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    Crop Insurance News and Analysis – July 21, 2020 – Final Agency Determination: FAD-295

    July 31, 2020 By //  by Kim Arrigo

    On July 21, 2020, the Risk Management Agency (RMA) published Final Agency Determination: FAD-295, regarding the interpretation of the term “sold as fresh apples” in the definition of “apples” in the Apple Crop Provisions. https://www.rma.usda.gov/en/Policy-and-Procedure/Final-Agency-Determinations/Apple-Crop-Provisions-1-FAD-295. The requestor interpreted the definition of “apples” to mean that a grower is eligible for the Fresh Fruit Quality Endorsement if, in at least one of the preceding four crop years, at least 50 percent of the grower’s apple production constitutes “fresh apple production.” The requestor states that the issue is the precise definition of the phrase “sold as fresh.”

    The requestor quotes FAD-172 where RMA stated ” Therefore, simple delivery of the apples to a fresh fruit packer is not the sale of those apples until grower receives payment for the apples. If the fresh fruit packer pays the grower a price commensurate with fresh apples, the apples are considered as fresh apple production. If the fresh apple packer pays a price that is not commensurate with prices generally received for fresh apples, the apples are considered processing apples. If the fresh fruit packer does not pay the grower for the apples, then the apples are not considered sold. Thus, sales records that show price paid to the grower and quantity purchased are used to determine when the apples are sold and whether the apples qualify as fresh or processing.”

    The requestor asks that, in determining whether apples are “sold as fresh,” RMA clarify that the “prices generally received for fresh apples” contemplates a comparison of net prices (the prices generally received for fresh apples of the same variety by growers) to net price, and not to gross prices (the prices generally received for fresh apples by fresh apple packers). The requestor submits that all prices referred to in FAD-172 are net prices – the prices received by growers. The requestor states that, under the procedure laid out in FAD-172, the “price paid to the grower” is compared to prices paid generally to growers for fresh apples of the same variety to determine whether they are “commensurate with prices generally received for fresh apples.” The requestor states that the phrases “price paid to the grower,” “the price received,” and “prices generally received for fresh apples” refer to net prices received by the grower, and not to gross prices received by the packer. The requestor submits that, in determining whether apples have been “sold as fresh” under FAD-172, the question is whether the (net) prices paid to the insured grower for apples are commensurate with (net) prices generally received by growers for fresh apples of the same variety. In other words, net prices are compared to net prices, and not to gross prices.

    RMA states that it agreed in part with the requestors interpretation. RMA stated that when the prices paid to the grower for apples are compared to the prices generally received by growers, both values being compared must be on the same basis to be a meaningful comparison. However, RMA states that this does not necessarily mean that it must be a gross-to-gross or net-to-net comparison, as neither the statute nor RMA’s prior FADs require a specific method of comparison. RMA provides an example where a valid comparison would be based on prices received prior to any adjustments that are not a result of quality, such as handling or storage charges. RMA states that the key inquiry is whether the price received is commensurate with the price generally received by other growers for fresh apples.

    ANALYSIS – RMA’s interpretation is correct that key is whether the price received is commensurate with the price generally received by other growers for fresh apples. FAD-172 makes it clear the “sold a fresh” means the apples have to be delivered and paid for by the packer and the price the producer received must be commensurate with the prices received for fresh apples by other producers. It would not make sense to compare the price received by the producer from the packer with the price received by the packer because the requestor is correct, the price the packer received will always be higher. However, RMA is correct that “net” is probably not the best term because there could be other factors built into the price, such as handling and storage. The simple comparison is with other apples sold as fresh. If the producer received a price commensurate with the price other producers received for fresh apples, the producer’s apples are considered fresh.

    All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.

    Filed Under: Blog

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