4 TAC §§3.607 - 3.609
The Texas Department of Agriculture (the department) adopts
new Chapter 3, Subchapter J, §§3.607, 3.608 and 3.609, concerning
eligibility for indemnification and calculation of indemnity to organic cotton
producers and payment of assessments by organic cotton growers, with changes
to the proposal published in the April 7, 2000, issue of the
Texas Register
(25 TexReg 2879). New §3.608 is adopted with changes.
New §§3.607 and 3.609 are adopted without changes and will not
be republished.
The new sections are adopted to establish eligibility and a method and
procedures for the indemnification of growers of organic cotton in active
boll weevil eradication zones, in accordance with the Texas Agriculture Code, §74.125,
and to provide for payment of an assessment by organic cotton growers farming
in an active boll weevil eradication zone. Considering that the boll weevil
costs cotton growers millions of dollars in damages and lost revenues each
year, eradication of the boll weevil will allow both traditional and organic
cotton growers to become more efficient and competitive, thus providing an
indirect benefit to consumers, and having a more viable cotton industry
due to the eradication of the boll weevil will help sustain the economy of
many parts of rural Texas.
As with Chapter 3, Subchapter J, §§3.600-3.606, which have been
adopted by the department and effective on May 15, 2000, the department intends
to review the rules again in January, 2001, and set public hearings to take
public comment on whether or not changes should be made to the rules for
the next growing season.
Section 3.608(e) has been changed to clarify when a notice has been "received"
by a grower for purposes of determining which indemnification formula will
apply.
New §3.607 provides eligibility criteria for indemnification of organic
cotton growers growing certified organic or transitional organic cotton in
active boll weevil eradication zones. Also in this section, the department
has adopted a process which allows organic growers and steering committees
to negotiate agreements for indemnification at any point during the growing
season, up to the point at which the field triggers and is subject to destruction.
There is no pre-set indemnification formula for these negotiations, however,
agreements would be subject to approval by the Texas Boll Weevil Eradication
Foundation (TBWEF) and the department. The indemnification formula proposed
in new §3.608 would only apply as to indemnification due to destruction
required by the department.
New §3.608 provides procedures for calculating indemnification to
growers in the event a crop is required by the department to be destroyed.
The indemnification formula provided in new §3.608 is intended to reasonably
compensate organic cotton growers whose cotton is destroyed or ordered to
be destroyed in order to not jeopardize the eradication program. The indemnification
formula is based on several components including the eligible acreage, average
yield of that acreage, and the compensation rate of 65%. In addition, indemnification
is based on the point in the growing season at which a crop is required
to be destroyed.
New §3.609 provides for payment of the grower assessment by organic
growers.
Comments on the proposal were received from individual organic and conventional
cotton growers, consumers of organic products, supporters of organic farming
and sustainable agriculture practices, and the TBWEF. Comments received on
proposed §3.607 from organic cotton producers suggested that growers
in future eradication zones should have base acreage calculated on the year
immediately preceding the implementation of a program; not one full year
before the program is started in a zone, as currently proposed, and that
indemnification needs to cover acreage that has met organic certification
criteria regardless of the acreage's planting history. Organic cotton growers
also suggested that base acreage be fully transferable. The department disagrees
with these comments because the indemnification provisions in §3.608
are designed to provide reasonable compensation for established organic cotton
growers in the event their normal course of production is interrupted by
the boll weevil eradication program. §3.607 has been written to ensure
that only producers who are actively engaged in the production of organic
cotton prior to the time a referendum is held establishing a new boll weevil
eradication program are eligible for this indemnification. The department
believes that any modification of §3.607 at this time could result in
a misapplication of the indemnification provisions by parties other than
the established organic cotton growers it was intended to cover.
Another comment by an organic grower on §3.607(a) stated that the
TBWEF should not be able to overrule agreements made by grower steering committees
and organic growers, rather, that the commissioner should have sole responsibility
for approving grower agreements. The department disagrees with this comment.
The TBWEF must play an integral role in the important considerations that
must be made in the negotiation of agreements, such as the determination
of whether or not organic acreage poses a risk to the program and whether
the agreement is financially prudent for the program. The TBWEF cannot be
left out of the process.
Other comments, also by an organic grower requested that a preplanting
agreement deadline of March 1 be established to give grower steering committees
incentive to negotiate in a timely fashion and in good faith, and that a
minimum preplanting indemnification amount of $.39 above the price of conventional
cotton be set. The department disagrees with these comments because the
purpose of §3.607(a) is to allow for alternative agreements between
growers, steering committees, and the TBWEF regardless of the timing of its
negotiations, provided that the parties to the agreement have entered into
the agreement in good faith.
In regards to proposed §3.608, the TBWEF suggested that the reference
to the date by which an organic grower "receives notice" should be clarified
or defined. As previously noted, the section as adopted does include new
language clarifying when notice is deemed received by a grower.
As with the initial proposal of the indemnification provisions of Subchapter
J, most comments on the proposal were in regards to the indemnification formula.
Organic growers commented that the levels of indemnification are too low.
Suggestions vary from returning to the level of 70%, which was originally
proposed by the department, then withdrawn, to establishing a level of 95%
to 100% indemnification. Some organic cotton growers suggested a sliding
scale for indemnification that would include: 50% indemnification before
the final planting date and an increase of one half of one percent per day
thereafter, with a maximum of 95%. Comments were received from several consumers
and supporters of organic cotton and supporters of organic farming and sustainable
agriculture in general, both in Texas and out of state, indicating general
opposition to the boll weevil eradication program and an opinion that indemnification
levels should be increased to 100% of market value. Comments also stated
that the rules as proposed would reduce or eliminate the availability of
organic cotton production for Texas and the United States.
Other comments on this section objected to the use of the 65% crop insurance
figure as the basis for the indemnification formula, objected to the use
of a graduated scale of indemnification and objected to the rationale of
the reduction of the indemnification (based on a $1 per pound market value)
by 65% using as a consideration for reduction of costs not incurred by growers
at the time of destruction. The comments stated that organic growers believe
crop insurance is not a good comparison because the rules are proposing an
indemnification program which is designed to cover costs not an insurance
program designed to reduce loss, and because while conventional growers may
insure at the 65% level, organic growers often add additional coverage to
cover a higher crop value. It was suggested that organic growers be allowed
to buy up to the 100% coverage from the foundation as a means of covering
the full value of their crop.
The department disagrees with the comments received requesting that the
indemnification formula be changed. The purpose of this section is to provide
an organic cotton grower with reasonable compensation in the event that a
crop must be destroyed under this chapter. The levels of indemnification
are set as currently written to reflect the level at which a large majority
of cotton growers typically choose to insure themselves against crops lost
to natural causes. The department is not attempting to recreate the federal
crop insurance program in Texas in these organic cotton indemnification provisions.
Rather, it is the department's intent to provide a method of determining
compensation for reasonable losses incurred by organic cotton producers,
as provided in the Texas Agriculture Code, §74.125. The federal crop
insurance level of coverage is used because the department believes that
it is a reasonable, established standard understandable and accepted by most
agricultural producers.
As noted in the preamble to the proposed rule, the department has based
its indemnification formula on four components: APH yield, acreage, an average
market price of the sum of the established price of conventional cotton and
the average premium for organic cotton and a 65% rate of compensation. The
department has also based indemnification on a graduated scale, based on
the point in the growing season at which a crop is required to be destroyed.
If a crop is required to be destroyed within the first 30 days of the growing
season, indemnification will be at 50% of the prescribed formula. Thereafter,
indemnification will be at 65% of the prescribed formula. The 50% indemnification
early into the season when fewer costs have been incurred is based on the
basic catastrophic insurance coverage available from the Risk Management
Agency of the United States Department of Agriculture (RMA).
The APH Yield is the Actual Production History (APH) for that farm, based
on planted row acres, as determined by the RMA. The APH is a yield factor
used by RMA in the federal crop insurance program. This factor takes into
account up to ten years of previous production on an individual farm, removing
high and low yields. Every farm, even a farm on which there has been no
previous cotton production, can be assigned an APH yield. This is widely
accepted in the cotton industry as the most accurate, most easily obtainable
estimate of pounds of cotton produced per acre. The APH yield for all cotton
is used because of lack of historical, accurate data to establish an exculsively
organic APH yield. According to information received by the department both
from organic and conventional growers, the APH yield is similar for organic
and conventional production in most cases.
The per pound price component was determined by using the conventional
cotton price as published by the RMA and adding a premium for organic cotton.
A $0.39 cent premium is added to this price to reflect the value of organic
cotton. This premium was determined by evaluating the five-year average price
of conventional cotton and organic cotton lint and seed. The price of conventional
cotton as determined in the definition of conventional cotton price provided
in §3.608 for the 2000 crop year is $.59. The total of these brings
the per pound price to $.98. This price is further supported by sales figures
provided by organic growers to show an average market price of approximately
one dollar.
The price and yield portions of this formula are intended to estimate
the reasonable value of an organic cotton crop should it become necessary
under these rules for the grower to destroy that crop during the growing
season. The department is aware that if destruction of an organic cotton
crop is deemed absolutely necessary, the grower will not have put 100% of
his or her cost into that crop at that point (inputs such as harvest and
ginning costs would not be incurred by the grower). The department is also
aware that all growers, conventional and organic, assume some amount of risk
when planting cotton or any other crop. In determining the appropriate percentage
of a crop's total value that a grower should be indemnified for, the department
found it important to analyze the extent to which cotton growers protect
themselves from the risks of natural perils. Data obtained from the RMA
indicates that 94% of cotton farmers in Texas choose to insure their crops
at a level of 65% through the federal crop insurance program. The department
feels it is appropriate to provide this same level of protection for organic
cotton crops in active boll weevil eradication zones.
The department realizes that this will not in all cases reflect the entire
value of an organic crop at the time of destruction. At the same time, there
may be cases where indemnification is greater than the value of the crop
at the time of destruction. As noted previously, other indemnification options
have been brought forth, and those options will be explored again when the
department reviews these rules after January 1, 2001.
In regards to the comments that the rules will reduce or eliminate the
availability of organic production for Texas and the United States, the department
disagrees that the rules will virtually eliminate the availability of organic
cotton, although production may be reduced by the utilization by organic
growers of the preplanting agreement provisions of the rules. As noted previously,
the rules do allow for preplanting agreements between organic cotton growers
and zone steering committees. These agreements are voluntary and must be
entered into in good faith by all parties, and must be approved by the TBWEF
and the department. The rules adopted as Chapter 3, Subchapter J, do not
prohibit the growing of organic cotton.
The department further believes that the implementation of the technical
review committee process found in §3.605 to determine what action should
be taken when a certain level of infestation is reached will be a fair and
equitable process and will result in destruction being required only when
absolutely necessary in order for the boll weevil eradication program not
to be jeopardized.
As the state agency charged with expanding and protecting agricultural
markets, including markets for organic agricultural products, and the agency
responsible for implementing the state's organic certification program, the
department recognizes that the organic cotton market and the integrity of
the Texas organic certification program must not be put at risk. At the same
time, the department is also charged with overseeing the implementation
of the boll weevil eradication program, and assuring its success in its mission
of eradicating the boll weevil. The department believes it has adopted rules
that balance these charges and allow organic cotton production as well as
success of the boll weevil eradication program.
Other comments in regard to the indemnification formula indicated that
yield should reflect RMA factors of adjustment for skip row patterns. In
regards to this comment, the department believes the sections are written
to sufficiently indicate that all acreage figures and yield calculations
will be based on row acres planted to cotton.
Other comments stated that the TBWEF should face penalty and interest
similar to a grower's for failure to destroy a crop in a timely manner. The
department disagrees with these comments because there is a penalty mechanism
in place if the foundation is late in payment of an organic indemnity that
the department believes is sufficient to encourage timely payment. The penalty
adopted is the same penalty and interest that growers pay when they are
late in paying their assessments.
Comments were also received from organic cotton producers regarding the
date by which the TBWEF must pay any indemnification to the grower. Growers
commented that funds should be secured at the time a grower is notified to
destroy and paid at completion of destruction. The department disagrees with
these comments because the date was set to provide the organic grower with
payment on or before the date when a cotton grower can typically expect payment
for the sale of cotton in the area of Texas in which organic cotton is typically
grown.
In regards to proposed §3.609, the TBWEF suggested that a provision
be added to section §3.609 that would allow the TBWEF to deduct all
assessments and late penalties owed by a grower to the foundation from any
organic indemnity payment due to the grower. The department disagrees with
this comment and has adopted §3.609 without changes. The department
believes that the indemnification payment established under this subchapter
should be kept separate from collection efforts by the TBWEF to recover
unpaid assessments. There is a mechanism in place for pursuing collection
of unpaid assessments which should be utilized by the foundation in its collection
efforts. Although there is no requirement to deduct unpaid assessments from
indemnification payments, this does not preclude including such a provision
in a preplanting agreement between a grower and a steering committee, provided
both parties agree.
The new sections are adopted under the Texas Agriculture Code
(the Code), §74.125, which provides the department with the authority
to develop rules and procedures to protect the eligibility of organic cotton
growers to be certified by the commissioner of agriculture, ensure that certification
by the commissioner meets national certification standards and in all events
maintain the effectiveness of the boll weevil or pink bollworm eradication
program administered under the Code, Chapter 74, Subchapter D. This includes
rules that provide indemnification for organic cotton growers for reasonable
losses that result from a prohibition of production of organic cotton or
from any requirement of destruction of cotton; and the Code, §74.120,
which provides the department with the authority to adopt reasonable rules
to carry out the purposes of the Code, Chapter 74, Subchapter D.
§3.608.Calculation of Indemnity.
(a)
To be eligible for indemnification if a crop must be destroyed
under § 3.606, a grower must report the Farm Service Agency farm numbers,
physical locations, and row acreage on each farm that the grower will use
as the base acreage calculated in §3.607 of this title (relating to
Eligibility for Indemnification), to the foundation before planting each
year on a form provided by the foundation.
(b)
If certified organic or transitional cotton on the grower's
base acreage is destroyed through the requirements of this subchapter, the
grower will be entitled to indemnification by October 31 of that year.
(c)
If the commissioner determines that the foundation is
delinquent in a payment owed to a grower, the foundation will be responsible
for an additional payment to the grower of 1.5% of the amount owed per month
of delinquency.
(d)
The following factors will be considered when calculating
indemnity payments for organic cotton growers whose cotton is required to
be destroyed in accordance with §3.605 of this title (relating to Trigger
Levels) and §3.606 of this title (relating to Crop Destruction; Extensions;
Choice of Conventional Treatment):
(1)
eligible acreage - the base acreage, in row acres planted
to certified organic or transitional cotton, determined as provided in §3.607
of this title (relating to Eligibility for Indemnification), and identified
for that field as described in this section. Organic or transitional cotton
must be planted on this acreage by the final planting date set by the Risk
Management Agency of the United States Department of Agriculture in the
county in which the crop is planted.
(2)
yield - the yield per acre will be determined by using
the Actual Production History per row acre planted to cotton for that farm,
as determined by the Risk Management Agency of the United States Department
of Agriculture; and
(3)
conventional cotton price - the conventional cotton
price will be determined by the upland cotton price election for an APH
policy in the county in which the organic or transitional cotton in question
lies for the current crop year. This price for the coming crop year is published
by the Risk Management Agency of the United States Department of Agriculture
before December 31 of each year.
(e)
When a grower is entitled to indemnification as a result
of crop destruction, the foundation will indemnify the grower in accordance
with the following formulas:
(1)
If the notice is received by the grower less than thirty
days after the final planting date in that county that destruction of a
crop is required, the indemnity will be: eligible acreage x yield x (conventional
cotton price + $0.39) X 50%, with no mitigation required; or
(2)
If the notice is received by the grower thirty days
or more after the final planting date in that county that destruction of
a crop is required, the indemnity will be: eligible acreage x yield x (conventional
cotton price + $0.39) X 65%, with no mitigation required.
(3)
For purposes of this subsection, notice is deemed
received by the grower:
(A)
upon service of the notice by hand-delivery to the grower
or an authorized representative by a department employee;
(B)
if mailed by certified mail, return receipt requested,
upon green card receipt by the department; or
(C)
if mailed by regular mail, and upon showing of proof by
the department that the notice was deposited in the U.S. mail and sent to
grower's last known mailing address, after 3 days from date of mailing.
(f)
After a zone has been declared eradicated by the commissioner:
(1)
any grower who plants certified organic or transitional
cotton will be eligible for indemnification on an acre per acre basis only,
if all or part of a crop is required to be destroyed;
(2)
indemnification will only be available for certified
organic and/or transitional cotton acreage that is required to be destroyed;
and
(3)
indemnification will be acreage x yield x (conventional
cotton price + $0.39) X 75%, with no mitigation required.
(g)
The commissioner will resolve any dispute between the grower
and the foundation regarding the amount of indemnification.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on May 25, 2000.
TRD-200003725
Dolores Alvarado Hibbs
Deputy General Counsel
Texas Department of Agriculture
Effective date: June 14, 2000
Proposal publication date: April 7, 2000
For further information, please call: (512) 463-4075