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  • Q What are the changes to flue cured tobacco insurance for 2022?

    A
    1. Clarified that production agreements are due to the AIP by the acreage reporting date. This is the same date contracts are due when a program requires a contract to establish insurability.
    2. Corrected the weighted average price election calculation to use the approved yield to determine the ratio of contracted vs. non-contracted pounds of tobacco.
    3. Clarified that the “maximum over established price” is used when determining the calculated discount factor for quality adjustment.
    4. Clarified that a production agreement issued in either spouse’s name will be considered sufficient for a married individual’s insurance policy. This will only apply to a policy that meets the definition of “Individual-Married” contained in RMA’s FCIC 18190 General Standards Handbook (GSH). For any policy that does not meet the definition of “Individual-Married,” the name on the production agreement must match the name of the insured entity.
    5. Allow a producer to be eligible for the contracted tobacco price election for up to 110% of the tobacco insured under their contract.
    6. The price election for organic flue cured tobacco has changed. The price election for organic flue cured tobacco will be based on the price schedule contained in the production agreement.

    Beginning in crop year 2021, RMA updated the flue cured tobacco with the following changes:

    1. Two price elections are provided for flue cured tobacco. Tobacco grown under a valid contract from a processor or manufacturer will receive one price, while tobacco grown without a valid contract will receive a different price. Producers with a valid contract who choose to grow more tobacco than they have contracted will receive a weighted average price for all their insured tobacco. Additional contract price options will continue to be available for organic certified and transitional organic practices under the Contract Price Addendum (CPA).
    2. Establishes the amount of flue cured tobacco eligible for quality adjustment will be limited to the amount of tobacco grown under a contract.
  • Q Which kinds of tobacco are impacted?

    A
    These changes apply to flue cured tobacco only, in all states where the crop is grown. Other insurable types of tobacco, such as burley or fire cured tobacco, are not affected by these changes.
  • Q Why did RMA make these changes?

    A
    RMA, along with representatives from the flue cured tobacco industry, has worked on this change for several years. There were concerns from USDA, program participants and other stakeholders about program integrity, the long-term sustainability of the program, and about the program negatively impacting the market for flue cured tobacco. These changes are designed to address those issues, while still providing a useful risk management safety net to flue cured tobacco producers.
  • Q Why is RMA valuing contracted flue cured tobacco differently from non-contracted flue cured tobacco?

    A
    RMA has found through program reviews, and supported by feedback from stakeholders, that the marketing of flue cured tobacco grown under contract is different from the marketing of flue cured tobacco not grown under contract. Contracted tobacco of the same quality and leaf position typically receives a higher market price. RMA will reflect that in our price elections going forward.
  • Q Can I use the Contract Price Addendum (CPA) to value my tobacco production?

    A
    The Contract Price Addendum only applies to certified organic and transitional organic production. To use the CPA, the contract must be issued by an eligible processor and must include a price. The price is limited to the maximum contract price.
  • Q What if I don't have a contract?

    A
    For producers who do not have a valid contract, their entire tobacco crop will still be insurable and will be valued at the non-contracted price election. However, producers without a contract will not be eligible for quality adjustment on their crop.
  • Q What if I have a contract for some of my flue cured tobacco, but not all of it?

    A
    Producers with a valid contract from a processor or manufacturer for a portion of the flue cured tobacco they expect to grow will receive a weighted average price election. This price election will be applied across all flue cured tobacco grown by that producer, and based on their reported acreage, their production guarantee, and the amount of flue cured tobacco they have contracted.
  • Q When is the deadline for providing my contract to my agent/insurance company?

    A
    Your contract must be provided to your agent/insurance company on or before the acreage reporting date (ARD) in your county. If your tobacco is grown in Florida or Georgia, your ARD is May 15. If your tobacco is grown in North Carolina, South Carolina, or Virginia, your ARD is July 15.
  • Q How do I know if my contract is valid?

    A

    A valid contract for crop insurance purposes is a written agreement between you and a processor or manufacturer of tobacco, containing at a minimum:

    • Your commitment to produce tobacco on your farm operation during the insurance period and deliver the production to the processor or manufacturer;
    • The processor or manufacturer’s commitment to purchase the tobacco stated in the contract; and
    • The total number of pounds of tobacco to be delivered.
  • Q What determines if an entity can issue a valid contract?

    A
    To issue a valid contract, an entity must be legally authorized to manufacture processed tobacco and/or tobacco products and must have all required state and federal permits, including a permit as a manufacturer of tobacco products or processed tobacco under 26 U.S.C. Chapter 52. Federal permits are issued by the Alcohol and Tobacco Tax and Trade Bureau. Depending on the state in which they are located, a processor or manufacturer may need to meet additional permitting or licensing requirements.
  • Q How do I know if my contract is with a buyer that can issue a valid contract?

    A
    When entering into a contract to grow flue cured tobacco, if producers are uncertain whether the buyer is a processor or manufacturer, they should check that the buyer has all required permits for processing or manufacturing tobacco. If the buyer does not possess these permits, flue cured tobacco contracted with that company will not receive the price election for contracted flue cured tobacco or be eligible for quality adjustment.
  • Q What if I grow flue cured tobacco under someone else’s contract?

    A
    A contract issued to another entity will not be considered valid for the purposes of crop insurance, even if it is from a permitted processor or manufacturer. The contract must be issued to the insured entity.
  • Q What if my tobacco contract is not under the same name as my crop insurance policy?

    A

    The name of the producer on the tobacco contract must match the name of the insured entity. For individuals who insure their tobacco under their own name, but have their tobacco contract in a shortened version of their name, for example in an abbreviated first name or in a middle name, the production agreement will still be eligible for insurance purposes.

    A production agreement issued in either spouse’s name will be considered sufficient for a married individual’s insurance policy. This flexibility will only apply to a policy that meets the definition of “Individual-Married” contained in RMA’s FCIC 18190 General Standards Handbook (GSH). For any policy that does not meet the definition of “Individual-Married,” the name on the production agreement must match the name of the insured entity.

  • Q What if I am a shareholder for tobacco production, but only my partner’s name appears on the contract?

    A

    Only the producers whose names appear on the production agreement will be eligible for insuring contracted tobacco under that contract.

  • Q What if my name appears on the contract along with another producer but we each have individual acreage and do not have a share arrangement?

    A
    The amount of production considered to be grown under a contract will be split evenly between all applicable producers, unless the contract specifies a proportion of production expected from each named producer.
  • Q What if I grow flue cured tobacco under a valid contract and later sell some or all my crop to another entity instead of the original contract provider?

    A

    That decision would not have an impact on a producer’s crop insurance.

  • Q What if I grow flue cured tobacco under a valid contract and the contract provider discontinues accepting contracted leaf before the end of the season for any reason other than poor leaf quality?

    A
    That decision by the processor or manufacturer would not have an impact on the validity of the contract or the crop insurance guarantee for the producer. However, that would not constitute an insurable cause of loss for the producer.
  • Q How will my contract impact quality adjustment on my tobacco?

    A
    A producer will be eligible for quality adjustment on as much tobacco as they have covered under a valid contract.
  • Q What if I have more pounds of tobacco with quality damage than I have covered under a valid contract?

    A
    Any tobacco that exceeds the total amount of tobacco covered under valid contracts will not be eligible for quality adjustment and will be included as production-to-count when determining losses. When this occurs, quality adjustment is applied to the least damaged tobacco until eligible pounds are exhausted.
  • Q How will the weighted average price election mechanism work for flue cured tobacco?

    A

    If a producer has contracts for 100,000 lbs. of flue cured tobacco, and based on their planted acreage and production guarantee, they expect to produce 120,000 lbs. of tobacco in the crop year, their price election would be calculated by multiplying 100,000 lbs. by the contracted price election of $1.80 ($180,000), multiplying 20,000 lbs. by the non-contracted price election of $.90 ($18,000), and summing these two figures. The sum would then be divided by 120,000. In this example, this would result in a price election of $1.65 ((180,000 + 18,000) = 198,000/120,000 = $1.65) applied across all the producer’s units. If a producer plants conventional and organic tobacco, the price elections would be calculated separately.

    Update: For 2022, the producer would calculate a maximum pounds eligible to be insured at the contract price. This is equal to 110% of all the producers’ contracted tobacco pounds. For a producer with a contract for 100,000 lbs. of flue cured tobacco, their maximum pounds eligible for the contract price would be 110,000 lbs. This number is then compared to the producers’ approved yield across all their insured tobacco acres. Any insured tobacco beyond the maximum pounds eligible to be insured at the contract price would be valued at the non-contract price.

    For 2022, if this producer planted 60 acres, with an approved yield of 2,000 lbs. per acre, the producer would have a total approved yield of 120,000lbs. 110,000 lbs. would be insured at the price election for contracted tobacco ($1.95), while 10,000lbs of tobacco would be insured at the price election for non-contracted tobacco ($0.90).

    The weighted average price for all this producer’s tobacco would be the maximum pounds eligible to be insured at the contract price (110,000 lbs.) multiplied by the contracted tobacco price election ($1.95) plus any additional insured tobacco (10,000 lbs.) multiplied by the non-contracted tobacco price election ($0.90). This sum would then be divided by the producers’ total approved yield across all insured acres (120,000). In this case the resulting weighted average price would be $1.86 per lb.

  • Q How will these changes impact organic flue cured tobacco?

    A
    Certified or transitional organic flue cured tobacco produced under a valid production agreement will be valued at the maximum over established price for certified or transitional organic tobacco, or at the price in the producer’s organic contract (limited to the maximum contract price), if insured using the CPA. To use the CPA, the contract must be issued by an eligible processor and must include a price. The price is limited to the maximum contract price. Organic tobacco that is not produced under a valid production agreement will be valued at the non-contracted price election for transitional or certified organic tobacco.
  • Q I have certified organic production and I have a valid production agreement, but my production agreement doesn’t specify the production must be certified organic. Can I use the organic maximum over established price for my certified organic production?

    A
    Yes, the maximum over established price for organic practice may be used for tobacco grown under a contract on certified organic acreage when the contract does not specify the tobacco must be certified organic.
  • Q For my certified organic production, I see a Maximum Over Established Price and a Maximum Contract Price. I have a valid contract issued by an eligible processor. Which price do I use?

    A
    Update: for 2022, for an organic producer to access a price higher than the Maximum Over Established Price, they must qualify to use the Contract Pricing Addendum (CPA) option. This option is available for organic producers and allows them to use the price schedule in their tobacco contract to establish the insurable value for their tobacco. If you have elected to use the CPA and your contract includes a price for the insured tobacco, you may use the price contained in your contract, up to the Maximum Contract Price. If you are not using the CPA, or your contract does not have a price, the Maximum Over Established Price will apply.