https://www.rma.usda.gov/-/media/RMAweb/Policies/Sugar-Beets/2020/Sugar-Beet-Crop-Provisions-20-039.ashxOn November 29, 2019, the Risk Management Agency (RMA) issued a number of documents related to changes made to the Sugar Beet Crop Provisions effective for the 2020 and succeeding crop years for states with a November 30, 2019 contract change date and 2021 and succeeding crop years for all other states. Those documents include Frequently Asked Questions, Production Management Bulletin: PM-19-071, a national press release and a crop of the policy. https://www.rma.usda.gov/en/News-Room/Press/Press-Releases/2019-News/USDA-Improves-Crop-Insurance-Policies-for-Sugar-Beet-Producers; https://www.rma.usda.gov/-/media/RMAweb/Policies/Sugar-Beets/2020/Sugar-Beet-Crop-Provisions-20-039.ashx; https://www.rma.usda.gov/en/Policy-and-Procedure/Bulletins-and-Memos/2019/PM-19-071.
In PM-19-070, RMA lists the changes made to the policy through a Final Rule published on November 29, 2019. The changes include:
- Revised the maximum early harvest adjustment to the higher of the producer’s approved actual production history (APH) yield or the actual yield of the sugar beets harvested after full maturity from the unit. RMA states it made the change because the prior policy limited the adjustment to the unit’s APH yield and producers were concerned that it failed to recognize the upward trend in sugar beet yields.
- Replaced the definition of “processor contract” with “production agreement,” which does not require a price or formula based on third party data.
- Revised the production agreement deadline from the time of loss to the acreage reporting date. RMA states that this facilitates a faster determination by the insurance provider of proper aceage and liability coverage.
- Clarified when to apply the early harvest adjustment.
- Added procedures allowing third parties to test raw sugar content in addition to the processor. RMA states that this gives greater flexibility in obtaining raw sugar content tests.
- Added salvage value procedures for damaged production.
ANALYSIS – On September 10, 2018, RMA published a Final Rule that made a number of changes to the Sugar Beet Crop Provisions that were to be effective on November 30, 2018 and sought comments until October 10, 2018. The November 29, 2019, Final Rule amends the September 10, 2018, Final Rule in response to comments and other issues identified.
With respect to the maximum early harvest adjustment change announced by RMA, the change to include a maximum early harvest adjustment based on the greater of the producer’s APH yield or the actual yield after full maturity was based on a number of comments to the September 10, 2018 Final Rule that stated the adjustment seemed punitive to producers and fails to take into consideration that both tonnage and sugar content have been rising sharply in recent years due to new technologies such as new bioengineered seeds and seed treatments. Perviously the maximum early harvest adjustment was only based on the producers APH yield. RMA recognized these concerns and revised the policy accordingly.
The change from a “processor contract” to a “processor agreement” appears to be in response to a comment that stated there was confusion regarding when the processor contract was in effect because it could be read to be applicable to the acreage reporting date instead of the crop year and the suggestion that the definition not use the term “written agreement” in the definition of “processor contract” because it has a different meaning for crop insurance purposes. There was also a comment to make a distiction between the crop insurance contract and the processor contract where appropriate so the terms would not be confused.
RMA’s response to state that it was replacing the term “processor contract” with the term “production agreement” “which removes the requirement for the contract to include a price or formula for a price based on third party data. This better reflects sugar beet contracts because there is no third party data source for prices and not all production agreements include a price.” This response does not appear to be responsive to the comments provided and completely changes the meaning of the terms.
In reviewing the Final Rule, I was unable to find any comment that suggests that the price requirement be removed from the processor contract. This is a substantive change for which a more robust rational basis would be helpful. The requirement to have a processor contract was to ensure that producers had processor committed to buying their sugar beets because there was no other market available. The prior requirements to have a commitment by the producer to plant, grow, and deliver sugar beets to the processor, the processors commitment to purchase the sugar beet, and a price or formula for a price based on third party data that will be paid to producers for the production stated in the contract was to ensure there was a valid, binding contract and that only the amount that is obligated to be delivered is insured. Changing to a definition of “production agreement” eliminates this safeguard. This means that processors are not legally obligated to accept the producer’s sugar beets unless a separate legal obligation exists. The terms of the contract must be established up front, based on mutual agreement, and that includes price, in order for any contract to be enforceable. Producers cannot be forced to accept whatever price the processor decides after the crop is produced.
Without an enforceable contract, approved insurance providers and producers cannot be sure that the production stated in the “production agreement” and insured will be accepted by the processor. It is unclear whether there would be any consequences to the processor if such production is not accepted because there is no way to measure damages without a price component. This puts producers and the crop insurance program at risk, which can adversely affect program integrity. RMA should provide a more robust rational basis for this change because on its face it appears to be more harmful than beneficial to the program.
With respect to the revision of the production agreement deadline from at the time of loss to acreage reporting was in response to comments. This change is consistent with other contracted crops and makes sense since liability is established at the acreage reporting date and the insured acreage and production are necessary to establishing liability..
With respect to the salvage value, according to commenters in prior year’s the policy contained provisions similar to a salvage value but the language was removed in the September 10, 2018 Final Rule. Commenters stated that there are situations where the production may not meet the standards in the processor contract but still had some value and that value should be converted to production to count. RMA agreed the language should remain and it added it back to the policy in the November 29, 2019 Final Rule. RMA also added language that states if production is damaged due to an insurable cause of loss to the extent that the processor will not accept the production, such as the production did not meet the standards contained in the production agreement; and there are no salvage markets for the production, then there would be no value for production and there would be no production to count provided the production is destroyed in a acceptable manner. This change was in response to comments and appears to be consistent with other policies where the crop may not meet certain standards but it is accepted for salvage.
With respect to the application of the early harvest factor, it was added to the September 10, 2018 Final Rule and received a considerable number of comments. The major change made by RMA is clarifying that: (1) the adjustment will only be made if early harvest is required in the production agreement, or the processor requests early harvest prior to full maturity; and (2) if the production agreement does not require early harvest and the processor has not requested early harvest, and the processor: (i) accepts the early harvested production, the early harvested production will be counted but no early harvest adjustment will apply; or (ii) does not accept the early harvested production, the production to count will be the production guarantee for the acreage harvested early. There was an ambiguity regarding when the early harvest factor would apply and this change provides clarity.
With respect to testing of the raw sugar content, the November 29, 2019, Final Rule allows analytical tests of samples performed by the processor or other laboratories approved by the approved insurance providers. This change was apparently in response to a comment that was concerned that testing by alternative facilities which might be necessary in cases of unharvested appraisals where sampling and testing might not be readily performed by the processor.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.