On August 28, 2020, the Risk Management Agency (RMA) issued Product Management Bulletin: PM-20-059 that provided the modifications to the Whole-Farm Revenue Protection Pilot Plan of Insurance effective for the 2021 and subsequent year and the Whole-Farm Revenue Protection Pilot Policy. https://www.rma.usda.gov/en/Policy-and-Procedure/Bulletins-and-Memos/2020/PM-20-059; https://www.rma.usda.gov/-/media/RMAweb/Policies/Whole-Farm-Revenue-Protection/2021/Whole-Farm-Revenue-Protection-Pilot-Policy-21-0076.ashx.
RMA states that the Agricultural Improvement Act of 2018 (2018 Farm Bill) enacted on December 20, 2018, includes language in Section 11122 to research ways to reduce paperwork and recordkeeping requirements for direct marketed commodities under the Whole-Farm Revenue Protection plan of insurance. RMA states it presented several changes to the Federal Crop Insurance Corporation Board of Directors (Board). RMA also states it worked with stakeholders to identify other improvements to the Whole-Farm Revenue Protection Pilot Policy not related to the 2018 Farm Bill. RMA states that on August 20, 2020, the Board approved the following changes to the 2021 WFRP plan of insurance:
1. Allow direct market producers to report two or more direct marketed commodities using a new combined direct marketing commodity code.
- Allow producers to report a combined expected revenue for all commodities within the combined commodity code.
- Provide a diversification factor equivalent of two commodities under the combined direct marketing commodity code.
- Determine expected revenue based on total revenue from the combined commodities and total acres planted to the combined commodities.
2. Other improvements:
- Allow current policy year’s premium to only be offset with the current policy year’s indemnity payment.
- Revise the expected yield three-year record requirement to a four-year record requirement.
- Exclude price decline as a carryover insured cause of loss.
- Clarify what tax forms may be requested by an approved insurance provider.
- Clarify the expanded operation factor calculation.
ANALYSIS – A minor note that PM-20-059 refers to a “diversification factor” when the policy refers to a “diversification discount”. Further, the term “combined commodities” is not used in the policy. The term used is “combined direct marketing.”
Further, it is unclear what is meant when RMA states that a current year’s premium can only be offset with the current policy year’s indemnity payment. Section 2(f) states “Any amount due to us for any policy authorized under the Act will be offset from any indemnity due you for this or any policy insured with us under the authority of the Act.” But section 14(j) states “Premium and administrative fees owed by you for a policy year will be offset from any indemnity due to you for that policy year.” At worst these provisions appear to be in conflict because section 2(f) suggests that premium owed under this policy could be offset from indemnities owed for any policy or any year. At best, section 14(j) states that premium and administrative fees owed will be offset from any indemnity owed for that policy year, which does not limit the offset to indemnity owed under the Whole-Farm Revenue Protection policy. The offset can be made from any policy for the policy year. For example, the 2021 Whole-Farm Revenue Protection premium could be offset from an indemnity owed under the producer’s corn policy insured under the 2021 Corn Crop Provisions. It is not clear whether this was intended.
It is also not clear what is meant by the “expected yield three-year record requirement to a four year-year record requirement.” Section 18(c)(2) states: “(i)The expected yield will be the average yield produced on your farm operation during the four years preceding the insurance period; (ii) If you have less than four years of production history of the commodity on your farm operation, a replacement yield will be included for each missing year determined in accordance with section (c)(3) below.” This appears to be a four year production history requirement with a means to fill in years if the producer has less than four years of history. With respect to tax records, there are provisions for three, four and five years. Producers are only required to retain records for three years unless notice to extend the time is provided in writing.
RMA states that price decline is excluded as a carryover cause of loss. Section 21(b) states in relevant part: “If you are a carryover insured, natural causes that occurred during the previous insurance period that cause a loss of revenue for the current insurance period will also be covered, except for declining prices that continue into the current insurance period.” A loss of revenue is caused by either a decline in price or a decline in production. RMA states that declining prices in one insurance period is not an insurable cause of loss in the next insurance period. Therefore, section 21(b) would only appear to only cover loss of production. With respect to natural causes of loss, the Federal Crop Insurance Act (FCIA) allows coverage for declining price or production that occurs during the insurance period. However, the language used in section 21(b) is not so restrictive and suggests that any natural cause of loss that occurred during the current insurance period that causes a loss of revenue in the next insurance period is covered. There are some causes of loss, such as flood or drought that can cross insurance periods but if the cause of loss is not ongoing into the next insurance period, the policy cannot cover the loss in the next insurance period unless there is a different cause of loss. Therefore, section 21(b) is ambiguous.
RMA also states it is clarifying the “expanded operation factor calculation.” The term “expanded operation factor” does not appear anywhere in the policy. Throughout the policy the term “expanded operation adjusted revenue.” Presumably this is what RMA was referring to but it is not clear.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.