. No. 1 Processing Grade and U.S. Fancy Grade will be 
used.
    Comment: An insurance service organization recommended since so 
many references to the grade standards seem to include `` * * * the 
United States Standards for Grades of Apples or such other standard 
contained in the Special Provisions,'' RMA might consider setting this 
up as the definition for ``grade standards'' instead of having to 
repeat this again and again. Also, the commenter stated the phrase ``on 
the Special Provisions'' should be revised to ``in the Special 
Provisions''.
    Response: FCIC agrees that it can create a definition of ``grade 
standards'' that would include the United States Standards for Grades 
of Apples or such other standard contained in the Special Provisions 
and eliminate the duplicate references. FCIC also agrees with the 
commenter regarding the revision of the phrase ``on the Special 
Provisions'' and replacing it with ``in the Special Provisions.''
    Comment: An insurance service organization recommended FCIC to 
consider revising the definition of ``damaged'' production as not 
marketable and redefine ``marketable'' as what is marketable rather 
than what is not marketable (instead of having both definitions stated 
negatively).
    Response: Under the crop insurance program, the burden has always 
been on the producer to prove that the crop has been damaged by an 
insurable cause of loss. Consistent with this requirement, the apples 
are presumed marketable unless the producer can prove they qualify as 
damaged apple production. Therefore, the definition is intended to 
inform the producer of the burden that must be met. If the suggested 
revision were adopted, the apples would be presumed to be damaged 
unless they could be proved to be marketable. This may suggest that the 
burden had switched to the insurance provider to show the apples were 
marketable. This is not the intent of these definitions. Therefore, no 
change has been made.
    Comment: An insurance service organization stated FCIC should 
capitalize the entire title of ``United States Standards for Grades of 
Apples for Processing'' (``processing'' is not capitalized in the 
proposed language).
    Response: FCIC has accepted a previous suggestion to create a 
definition of ``grading standards'' that incorporates the above stated 
language. FCIC has also accepted the recommended change regarding 
capitalization in that definition.
    Comment: An insurance service organization recommended FCIC 
consider revising the definition of ``damaged apple production'' under 
the Optional Coverage for Fresh Fruit Quality Adjustment to be more 
readily apparent than referring to ``section 12 only'' and ``sections 
12 and 14''. If this is not changed, consider if it is necessary to 
refer to section 12 again (with section 14) in part B.
    Response: FCIC agrees that the standard in part B. is not 
applicable to section 12. Insurance against apples not grading U.S. 
Fancy or better, or such other grade standard contained in the Special 
Provisions is only provided under section 14. The definition has been 
revised accordingly.
    Comment: An insurance service organization asked that with the new 
definitions of ``fresh apples'' and ``processing apples'', what the 
effect will be on APH procedures. The commenter also asked whether 
production to count for APH purposes will continue to include 
processing production that is not included for loss purposes when the 
Optional Coverage for Fresh Fruit Quality Adjustment is elected. 
Further, the commenter asked whether these definitions will be carried 
through the entire APH and claims processes so only fresh production 
would be counted on both sides under the Optional Coverage for Fresh 
Fruit Quality Adjustment. Lastly, the commenter asked whether they will 
be required to keep two sets of APH databases (one for processing and 
one for fresh only).
    Response: Allowing fresh and processing apples in the same unit 
should not have any effect on the APH procedures. The APH for the unit 
will apply equally to all acreage in the unit, regardless of whether 
such acreage is intended for fresh or processing apples. As with the 
current crop policy, the production to count is determined for the 
whole unit under section 12 and will be used for APH purposes 
regardless of whether the Optional Coverage for Fresh Fruit Quality 
Adjustment is elected. Section 12 has been revised to make this clear. 
Therefore, there will only be one APH for the unit. Coverage under the 
Optional Coverage for Fresh Fruit Quality Adjustment starts with the 
premise that all production will grade at least U.S. Fancy or better, 
or such other grade standard contained in the Special Provisions. 
Therefore, the total amount of apples grading at least U.S. No. 1 
Processing is used to determine the APH under the Optional Coverage for 
Fresh Fruit Quality Adjustment as well as the base coverage under 
section 12. The APH procedures contained in the Crop Insurance Handbook 
and Apple Loss Adjustment Standards Handbook will be consistent with 
the policy.
    Comment: An insurance service organization asked: whether the 
distinction between ``fresh'' and ``processing'' consumption is 
sufficiently understood by all parties involved in the Apple policy and 
whether the reference to production sold ``for human consumption'' in 
the definition of ``harvest'' should also be included in one or more of 
the

[[Page 52586]]

definitions regarding different types of production and/or perhaps add 
a definition to identify the differences between fresh and processing.
    Response: FCIC has revised the definitions to clarify that fresh 
apples are those that are sold in the basic form and processing apples 
are those that have undergone a change to their basic form such as 
peeling, juicing, or crushing, etc. FCIC has also removed the 
references to the grade standards because it created an ambiguity 
regarding coverage since a fresh apple was defined as grading U.S. 
Fancy or better, or such other standard contained in the Special 
Provisions and only fresh apples qualified under the Optional Coverage 
for Fresh Fruit Quality Adjustment. This would effectively negate any 
coverage under that Option because the apples have to grade as U.S. 
Fancy or better, or such other standard contained in the Special 
Provisions to even qualify for coverage.
    Comment: An insurance service organization asked whether there 
should be a specific connection between the definitions of ``harvest'' 
and ``marketable. The commenter also asked if production were not 
considered harvested, would it ever be considered marketable. 
(Presumably, this could be true of apples not picked from the tree that 
are appraised as meeting the appropriate grade.)
    Response: Section 12 makes it clear that the marketable standard 
applies to both appraised and harvested production. The issue for 
coverage is only if the apple would meet the appropriate grade 
standard, not whether the apple was harvested. If the apple meets the 
appropriate grade standard, it is considered marketable. Therefore, no 
connection needs to be made between the definitions of ``marketable'' 
and ``harvested''. No change has been made.
    Comment: An insurance service organization asked whether by adding 
the definition of ``mature,'' is it RMA's intention that this 
definition takes precedence over the definition of ``mature'' contained 
in the United States Standards for Grades of Apples currently used in 
determining whether an apple meets the grade of U.S. Fancy?''
    Response: It is not FCIC's intent for the new definition of 
``mature'' to take precedence over the definitions in the United States 
Standards for Grades of Apples. Therefore, FCIC has revised the 
definition to specify that mature is whatever the United States 
Standards for Grades of Apples defines it to be.
    Comment: An insurance service organization stated the definition 
``non-contiguous'' is the same as the current definition in the 2004 
Basic Provisions, but the Basic Provisions Proposed Rule is pending 
revision that requires separate ownership. The commenter asked if this 
definition remains in the Apple Crop Provisions, whether it would take 
precedence over the definition in the Basic Provisions. There have been 
a number of questions concerning what is contiguous or non-contiguous, 
and it has been difficult to obtain an official answer from RMA, in 
part because of differing definitions in different regions.
    Response: FCIC agrees with the commenter and has removed the 
definition of non-contiguous in section 1 of these Crop Provisions 
because it is defined in the Basic Provisions.
    Comment: An insurance service organization noted the definition of 
``pound'' was deleted from the proposed rule. The commenter asked 
whether the generic definition of a ``pound'' as sixteen ounces 
avoirdupois no longer needed for apples. The term is used in the 
definitions of ``bin'', box,'' and ``bushel.''
    Response: FCIC agrees with the commenter. Therefore, the definition 
of ``pound'' as sixteen ounces avoirdupois has been added to these Crop 
Provisions.
    Comment: An insurance service organization commented on the 
definition ``production guarantee (per acre)''. This definition has 
been revised to allow the guarantee to be given as a number of bins as 
well as boxes or bushels. The commenter asked whether some areas use 
bins instead of boxes or bushels as the unit of measure. The commenter 
asked whether the definition include the phrase ``as applicable'' (as 
in the definition of ``damaged apple production'') to clarify that the 
unit of measure is not the insured's choice.
    Response: There are areas where the unit of measure may be bins, 
bushels, or boxes. However, it was not FCIC's intent to establish 
production guarantees in terms of bins. Bins will need to be converted 
to boxes or bushels. FCIC has revised the definition of ``production 
guarantee (per acre)'' accordingly.
    Comment: An insurance service organization disagrees with the 
proposed definitions of ``russeting'' and ``sunburn'' in the Crop 
Provisions. The commenter asked if they replace the terms ``russeting'' 
and ``sunburn'' as they appear in the grade standards, or is a 
different definition provided in the Special Provisions. The commenter 
states if the terms ``russeting'' and ``sunburn'' are referred to in 
the grade standards then policyholders will need to have a copy of the 
standards.
    Response: Since the determination of production to count is 
dependent on whether the apples meet certain grade standards, it is 
appropriate for the definitions of certain damage be the definition 
contain in such standards. If the definitions were different, it could 
cause confusion with respect to whether the apples actually meet the 
requisite grade. Since apples are required to be graded, producers have 
access to the grade standards and they do not need to be provided. FCIC 
has revised the definitions of ``russeting'' and ``sunburn'' for 
clarity. To clarify further, FCIC has modified the cause of loss 
section 10 to specify the causes of ``russeting'' and ``sunburn''.
    Comment: An insurance service organization commented on the 
definition of ``type'' and asked how varietal groups are going to 
appear in the Special Provisions. The commenter states that currently 
they are included as a type but the proposed Crop Provisions list only 
fresh and processing apples as types.
    Response: FCIC agrees the definition of ``type'' should be 
clarified and has revised the definition to include varietal groups. 
Consistent with this change, FCIC has removed the references to 
varietal groups in section 3.
    Comment: An insurance service organization suggested the definition 
of ``type'' may not need to begin with the word ``Either'.
    Response: FCIC agrees and has made the change accordingly.
    Comment: An insurance service organization questioned section 
2(a)(1) and (2) and asked whether both non-contiguous land and 
different varietal groups must be satisfied in order to qualify for 
optional units. For example, if an insured has a block of Varietal 
Group A apples contiguous with a block of Varietal Group B apples, the 
commenter stated this would not be eligible for optional units since 
the blocks are contiguous even though they have different varietal 
groups. The commenter stated that if this is the intent, it is a change 
from the current policy under Varietal Group Option C.
    Response: FCIC will allow optional units for either non-contiguous 
land or by varietal group. FCIC has revised this section to remove the 
word, ``and'' and replace it with the word ``or'' to clarify this 
intent.
    Comment: An insurance service organization commented on section 
2(a)(2) noting there have been concerns with allowing optional units by 
varietal group without having any indication of what varietal groups 
might be specified in the actuarial documents. The commenter asked 
whether the varietal

[[Page 52587]]

groups be standard or vary from one region to another or one county to 
another.
    Response: The varietal groups are the same as in the past, and will 
remain consistent from region to region. Varietal groupings are 
reviewed annually and changes are specified in the Special Provisions.
    Comment: An insurance service organization commented on section 
2(a)(2) asking if the proposed changes go through, and optional units 
by varietal group are a part of the basic policy whether all existing 
databases will have to be divided according to varietal group. The 
commenter states that if separate varietal groups were designated in 
the Special Provisions, databases would have to be set up accordingly, 
even on CAT policies. It claims that this change could create quite an 
administrative burden, including large numbers of inspections to 
provide acceptable separate records for optional unit purposes.
    Response: Databases would have to be established according to the 
types specified in the Special Provisions. Since varietal groups are 
identified as a type under the current policy, separate databases are 
already required. Therefore, this change will not increase the 
administrative burden. No change has been made.
    Comment: An insurance service organization commented on section 
2(a)(2) stating they had received one comment recommending the varietal 
groups be divided according to time of maturity or normal harvest dates 
instead of by price. The commenter stated this would allow loss 
adjustments to be made more timely and efficiently by unit. If every 
unit must be appraised before harvest, it would make sense to have 
units composed of varieties that normally will be harvested at similar 
times.
    Response: The recommendation to change the varietal groupings to a 
maturity basis rather than by price has merit. However, this would add 
increased complexity since there will be different prices within each 
unit. There is insufficient time to assess the impact of these changes 
on the program and make these changes prior to the start of the 2005 
crop year. The recommendations will be considered for the future. 
Therefore, no change has been made.
    Comment: Three trade associations and five growers commented on 
section 2 and asked FCIC to consider allowing growers to define 
orchards as smaller units using public right-of-ways or other 
discernible breaks. The current policy prohibits use of public and 
private right-of-ways to separate contiguous orchard blocks.
    Response: The language in the proposed rule concerning optional 
unit division guidelines is consistent with other perennial crops. 
There is no rational basis to allow such changes in this policy but not 
in the other similar perennial crops. Such changes would have to be 
made to the definition of ``non-contiguous'' in the Basic Provisions 
and apply to all similarly situated crops. Further, FCIC is conducting 
an evaluation regarding optional units and the appropriate rates. Until 
such evaluation is done, it would not be appropriate to create smaller 
optional units than currently allowed under the Basic Provisions or 
other Crop Provisions.
    Comment: An insurance service organization commented on section 
2(b) and asked FCIC what the qualifications are for optional units. For 
example, an insured with buy-up coverage and separate records by tract 
does not qualify for optional units or is that covered sufficiently by 
the Basic Provisions.
    Response: The Basic Provisions contain the record keeping and other 
requirements to qualify for optional units. Therefore, the provisions 
regarding coverage and records have been removed from the Crop 
Provisions and the provisions in the Basic Provisions will control.
    Comment: An insurance service organization commented that section 
3(b)(1), requires growers to report any changes to the orchards that 
would affect the guarantee, while section 3(c) states that the 
guarantee will be reduced in the event of certain changes to the 
orchard. The commenter suggested the following revision to section 
3(c), ``We will reduce your production guarantee, or assess uninsured 
causes of loss as necessary * * *'' as an alternative in cases such as 
unreported tree removals.
    Response: To allow both an adjustment in the guarantee and 
assessment of uninsured causes of loss would add an unnecessary 
complexity to the program. Without language to distinguish which action 
would result in an adjustment of the yield and which would result in 
assessment of uninsured causes of loss, the provisions may be applied 
differently by the different insurance providers. Further, the factors 
contained in section 3(a) can affect the yield potential of the orchard 
so adjustments are appropriately made to the guarantee. In addition, 
the language is consistent with most other perennial crops. Therefore, 
no change has been made.
    Comment: An insurance service organization commented on section 4 
by suggesting FCIC add a missing word ``date'' in phrase ``* * * 
cancellation date for California * * * ''.
    Response: FCIC agrees and has added the word ``date'' to the 
sentence.
    Comment: An insurance service organization commented on section 
5(b) by asking whether it is necessary to refer to ``whichever is 
later'' of the cancellation and termination dates. If the insurance 
provider is canceling a policy rather than terminating it, the 
commenter asked whether the cancellation date would apply even if it 
were earlier than the termination date.
    Response: There is nothing in this provision that would permit the 
termination date to apply to cancellation of the policy or vice versa. 
However, this point is moot because the cancellation and termination 
dates are the same. This language is included because the insurance 
period ends when the crop is harvested and for the subsequent crop 
year, insurance attaches on the next day. This means that insurance 
could attach before the cancellation or termination dates. Questions 
had arisen regarding whether insurance coverage was provided during 
that period between insurance attachment and termination or 
cancellation and whether premium would then be owed. FCIC added this 
provision to clarify that insurance is not provided and no premium is 
owed for that period. The term ``whichever is later'' is necessary just 
to identify the applicable time period in the event the termination or 
cancellation date is changed so they are not the same date.
    Comment: An insurance service organization suggested that section 
5(b) be revised to read, ``* * * canceled or terminated by us in 
accordance with the terms of the policy after insurance attached for 
the crop year but on or before the applicable cancellation or 
termination date, insurance will be considered not to have attached * * 
* '' or ``* * * will not be considered to have attached * * * '' but 
not ``* * * to not have attached * * * ''.
    Response: FCIC agrees that the suggested language is more 
grammatically correct and has revised the provision accordingly.
    Comment: An insurance service organization commented on section 
7(b) and asked why this provision is not being revised to require the 
acreage meet production insurability requirements within a specific 
time frame to remain insurable, as has been done with other fruit 
policies (such as pears and grapes) as they were revised. For example, 
once apples in Area A

[[Page 52588]]

produce an average of 10 bins, they are insurable from that time on. 
However, when that 10-bin year rolls off the 5-year database, that unit 
would appear to be uninsurable.
    Response: FCIC agrees that the trees and production should be 
reviewed periodically to ensure that the minimum threshold for 
insurability is met. FCIC has revised the provision to require that the 
minimum threshold of production must be met at least one out of the 
four previous years.
    Comment: An insurance service organization commented on section 
7(b) and suggested FCIC rearrange the language as follows to reduce 
repeated phrases.
    ``(b) That are grown on tree varieties that are adapted to the area 
and have produced at least an average of:
    ``(1) 10 bins of apples per acre in Area A;
    ``(2) 150 bushels of apples per acre in Area B;
    ``(3) 200 bushels of apples per acre in Area C.''
    Response: FCIC agrees with the commenter and has revised the 
provisions accordingly.
    Comment: An insurance service organization commented on section 8 
stating this allows insurance on apples interplanted with another 
perennial crop subject to inspection. Other ``interplanted'' references 
are in section 3(b)(4) and 3(c)(4)(i). The commenter states that these 
references should be in separate sections but asks whether cross 
referencing be considered to clarify this information.
    Response: FCIC realizes that other sections of the provisions refer 
to interplanting with another perennial crop, but section 8 refers only 
to the insurability of the apples, and other sections refer to 
reporting of the interplanted crop and the possible effect on the 
coverage. Since the purposes are different, it may cause confusion to 
cross reference other sections. Therefore, no change has been made.
    Comment: An insurance service organization commented on section 
9(a)(1) stating that by allowing 20 days instead of the current 10 days 
to inspect initial applications is an improvement, but 30 days would be 
even better and would match the amount of time allowed in some other 
perennial crop policies.
    Response: Crops that allow 30 days to inspect the crop are usually 
those where there is little risk of loss within the first 30 days, such 
as pecans, which are produced mostly in the south. However, apples are 
produced all over the country and in areas in the north, the risk can 
increase as the insurance period progresses. FCIC determined that, 
while there was universal agreement that 10 days was not an adequate 
amount of time, 30 days would be too long. While the risk still exists 
by allowing 20 days, it provides a compromise between the interests of 
producers and the insurance providers. Therefore, no change has been 
made.
    Comment: An insurance service organization commented on section 
9(a)(1) stating the proposed language is poorly written and suggest 
FCIC rearrange the first two sentences to read as follows:
    ``(1) For the year of application, coverage begins:
    ``(a) In California, February 1 * * *
    ``(b) In all other states, November 21* * *
    ``However, if your application is received by us less than 20 days 
prior to this date, insurance will attach on the 20th day * * *''
    Response: FCIC cannot adopt the recommended change because it is no 
longer permitted to have undesignated provisions in regulations and the 
sentence beginning with ``However,'' is undesignated and in the 
recommended format, there is no appropriate designation. Therefore, no 
change has been made.
    Comment: An insurance service organization commented the last 
sentence in section 9(a)(1) of the current apple policy is ``You must 
provide any information we require for the crop to determine the 
condition of the orchard.'' Proposed language changes this to ``* * * 
we require for the crop or to determine the condition of the apple 
acreage.'' The commenter asked whether the information that can be 
required has been changed.
    Response: There has been a change in the information that can be 
required. Originally, the provision only permitted requests for 
information regarding the crop and that information would be used to 
determine the condition of the orchard. Under the proposed language, 
information can be requested regarding the crop or the acreage. Since 
there are separate insurability requirements for the crop and the 
acreage, insurance providers need access to the relevant information 
regarding both. No change has been made.
    Comment: An insurance service organization suggested FCIC modify 
section 9(a)(2) to delete the comma after ``year of application''. 
Also, consider changing the opening phrase to ``For each subsequent 
crop year that the policy remains.* * * '' Since the preceding item in 
section, 9(a)(1) addresses ``the year of application'', and is 
redundant.
    Response: FCIC agrees and has revised the provisions accordingly.
    Comment: An insurance service organization commented on section 
9(a)(3) stating the summary of changes in the ``Background'' portion of 
the proposed rule indicates the calendar date for the end of the 
insurance period was changed because California varieties ``are 
typically harvested later than other varieties.'' However, the date 
listed for California remains at November 5 with the possibility of a 
different date in the Special Provisions. All other states changed from 
November 5 to November 20. In addition, it appears that only California 
counties are eligible for a different calendar date for the end of the 
insurance period in the Special Provisions without having to run the 
Apple Crop Provisions through another proposed rule. If this is the 
intent, the commenter suggests revising the language to read as 
follows:
    ``(3) The calendar date for the end of the insurance period for 
each crop year is:
    ``(a) November 5 in California, unless otherwise specified in the 
Special Provisions;
    ``(b) November 20 in all other states.''
    Response: FCIC agrees the proposed language was not correct. The 
reference to the different insurance period for California was intended 
to refer to the start of the insurance period, not the end of the 
period. However, flexibility was needed in those cases where the 
varieties are harvested later but this could apply to all states, not 
just California. FCIC has revised the provision to specify that the 
calendar date for the end of the insurance period for all states is 
November 5 or such other date as specified in the Special Provisions. 
This allows the flexibility for all states to have the end of the 
insurance period adjusted as necessary.
    Comment: An insurance service organization questioned section 
9(a)(4) and the need for stating, ``Cancellation and termination 
provisions * * * are contained in section 5 of these crop provisions'' 
in this section.
    Response: Language is needed in section 9 regarding the effect of 
cancellation or termination after insurance has attached because it 
would affect the insurance period. However, FCIC has redrafted the 
provision for clarity.
    Comment: An insurance service organization commented on section 
9(b)(2) noting they had received one recommendation that the policy 
language needs to clarify that premium is still due if the insurable 
share is relinquished after the acreage reporting date.

[[Page 52589]]

    Response: FCIC agrees the silence regarding the effect of 
relinquishing the insurable share after the acreage reporting date may 
create an ambiguity regarding whether such premium is owed. Since this 
issue is not clearly addressed in section 7 of the Basic Provisions, 
FCIC has revised the provisions to clarify that premium is still owed 
if the insurable share is relinquished after the acreage reporting 
date.
    Comment: An insurance service organization commented that the cause 
of loss in section 10(a) stating ``Fire'' should be revised and 
clarified by including ``Fire, due to natural causes, unless weeds * * 
*''.
    Response: This change is not necessary because the Act requires all 
causes of loss to be natural causes, not just fire. Specifically 
referring to natural disasters with respect to fire but not the other 
causes of loss could create the impression that other such causes could 
be something other than from natural causes. Further, section 12 of the 
Basic Provisions now specifically refers to ``unavoidable'' causes of 
loss due to ``naturally occurring events''. No change has been made.
    Comment: An insurance service organization and eighteen growers 
commented on section 10(a)(7) stating the language is too ambiguous and 
references a condition and not a natural insured cause of loss.
    Response: FCIC realizes some terms in section 10(a)(7) are not a 
natural insured cause of loss but rather a condition resulting from a 
natural insured cause of loss. However, in the past there have been 
questions regarding the insurability of these conditions even if 
occurring as a result of a covered cause of loss. FCIC has revised the 
language to clarify that these conditions are covered if caused by an 
insured cause of loss and causes the apples to fail to meet the 
applicable grade standards in the policy.
    Comment: An insurance service organization stated it is concerned 
that all policies, including CAT policies, will be covered for all 
insurable causes that result in apple production grading less than U.S. 
No.1 Processing Grade.
    Response: Under the proposed rule, all policies, including CAT 
policies, are covered by all insurable causes that result in the apple 
production grading less than U.S. No.1 Processing Grade. However, as 
stated above, the premium will be increased to cover the expected 
losses with the additional coverage, consistent with section 508(i)(1) 
of the Act. Therefore, no change has been made.
    Comment: An insurance service organization expressed concerns 
regarding the increase of minimum standards from U.S. Cider Grade to 
U.S. No. 1 Processing Grade. This increase could make it difficult for 
loss adjusters to determine if apples meet the U.S. No. 1 Processing 
Grade.
    Response: FCIC disagrees with the commenter. This is not 
significantly different than other loss adjustment procedures that 
require knowledge of variety, crop maturity, and weather-related 
losses. Further, the burden is on the producer to prove the apples 
failed to grade U.S. No. 1 Processing due to an insurable cause of loss 
or else the apples are considered as production to count. Therefore, 
the apples will have to be graded, and this grade will be used to 
determine whether the apples count as production to count. Specific 
instructions will be available in the Apple Loss Adjustment Standards 
Handbook.
    Comment: An insurance service organization asked why FCIC is 
including damages for russeting, sunburn, and failure to size, shape, 
or color properly, when the standard Apple Policy insures only 
processing apples and none of these defects are included in the United 
States Standards for Grades of Apples.
    Response: The causes of loss in section 10 applies to both the 
basic coverage and the Optional Coverage for Fresh Fruit Quality 
Adjustment. Such standards are applicable to the grading standards for 
U.S. Fancy. However, to eliminate the ambiguity regarding the 
applicability of these conditions and the other stated insurable causes 
of loss, section 10 has been revised to clarify that insurance is 
provided against the named insurable causes of loss that results in 
damaged apple production. Therefore, to the extent the above stated 
conditions are not caused by an insurable cause of loss and do not 
cause the apples to grade less than U.S. No. 1 Processing or U.S. 
Fancy, as applicable, the apples will still be considered as production 
to count.
    Comment: An insurance service organization asks if failure of the 
fruit to size, shape, or color properly is always due to natural 
causes.
    Response: No, if failure of the fruit to size, shape, or color 
properly is due to failure of the insured to follow good farming 
practices, it is not an insurable cause of loss. The insured must be 
able to prove that the failure of the fruit to size, shape, or color 
properly is specifically due to an insured cause of loss.
    Comment: An insurance service organization states the color of 
apples could change on a daily basis due to weather conditions and 
varietal characteristics. The commenter asks how insurance providers 
are to adjust these losses.
    Response: This is not significantly different than other loss 
adjustment procedures that require knowledge of variety, crop maturity, 
and weather-related losses. Loss adjuster will determine if the damage 
was caused by an insurable cause of loss and graders will grade the 
apples and these grades will be used to adjust losses. Specific 
instructions will be available in the Apple Loss Adjustment Standards 
Handbook. Therefore, no change has been made.
    Comment: An insurance service organization asked why ``disease'' 
and ``insect infestation'' were listed as excluded perils, when all 
current provisions include them as covered perils with exclusions. They 
also asked under section 10(b)(1)(ii) how adverse weather causes 
disease or insect infestation.
    Response: For consistency with other perennial crops, FCIC is 
moving the provisions back to the insured cause of loss provisions. 
However, this does not change the responsibility of the producer to 
prove that the disease or insect infestation occurred and that all 
proper control measures have been used.
    Comment: An insurance service organization commented on the removal 
of the provisions from the current Apple Crop Provisions, which state: 
``Mechanical damage including, but not limited to, limb rubs, scars and 
punctures,'' and asked if mechanical damage will continue to be an 
uninsured cause of loss since it is not due to a natural cause.
    Response: The language in the old policy created the presumption 
that limb rub, scars, and punctures were always caused by mechanical 
damage, which may not be the case. By removing this exclusion, 
mechanical damage remains an uninsured cause of loss because it is not 
a natural cause but any limb rubs, scars, and punctures due to an 
insurable cause of loss are covered if they result in damaged apple 
production. For example, high winds can inflict these damages and would 
be covered under the policy. Further, apples adjusted prior to harvest 
will not normally have mechanical damage. Therefore, no change has been 
made.
    Comment: An insurance service organization commented on section 
11(c) asking why the current policy language ``* * * we may consider 
all such production to be undamaged * * *'' has changed to a passive 
tone ``* * * all such production will be considered undamaged * * *''

[[Page 52590]]

    Response: FCIC agrees with the commenter and has revised the 
statement accordingly.
    Comment: An insurance service organization questioned the necessity 
of the phrase in section 12 in the Basic Coverage example ``that graded 
U.S. No. 1 Processing or better'' after ``$4.76 per bushel for 
processing apples'' (covered by the new ``fresh apples'' definition). 
The commenter stated that if it were not deleted, then it would seem 
the reference to fresh apples should include ``$9.10 per bushel for 
fresh apples that graded U.S. Fancy or better''.
    Response: FCIC agrees that the reference to the grade standard is 
not appropriate after the price for processing apples. Including the 
references would suggest that the fresh apples must grade U.S. Fancy or 
an indemnity may be paid but this is not the case. As long as the 
apples grade U.S. No. 1 Processing or higher, they are counted as 
production to count. The price is only used to determine the value of 
such production. However, it still needs to be made clear that the 
fresh and processing apples produced are marketable. FCIC has revised 
the provision to specify that the amount produced is marketable.
    Comment: An insurance service organization commented on revising 
section 12, Basic Coverage example, step 1 from ``6,000-bushels 
guarantee'' and ``3,000-bushels guarantee'' to ``6,000 bushel fresh * * 
* 3,000 bushel processing * * *''
    Response: Step 1 states that the 6,000 bushel guarantee is for 
fresh apples and the 3,000 bushel guarantee is for processing apples. 
No further reference to fresh or processing apples is necessary. 
Therefore, no change has been made.
    Comment: An insurance service organization noted that in section 
12, Basic Coverage example, steps 6 and 7, the figures are incorrect. 
The indemnity amount should be $18,620.00 instead of $18,540.00.
    Response: FCIC agrees and has made the correction accordingly.
    Comment: An insurance service organization suggested moving the 
Basic Coverage example to the end of section 12 or moving it to the end 
of the Crop Provisions.
    Response: FCIC agrees with the commenter. Since the example also 
relies on a determination of production to count, it should be moved to 
after section 12(c).
    Comment: An insurance service organization commented that the Basic 
Coverage example should include the term ``bins'' in the reference to 
total apple production (in boxes, bins, or bushels).
    Response: Since FCIC has removed the reference to ``bins'' from the 
definition of ``production guarantee (per acre),'' bins are no longer 
to be used as a measure of production for the purposes of the guarantee 
or production to count. Bins must be converted to bushels or boxes. 
Therefore, no change has been made.
    Comment: An insurance service organization commented on section 
12(c)(3) stating this should be an unnumbered paragraph following 
section 12(c)(2) or renumbered as section 12(d). It does not flow from 
the lead-in of section 12(c) indicating the total production to count.
    Response: FCIC agrees but it has removed section 12(c)(3) because 
it is not necessary. Section 14 has been revised to specify it is 
adjusting the harvested and appraised marketable fresh apple 
production.
    Comment: An insurance service organization recommended reversing 
the order in section 14(b)(1) and (2) to address what is required to be 
eligible before specifying the deadlines involved.
    Response: FCIC agrees and has revised the provisions accordingly.
    Comment: An insurance service organization recommended rewording 
the language in section 14(b)(4) to state: ``In lieu of sections 
12(c)(1)(iii) and (iv) and (2), the production to count for appraised 
and harvested production for fresh apple acreage will include all fresh 
apple production in accordance with this option.''
    Response: FCIC agrees the language must be modified and has revised 
it to clarify that all appraised and harvested marketable production of 
fresh apples is included as production to count and such production may 
be adjusted under the option.
    Comment: An insurance service organization commented on the 
language in the current Fresh Fruit Option B that refers to adjusting 
production to count when damaged, harvested production ``does not grade 
80 percent U.S. Fancy or better.'' The commenter stated that the 
proposed language for the Optional Coverage for Fresh Fruit Quality 
Adjustment says adjustments apply when damage results in production 
where ``* * * 80 percent or more of the fresh apples do not grade U.S. 
Fancy or better * * *'' The commenter states that the proposed language 
appears to be the opposite from before and question whether this was 
intended. The commenter asks if it is really the intent to adjust the 
production to count only when less than 20 percent grade U.S. Fancy or 
better.
    Response: The intent is to provide adjustments in production to 
count in the Optional Coverage for Fresh Fruit Quality Adjustment when 
the fresh apple production is damaged to the extent that more than 20 
percent of the apples do not grade U.S. Fancy or better. FCIC has made 
the appropriate changes to the Optional Coverage for Fresh Fruit 
Quality Adjustment.
    Comment: An insurance service organization commented on the 
Optional Coverage for Fresh Fruit Quality Adjustment example, stating 
that it is difficult to follow how a loss is calculated under the 
Optional Coverage for Fresh Fruit Quality Adjustment example as 
written. The commenter claims that step (4) in this example is 
confusing as described. The commenter also states that it needs to be 
clearer on where the 55 percent and 45 percent figures come from since 
55 percent ends up being both the percent grading U.S. Fancy or better 
and the total percentage reduction of the production to count from 
section 14(b)(5).
    Response: FCIC agrees with the commenter. Therefore, the example 
has been modified for clarification.
    Comment: An insurance service organization and insurance provider 
commented on the Optional Coverage for Fresh Fruit Quality Adjustment 
example, stating that both examples (Basic Coverage and Optional 
Coverage for Fresh Fruit Quality Adjustment examples) should be at the 
end of the Crop Provisions. Since the introductory information is 
identical, it would not have to be repeated and the separate calculated 
examples would be identified in accordance to the type of coverage 
involved.
    Response: The introductory text is the same in most instances but 
the example in section 14 requires the apple production not grading 
U.S. Fancy, which is immaterial to the example under section 12. FCIC 
has determined that it would be better to keep the examples separate to 
avoid any confusion regarding the applicability of the provisions in 
section 12 and those in section 14. Therefore, no change has been made.
    In addition to the changes described above, FCIC has made minor 
editorial and the following changes:
    1. Removed section 3(d) because it no longer is applicable and has 
been removed from the Basic Provisions.
    2. Revised section 6 to specify that blocks of apple acreage grown 
for processing are not eligible for the Optional Coverage for Fresh 
Quality

[[Page 52591]]

Adjustment option contained in section 14 of these Crop Provisions.
    Good cause is shown to make this rule effective less than 30 days 
after publication in the Federal Register. Good cause to make the rule 
effective less than 30 days after publication 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 implementation of improved insurance 
benefits until the 2006 crop year. The public interest is served by 
improving the insurance product as follows: (1) Revising Fresh Fruit 
Option B (now the Optional Coverage for Fresh Fruit Quality Adjustment) 
to provide coverage for all perils so that producers receive adequate 
coverage, thereby stabilizing the farm economy and reducing the need 
for ad hoc disaster payment; (2) eliminating several options under the 
current program, which will eliminate program complexity and confusion; 
(3) incorporating sunburn caused by excessive sun as an insured cause 
of loss under the Basic Apple Crop Provisions to provide additional 
coverage, thereby stabilizing the farm economy and reducing the need 
for ad hoc disaster payment; and (4) providing simplification and 
clarity to the apple crop insurance program.
    If FCIC is required to delay the implementation of this rule 30 
days after the date it is published, the provisions of this rule could 
not be implemented until the 2006 crop year. This would mean the 
affected producers would be without the benefits described above for an 
additional year.
    For the reasons stated above, good cause exists to make these 
policy changes less than 30 days after the date of publication in the 
Federal Register.

List of Subjects in 7 CFR Part 457

    Crop insurance, Reporting and recordkeeping requirements.

0
Accordingly, as set forth in the preamble, the Federal Crop Insurance 
Corporation amends 7 CFR part 457 for the 2005 and succeeding crop 
years 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(l) and 1506(p).


0
2. Revise Sec.  457.158 as follows:


Sec.  457.158  Apple crop insurance provisions.

    The Apple Crop Insurance Provisions for the 2005 and succeeding 
crop years are as follows:
* * * * *
    1. Definitions
    Apple production. All production of fresh apples and processing 
apples from the insurable acreage.
    Area A. A geographic area that includes Montana, Wyoming, Utah, New 
Mexico and all states west thereof.
    Area B. A geographic area that includes all states not included in 
Area A, except Colorado.
    Area C. Colorado.
    Bin. A container that contains a minimum of 875 pounds of apples or 
another quantity as designated in the Special Provisions.
    Box. A container that contains 35 pounds of apples or another 
quantity as designated in the Special Provisions.
    Bushel. In all states except Colorado, 42 pounds of apples. In 
Colorado, 40 pounds of apples.
    Damaged apple production.
    (1) With respect to losses calculated under section 12 only, the 
percentage of fresh or processing apple production that fails to grade 
U.S. No. 1 Processing or better in accordance with the grade standards, 
within each lot, bin, bushel or box, as applicable, due to an insurable 
cause of loss; or
    (2) With respect to losses calculated under section 14, the 
percentage of fresh apple production that fails to grade U.S. Fancy or 
better in accordance with the grade standards, within each lot, bin, 
bushel, or box, as applicable, due to an insurable cause of loss.
    Direct marketing. Sale of the insured crop directly to consumers 
without the intervention of an intermediary such as a wholesaler, 
retailer, packer, processor, shipper, buyer, or broker. Examples of 
direct marketing include selling through an on-farm or roadside stand, 
or a farmer's market, and permitting the general public to enter the 
field for the purpose of picking all or a portion of the crop.
    Fresh apples. Apple production:
    (1) That is sold, or could be sold, for consumption without 
undergoing any change in its basic form, such as peeling, juicing, 
crushing, etc.; and
    (2) From acreage that is reported as fresh apples on the acreage 
report.
    Grade standards. The United States Standards for Grades of Apples, 
the United States Standards for Grades of Apples for Processing, or 
such other standards contained in the Special Provisions.
    Harvest. The picking of mature apples from the trees or collecting 
of mature apples from the ground. Apples collected from the ground that 
cannot be sold for human consumption will not be considered harvested.
    Lot. A quantity of production that can be separated from other 
quantities of production by grade characteristics, load, location or 
other distinctive features.
    Marketable. Apple production that is not damaged apple production.
    Mature. Apples defined as ``mature'' under the applicable grade 
standards.
    Pounds. Sixteen (16) ounces avoirdupois.
    Processing apples. Apple production:
    (1) That is sold after it had undergone a change to its basic 
structure such as peeling, juicing, crushing, etc.; and
    (2) From acreage designated as processing apples on the acreage 
report.
    Production guarantee (per acre). The quantity of apples in boxes or 
bushels determined by multiplying the approved APH yield per acre by 
the coverage level percentage you elect. If the production of apples 
has been measured in bins, the amount must be converted to boxes or 
bushels.
    Russeting. A defect on the surface of the apple as described in the 
grade standards.
    Sunburn. A defect as described in the grade standards.
    Type. Fresh, processing, or varietal group apples as specified in 
the Special Provisions.
    Varietal group. Apple varieties with similar characteristics that 
are grouped for insurance purposes as specified in the Special 
Provisions.
    2. Unit Division
    (a) In addition to the requirements of section 34(b) of the Basic 
Provisions, optional units may be established if each optional unit is:
    (1) Located on non-contiguous land; or
    (2) By varietal group.
    3. Insurance Guarantees, Coverage Levels, and Prices for 
Determining Indemnities
    In addition to the requirements of section 3 of the Basic 
Provisions:
    (a) You may select only one price election for all the apples in 
the county insured under this policy unless the Special Provisions 
provide different price elections by type, in which case you may select 
one price election for each apple type designated in the Special 
Provisions. The price elections you choose for each type must have the 
same percentage relationship to the maximum price offered by us for 
each type. For example, if you choose 100 percent of the maximum price 
election for one type, you must also choose 100 percent of the maximum 
price election for all other types.

[[Page 52592]]

    (b) You must report, by the production reporting date designated in 
section 3 of the Basic Provisions, by type, if applicable:
    (1) Any damage, removal of trees, change in practices, or any other 
circumstance that may reduce the expected yield below the yield upon 
which the insurance guarantee is based, and the number of affected 
acres;
    (2) The number of bearing trees on insurable and uninsurable 
acreage;
    (3) The age of the trees and the planting pattern; and
    (4) For the first year of insurance for acreage interplanted with 
another perennial crop, and any time the planting pattern of such 
acreage has changed:
    (i) The age and type of the interplanted crop, if applicable;
    (ii) The planting pattern; and
    (iii) Any other information that we request in order to establish 
your approved yield.
    (c) We will reduce the yield used to establish your production 
guarantee as necessary, based on our estimate of the effect of the 
following: Interplanted perennial crop; removal of trees; damage; 
change in practices; and any other circumstance on the yield potential 
of the insured crop. If you fail to notify us of any circumstance that 
may reduce your yields from previous levels, we will reduce your 
production guarantee as necessary at any time we become aware of the 
circumstance.
    4. Contract Changes
    In accordance with section 4 of the Basic Provisions, the contract 
change date is October 31 preceding the cancellation date for 
California and August 31 preceding the cancellation date for all other 
states.
    5. Cancellation and Termination Dates
    (a) In accordance with section 2 of the Basic Provisions, the 
cancellation and termination dates are January 31 in California and 
November 20 in all other states.
    (b) If your apple policy is canceled or terminated by us for any 
crop year, in accordance with the terms of the policy, after insurance 
attached for that crop year, but on or before the cancellation and 
termination dates whichever is later, insurance will be considered to 
have not attached for that crop year and no premium, administrative 
fee, or indemnity will be due for such crop year.
    (c) We may not cancel your policy when an insured cause of loss has 
occurred after insurance attached, but prior to the cancellation date. 
However, your policy can be terminated if a cause for termination 
contained in sections 2 or 27 of the Basic Provisions exists.
    6. Report of Acreage
    In addition to the requirements contained in section 6 of the Basic 
Provisions, you must report and designate all acreage by type by the 
acreage reporting date. Blocks of apple acreage grown for processing 
are not eligible for the Optional Coverage for Fresh Quality Adjustment 
option contained in section 14 of these Crop Provisions.
    7. Insured Crop
    In accordance with section 8 of the Basic Provisions, the crop 
insured will be all apples in the county for which a premium rate is 
provided by the actuarial table:
    (a) In which you have a share;
    (b) That are grown on tree varieties that are adapted to the area 
and have, in at least one of the previous four years, produced:
    (1) 10 bins of apples per acre in Area A; or
    (2) 150 bushels of apples per acre in Area B; or
    (3) 200 bushels of apples per acre in Area C; and
    (c) That are grown in an orchard that, if inspected, is considered 
acceptable by us.
    8. Insurable Acreage
    In lieu of the provisions in section 9 of the Basic Provisions that 
prohibit insurance from attaching to a crop planted with another crop, 
apples interplanted with another perennial crop are insurable unless we 
inspect the acreage and determine that it does not meet the 
requirements contained in your policy.
    9. Insurance Period
    (a) In accordance with the provisions of section 11 of the Basic 
Provisions:
    (1) For the year of application in California, coverage begins on 
February 1 of the calendar year the insured crop normally blooms. In 
all other states, coverage begins November 21 of the calendar year 
prior to the calendar year the insured crop normally blooms, except 
that, if your application is received by us after January 12 but prior 
to February 1 in California, or after November 1 but prior to November 
21 in all other states, insurance will attach on the 20th day after 
your properly completed application is received in our local office, 
unless we inspect the acreage during the 20-day period and determine 
that it does not meet insurability requirements. You must provide any 
information that we require for the crop or to determine the condition 
of the apple acreage.
    (2) For each subsequent crop year that the policy remains 
continuously in force, coverage begins on the day immediately following 
the end of the insurance period for the prior crop year. Policy 
cancellation that results solely from transferring an existing policy 
to a different insurance provider for a subsequent crop year will not 
be considered a break in continuous coverage.
    (3) The calendar date for the end of the insurance period for each 
crop year is November 5, or such other date as specified in the Special 
Provisions.
    (4) Notwithstanding the provisions in this section, coverage will 
not be considered to have begun for a crop year if the policy is 
canceled or terminated in accordance with section 5(b).
    (b) In addition to the provisions of section 11 of the Basic 
Provisions:
    (1) If you acquire an insurable share in any insurable acreage 
after coverage begins but on or before the acreage reporting date for 
the crop year, and after an inspection we consider the acreage 
acceptable, insurance will be considered to have attached to such 
acreage on the calendar date for the beginning of the insurance period. 
There will be no coverage of any insurable interest acquired after the 
acreage reporting date.
    (2) If you relinquish your insurable share on any insurable acreage 
of apples on or before the acreage reporting date for the crop year, 
insurance will not be considered to have attached to, and no premium or 
indemnity will be due for such acreage for that crop year unless:
    (i) A transfer of coverage and right to an indemnity, or a similar 
form approved by us, is completed by all affected parties;
    (ii) We are notified by you or the transferee in writing of such 
transfer on or before the acreage reporting date; and
    (iii) The transferee is eligible for crop insurance.
    (3) If you relinquish your insurable share on any insurable acreage 
of apples after the acreage reporting date for the crop year, insurance 
coverage will be provided for any loss due to an insurable cause of 
loss that occurred prior to the date that you relinquished your 
insurable share and the whole premium will be due for such acreage for 
that crop year.
    10. Causes of Loss
    (a) 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 and result in damaged apple 
production:
    (1) Adverse weather conditions;
    (2) Fire unless weeds and other forms of undergrowth have not been

[[Page 52593]]

controlled or pruning debris has not been removed from the orchard;
    (3) Insects, but not damage due to insufficient or improper 
application of pest control measures;
    (4) Plant disease, but not damage due to insufficient or improper 
application of disease control measures;
    (5) Earthquake;
    (6) Volcanic eruption;
    (7) Failure of irrigation water supply, if caused by an insured 
peril that occurs during the insurance period;
    (8) Wildlife; and
    (9) All other natural causes of loss that cannot be prevented, 
including, but not limited to, hail, wind, excess sun causing sunburn 
and frost and freeze causing russeting.
    (b) In addition to the causes of loss excluded in section 12 of the 
Basic Provisions, we will not insure against damage or loss of 
production due to your inability to market the apples for any reason 
other than actual physical damage from an insurable cause specified in 
this section. For example, we will not pay you an indemnity if you are 
unable to market due to quarantine, boycott, or refusal of any person 
to accept production.
    11. Duties in the Event of Damage or Loss
    In addition to the requirements of section 14 of the Basic 
Provisions, the following will apply:
    (a) You must notify us at least 3 days prior to the date harvest 
should have started if the crop will not be harvested.
    (b) You must notify us at least 15 days before any production from 
any unit will be sold by direct marketing. We will conduct an appraisal 
that will be used to determine your production to count for production 
that is sold by direct marketing. If damage occurs after this 
appraisal, we will conduct an additional appraisal. These appraisals, 
and any acceptable records provided by you, will be used to determine 
your production to count. Failure to give timely notice that production 
will be sold by direct marketing will result in an appraised amount of 
production to count of not less than the production guarantee per acre 
if such failure results in our inability to make the required 
appraisal.
    (c) If you intend to claim an indemnity on any unit, you must 
notify us at least 15 days prior to the beginning of harvest, or 
immediately if damage is discovered during harvest. You must not sell 
or dispose of the damaged crop until after we have given you written 
consent to do so. If you fail to meet the requirements of this section 
and such failure results in our inability to inspect the damaged 
production, all such production will be considered undamaged and 
include it as production to count.
    12. 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:
    (1) For any optional unit, we will combine all optional units for 
which such production records were not provided; or
    (2) For any basic unit, we will allocate any commingled production 
to such units in proportion to our liability on the harvested acreage 
for the units.
    (b) In the event of loss or damage covered by this policy, we will 
settle your claim on any unit by:
    (1) Multiplying the insured acreage by its respective production 
guarantee, by type as applicable;
    (2) Multiplying each result in section 12(b)(1) by the respective 
price election;
    (3) Totaling the results in section 12(b)(2) if there are more than 
one type;
    (4) Multiplying the total production to count (see section 12(c)), 
for each type as applicable, by the respective price election;
    (5) Totaling the results in section 12(b)(4), if there are more 
than one type;
    (6) Subtracting the total in section 12(b)(5) from the total in 
section 12(b)(3); and
    (7) Multiplying the result in section 12(b)(6) by your share.
    (c) The total production to count (in boxes or bushels) from all 
insurable acreage on the unit will include:
    (1) All appraised production as follows:
    (i) Not less than the production guarantee per acre for acreage:
    (A) That is abandoned;
    (B) That is sold by direct marketing if you fail to meet the 
requirements contained in section 11;
    (C) That is damaged solely by uninsured causes; or
    (D) For which you fail to provide production records that are 
acceptable to us;
    (ii) Production lost due to uninsured causes;
    (iii) Unharvested apple production that would be marketable if 
harvested; and
    (iv) Potential marketable apple production on insured acreage that 
you intend to abandon or no longer care for, if you and we agree on the 
appraised amount of production. Upon such agreement, the insurance 
period for that acreage will end. If you do not agree with our 
appraisal, we may defer the claim only if you agree to continue to care 
for the crop. We will then make another appraisal when you notify us of 
further damage or that harvest is general in the area unless you 
harvested the crop, in which case we will use the harvested production. 
If you do not continue to care for the crop, our appraisal made prior 
to deferring the claim will be used to determine the production to 
count; and
    (2) All harvested marketable production from the insurable acreage.
    Basic Coverage example:
    You have 100 percent share and designated 10 acres of fresh apples 
and 5 acres of processing apples in the unit on the acreage report, 
with a 600 bushels per acre guarantee for both fresh and processing 
apples and a price election of $9.10 per bushel for fresh apples and 
$4.76 per bushel for processing apples. You are only able to harvest 
5,000 bushels of fresh apples and 1,000 bushels of processing apples 
that grade at least U.S. No. 1 Processing. Your indemnity would be 
calculated as follows:
    A. 10 acres x 600 bushels = 6,000 bushels guarantee of fresh 
apples; 5 acres x 600 bushels = 3,000 bushels guarantee of processing 
apples;
    B. 6,000 bushels x $9.10 price election = $54,600.00 value of 
guarantee for fresh apples; 3,000 bushels x $4.76 price election = 
$14,280.00 value of guarantee for processing apples;
    C. $54,600.00 value of guarantee for fresh apples + $14,280.00 
value of guarantee for processing apples = $68,880.00 total value 
guarantee;
    D. 5,000 bushels of harvested marketable fresh apple production to 
count x $9.10 price election = $45,500.00 value of production to count 
for fresh apples; 1,000 bushels of harvested marketable processing 
apple production to count x $4.76 price election = $4,760.00 value of 
production to count for processing apples;
    E. $45,500.00 value of production to count for fresh apples + 
$4,760.00 value of production to count for processing apples = 
$50,260.00 total value of production to count;
    F. $68,880.00 total value guarantee -$50,260.00 total value of 
production to count = $18,620.00 value of loss; and
    G. $18,620.00 value of loss x 100 percent share = $18,620.00 
indemnity payment.
    [End of Example]
    (d) The production to count determined in accordance with section 
12(c) will be used for APH purposes, regardless of whether there are 
any adjustments under section 14.
    13. Late and Prevented Planting
    The late and prevented planting provisions of the Basic Provisions 
are not applicable.

[[Page 52594]]

    14. Optional Coverage for Fresh Fruit Quality Adjustment.
    (a) In the event of a conflict between the Apple Crop Insurance 
Provisions and this option, this option will control.
    (b) In return for payment of the additional premium designated in 
the actuarial documents, this option provides for quality adjustment of 
fresh apple production as follows:
    (1) To be eligible for this option, you must have elected to insure 
your apples at the additional coverage level. If you elect Catastrophic 
Risk Protection (CAT) after this option is effective, it will be 
considered as notice of cancellation of this option by you.
    (2) You must elect this option on or before the sales closing date 
for the initial crop year for which you wish to insure your apples 
under this option. This option will continue in effect until canceled 
by either you or us for any succeeding crop year by written notice to 
the other party on or before the cancellation date.
    (3) This option will apply to all your apple acreage designated in 
your acreage report as grown for fresh apples and that meets the 
insurability requirements specified in the Apple Crop Insurance 
Provisions, except any acreage specifically excluded by the actuarial 
documents. Any acreage designated in your acreage report as grown for 
processing apples is not eligible for coverage under this option.
    (4) In lieu of sections 12(c)(1)(iii) and (iv) and (2), the 
production to count will include all appraised and harvested production 
for a unit's fresh apple acreage that grades at least U.S. No. 1 
Processing, adjusted in accordance with this option.
    (5) If appraised or harvested fresh apple production is damaged to 
the extent that 20 percent or more of the apples do not grade U.S. 
Fancy or better the following adjustments will apply:
    (i) Fresh apple production to count with 21 percent through 40 
percent damaged apple production will be reduced 2 percent for each 
full percent in excess of 20 percent.
    (ii) Fresh apple production to count with 41 percent through 50 
percent damaged apple production will be reduced 40 percent plus an 
additional 3 percent for each full percent in excess of 40 percent.
    (iii) Fresh apple production to count with 51 percent through 64 
percent damaged apple production will be reduced 70 percent plus an 
additional 2 percent for each full percent in excess of 50 percent.
    (iv) Fresh apple production to count with 65 percent or more 
damaged apple production will not be considered production to count.
    (v) Notwithstanding sections 14(b)(i) through (iv), if you sell any 
of your fresh apple production as U.S. Fancy, all such sold production 
will be included as production to count under this option. The 
following is an example of loss under the Optional Coverage for Fresh 
Fruit Quality Adjustment:
    You have 100 percent share and designated 10 acres of fresh apples 
and 5 acres of processing apples in the unit on the acreage report, 
with a 600 bushel per acre guarantee for both fresh and processing 
apples and a price election of $9.10 per bushel for fresh apples and 
$4.76 per bushel for processing apples. You harvest 5,000 bushels of 
apples from your designated fresh acreage that grade U.S. No. 1 
Processing or better, but only 2,650 of those bushels grade U.S. Fancy 
or better. You also harvest from your designated processing acreage 
1,000 bushels apples that grade U.S. No. 1 Processing or better. Your 
indemnity would be calculated as follows:
    A. 10 acres x 600 bushels per acre = 6,000 bushels guarantee of 
fresh apples; 5 acres x 600 bushels per acre = 3,000 bushels guarantee 
of processing apples;
    B. 6,000 bushels guarantee of fresh apples x $9.10 price election = 
$54,600.00 value of guarantee for fresh apples; acreage; 3,000 bushels 
guarantee of processing apples x $4.76 price election = $14,280.00 
value of guarantee for processing apple acreage;
    C. $54,600.00 value of guarantee for fresh apple acreage + 
$14,280.00 value of guarantee for processing apple acreage = $68,880.00 
total value of guarantee for all apple acreage;
    D. The value of the fresh apple and processing apple production to 
count is determined as follows:
    i. 5,000 bushels of apples that graded U.S. No. 1 or better - 2,650 
bushels that graded U.S. Fancy = 2,350 bushels not grading U.S. Fancy;
    ii. 2,350 / 5,000 = 47 percent of fresh apples that did not make 
U.S. Fancy grade;
    iii. In accordance with section 14(b)(5)(ii): 47 percent - 40 
percent = 7 percent in excess of 40 percent;
    iv. 7 percent x 3 percent = 21 percent;
    v. 40 percent + 21 percent = 61 percent;
    vi. 5,000 bushels of apples that graded U.S. No. 1 or better x .61 
(61 percent) = 3,050 bushels of fresh apple production to count;
    vii. 3,050 bushels of fresh apples production to count x $9.10 = 
$27,755.00 value of the fresh apple production to count; 1,000 bushels 
of harvested marketable processing apple production to count x $4.76 
price election = $4,760.00 value of the processing apple production to 
count;
    E. $27,755.00 value of the fresh apple production to count + 
$4,760.00 value of the processing apple production to count = 
$32,515.00 total value of production to count;
    F. $68,880.00 total value of guarantee for all apple acreage - 
$32,515.00 total value of production to count = $36,365.00 value of 
loss; and
    G. $36,365.00 value of loss x 100 percent share = $36,365.00 
indemnity payment.
    [End of Example]

    Signed in Washington, DC, on August 24, 2004.
Ross J. Davidson, Jr.,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 04-19596 Filed 8-24-04; 2:35 pm]
BILLING CODE 3410-08-P