Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Hietkamp v Agricorp

Hietkamp v Agricorp 2001 ONAFRAAT 43

STATUTE:

Crop Insurance Act

HEARING:

September 10, 2001

DATE OF DECISION:

September 18, 2001

2001-43

NEUTRAL CITATION:

2001 ONAFRAAT 43

Hietkamp v Agricorp

IN THE MATTER OF Ontario Regulation 140/96 under the Crop Insurance Act (Ontario) 1996, S.O. 1996, C. 17, Schedule C.

AND IN THE MATTER OF: An appeal to the Agriculture Food and Rural Affairs Appeal Tribunal by Jeff Hietkamp, Gore Bay, Ontario, from the decision of AGRICORP to deny him a payment of claim concerning his 2000 hay crop under Regulation 380/97 and the Crop Insurance Forage Plan.

Before:

Andrew Osyany, Vice Chair; Jim Gibb, Member; Mary Field, Member

Appearances:

Jeff Hietkamp, appellant

Husseinali Shivji, Crop Insurance Commodity Specialist, AGRICORP

Fred Thomson, Regional Claims Manager, AGRICORP

DECISION OF THE BOARD

This appeal was heard in Guelph, Ontario on Monday, September 10, 2001. Mr. Jeff Hietkamp appealed a decision of AGRICORP concerning its adjustment of a claim concerning his 2000 hay crop under Regulation 380/97 and the Crop Insurance Forage Plan.

The Background

The Forage Plan covers loss against drought only. It is an area-based plan based on a computer model that simulates forage growth. A computer generated yield simulation is used to establish an area average which is used in establishing the insured grower’s yield for each crop year. Individual data collected by the grower is also entered into the simulation. Since 1977, the computer program called “Soil Moisture-Based Simulation of Forage Yield” (SIMFOY) has been used to simulate yields for the purposes of this plan. Individual growers may experience yields that are significantly different from the simulated yields.

In proposing and administering the Forage Plan, AGRICORP derives its authority from Section 5 of the Crop Insurance Act (Ontario), 1996 and Regulation 380/97 Crop Insurance Act (Ontario) 1996, General, and the Crop Insurance Forage Plan 2000.

Section 5 of the Crop Insurance Act tates:

5. (1) AgriCorp shall fix the terms of contracts of insurance, or proposed contracts of insurance,

subject to section 4 and the regulations made under section 12.

(2) AgriCorp has all the powers necessary to perform its duties including the power to,

(a) determine the qualifications and requirements for a person to enter into a contract of insurance;

(b) enter into contracts of insurance;

(c) fix terms of contracts of insurance relating to replanting benefits and unplanted acreage benefits;

(d) fix premium rates payable by insured persons;

(e) fix the duration of contracts of insurance;

(f) specify the circumstances in which an insured person may terminate a contract of insurance and the methods that the person may use to terminate the contract;

(g) specify penalties imposed on an insured person who breaches the terms of a contract of insurance;

(h) reinsure with any other insurer the risk or any portion of the risk under its contracts of insurance; and

(i) terminate a contract of insurance on the terms that it considers appropriate.

(3) An applicant for a contract of insurance or an insured person who receives notice from

AgriCorp of the terms of a contract of insurance or amendments to the terms, as the case may be, shall be deemed to have accepted them unless the recipient notifies AgriCorp to the contrary within the time period that AgriCorp specifies.

(4) AgriCorp shall not enter into a contract of insurance with a person to insure an agricultural crop or a type of perennial plant if,

(a) the contract insures less than the entire crop or all the plants of the type of perennial plant, as the case may be, in respect of which the person could enter into a contract of insurance under this Act; or

(b) a contract of insurance is already in effect to insure the crop or the type of perennial plant, as the case may be, in which the person has an interest. 1996, c. 17, Sched. C, s. 5.

The Issue

The issue before the Tribunal is:

Did AGRICORP calculate the simulated forage growth for the appellant in accordance with the coverage purchased, and according to the requirements of the plan?

The Evidence

Jeff Hietkamp, appellant

Mr. Jeff Hietkamp told the Tribunal that he understood that crop insurance for forage was based on a computer simulated program, but he did not understand how the computer model could simulate substantially different yields on his farm and neighboring farms. He told the Tribunal that he had polled his neighbors and was told that they had the following crop insurance payouts, under this plan:

J. Armstrong 14% (1 mile N of appellant)

B. Clark 12.1% (2 miles S of appellant)

B. Merryless 15.6% (1.25 miles SW of appellant )

K. Gibbs 26.4% (2.25 miles SW of appellant)

M. Orford 26.4% (2.25 miles SW of appellant)

He said that SIMFOY had calculated a payout of 7.46% for his farm and he submitted that the model did not work the way it should. He asked the Tribunal to allow him a similar payout to that received by his nearest neighbor. He emphasized that he did not want any of his neighbors’ claims adjusted downward.

In response to questions, Mr. Hietkamp indicated:

• His first cut of hay in 2000 was significantly better than his second cut. The second cut was borderline and hardly worth cutting.

• He worked 200 acres; approximately 120 acres of hay, 40-50 acres of barley, and 20-30 acres of corn with the balance in improved pasture.

• Clover Hill Farms is a family farm which had been enrolled in the forage plan since 1977. Previous claims had been adjusted satisfactorily. Mr. Hietkamp returned to work on the farm in the early 1990s. He submits rain records to AGRICORP.

• Most climatic data used in calculating his yield was collected at the Sandfield station, but some information was collected in Wiarton.

• The Sandfield station is approximately 25 miles from his farm and he submitted it would be preferable to use the Gore Bay Airport, which is only 2 miles from his farm.

• His soil was comparable to four of his neighbors; the Armstrong farm has less topsoil.

• He planted hay with a higher proportion of legumes than his neighbors. His hay crop was 75% legumes and 25% grasses. He estimated the neighbors had 25-30% legumes with balance in grasses.

• 2000 was a very dry year in Gore Bay.

Mr. Fred Thomson, AGRICORP

Mr. Fred Thomson explained that a forage insurance plan had been in place almost 30 years and that it was based on an international model designed by the Food and Agriculture Organization. He explained that the SIMFOY model was developed by Dr. Murray Brown at the University of Guelph and he gave a brief overview of the model. He said the Forage Plan is an area-based plan with one insured peril – drought. He explained that drought could be indicated by a lack of rainfall, a lack of temperature or a lack of sunshine. Mr. Thomson said the Forage Plan does not pay on the basis of individual growers’ results, as it is an area-based plan. He said that it was usual for neighboring forage growers’ results from the simulation to be different. He submitted that the computer model was used appropriately in this case.

Mr. Thomson pointed out that Clover Hill Farms had been insured under the Forage Plan since 1977; 8 claims totaling approximately $32,000 had been paid and premiums of approximately $20,000 had been paid in that time period.

Under questioning, Mr. Thomson, assisted by Mr. Shivji, responed:

• AGRICORP collected soil samples in each County for the purpose of determining the initial soil moisture. Samples were not taken at each insured growers’ farm.

• The original SIMFOY model did not require an initial soil moisture test, as it is rare that there is not enough moisture to initiate growth.

• Climatic data was purchased from Meteorological Services of Canada, a division of Environment Canada. Stations used were often changed as the stations are manned by volunteers and are in a constant state of flux.

• AGRICORP has the right to substitute data from other stations than the growers’ main stations and substations. This flexibility is needed, as it cannot be assured a set of data covering the entire growing season will be obtained from each station.

• The Gore Bay airport has an automated system; data from automated systems cannot always be used, as the information is not available in a timely manner.

• The Sandfield station may be closer to other insured growers on Manitoulin Island.

Husseinali Shivji, AGRICORP

Mr. Husseinali Shivji said he did not dispute that Mr. Hietkamp received a lower payout under the Forage Plan than his neighbors. He explained that the main reason for this was the difference in the second cut yields calculated by SIMFOY. Mr. Shivji also said the ‘circle system’ used to select comparable neighbors was a factor.

Mr. Shivji explained that the SIMFOY model incorporated a number of fixed assumptions as follows:

1. Good farm management.

2. Two cuts in Northern Ontario and three cuts in Southern Ontario.

3. 30” minimum soil depth.

4. Fixed species mix by main station

5. Predominant soil type by Township.

He told the Tribunal that Gore Bay was in Northern Ontario, so it was assumed two cuts of hay were taken and that the species mix was assumed to be 50% alfalfa, 25% timothy and 25% brome grass in the area.

Mr. Shivji explained that a number of variable climatic inputs were entered into the computer as well. These are:

1. Initial soil moisture.

2. Climatic information from Meteorological Services of Canada (rainfall, daily minimum and maximum temperatures and hours of sunshine)

3. Rainfall reported by insured growers.

4. Actual first cut yields from cooperator growers.

5. Cutting dates.

He explained that AGRICORP used rainfall reported by its clients when available but substituted rainfall recorded at substations by Meteorological Services of Canada when clients did not report their rainfall. He said cutting dates were set for each main station and that they were based on actual cutting dates for first cut that were voluntarily reported by clients. However, he said that the SIMFOY model would only accept a date that was within 10 days of June 25 for main stations located in Northern Ontario. In 2000, SIMFOY used July 1st as the first cut date in the yield calculations.

Mr. Shivji explained that once all the variables were entered into the computer, SIMFOY works as follows:

• It simulates slow growth in early days of growth and more rapid growth later in the growing season.

• The first cut yield estimate is the sum of 50% of the projection from the SIMFOY simulation and 50% of the first cut yield from cooperator growers. A simple average of the yield per acre of each cooperator farm within a 15-mile radius of the insured farm is calculated to represent the yield from cooperator growers.

• The second cut yield is taken straight from the SIMFOY model and it assumed the second cut is taken 37 days after the first cut.

• But, if the simulated yield in the second cut is less than 20% of the historical average, it is counted as zero in the model. Also, if the yield is greater than 120% of the historical average, it is counted as 120%.

• The final yield in Northern Ontario is the average of the first and second cut results.

• Each client’s simulated yield from the model is weighted by 35% and combined with the average of his/her neighbors’ simulated yields, weighted by 65%.

• Claims are paid on any SIMFOY results that show a final yield of less than 80% of the historic average. The claim paid is double the amount that the yield is below 80% of the historic average, such that a grower with a yield of 75% of the historic average is given a 10% payout.

Mr. Shivji said there were three cooperator growers in Mr. Hietkamp’s area, including Clover Hill Farm. He explained that AGRICORP staff visited each cooperator farm to obtain yield data.

Mr. Shivji explained that to determine the average of each client’s neighbors’ yields, a simple average of the final yields of all clients within a 3-mile radius of each insured grower was taken. He said that in the event there were less than two additional clients in that 3-mile radius the circle was expanded to a 6-mile radius. He clarified that for a neighbor’s yield data to be considered, the neighbor would have had to submit a complete 4-month record of rainfall to AGRICORP.

With regard to Mr. Hietkamp’s situation, Mr. Shivji said he believed the concern was the variation between the payout percentages between neighbors. He explained that SIMFOY calculated the appellant’s second cut yield at over 30%, whereas some of his neighbors had a second cut yield projection of less than 20% and these yields were reduced to zero. He said that differences in recorded rainfall were the key reasons that the simulated yields were different between neighboring farms.

In response to questions, Mr. Shivji, with the assistance of Mr. Thomson, indicated:

• AGRICORP staff do not have the authority to use their judgement to override the results of the SIMFOY computer model. This is because the Forage Plan is sold on the basis of the computer model yields.

• Small differences in rainfall between two neighbors can result in large differences in the second cut yield calculation. Because the policy doubles the claim, differences between neighbors are magnified.

• Whether or not a grower takes a second cut does not impact the results of the model. The actual date that a grower takes a first cut does not affect the outcome of the model. The actual species mix planted does not affect the outcome of the model.

• Soil type is fixed for all clients in a given Township.

• Climatic information for Mr. Hietkamp’s area is collected from the Sandfield substation, except for sunshine data, which is collected in Wiarton.

• There are very few weather stations collecting hours of sunshine data, but there is little variability in sunshine across the province.

• The model is not as sensitive to differences in sunshine and temperature as it is to rainfall.

• Rainfall is recorded for four months, but SIMFOY only uses data collected after it is warm enough for plant growth to start in the Spring.

• In Mr. Hietkamp’s area the first cut simulation date was July 1st and the second cut was set at August 5th.

• The model accounts for the impact of late June rainfall impact on growth of second cut, as some moisture is expected to be retained in the soil.

• Mr. Hietkamp’s simulated total yield in 2000 was 80.23% of the normal yield. His neighbors had lower simulated yields and he was brought into a claim position because the neighbors’ yields were weighted at 65%, whereas his own yield was weighted at 35%.

• Mr. Hietkamp’s neighbors reported somewhat less rainfall than he did.

• The time in the growing cycle that rainfall is received has an impact on the yield data.

• If insured growers do not report their recorded rainfall, their claim is reduced. At least 80% of clients report daily rainfall data.

• 2000 was generally cooler and wetter than usual in Ontario, but it was dry on Manitoulin Island

• Using a 3-mile radius circle for Mr. Hietkamp and a 6-mile radius circle for his closest neighbor had some impact on the difference in payouts.

• The ‘circle system’ of using neighbors’ yield data is used to discourage an individual grower from submitting false data to manipulate the results of the model for personal gain.

• Results from different sizes of farm operations may reflect different management styles, but each grower is compared to his/her own past performance. Yields are estimated as a percentage of historic yields.

• It is not feasible to have an individual-based plan for forage, as it is neither cost effective nor affordable.

• The SIMFOY model is complex to administer and difficult to explain but it is superior to systems used in Alberta and Quebec. AGRICORP was experimenting with a pilot program in which a plan is based solely on the amount of rainfall in an area.

• There is no adjusting to take into account actual species mix used by each grower in the Forage Plan. AGRICORP has considered incorporating individual species mix into the plan but has concerns that this would encourage manipulation of data to improve claims. As well, customers had perceived inequities with an abandoned policy which had provided two options, based on the insured growers’ cutting dates.

• All insured growers were treated the same way in determining whether a 3-mile radius circle or a 6-mile radius circle was used in their 2000 simulated forage yield. However, it was possible that two adjoining neighbors could have circles of different sizes applied to them. This occurred in this case, as Mr. Hietkamp had sufficient neighbors within a 3-mile radius of his farm, whereas at least one neighbor did not and a 6-mile radius circle was used for him.

• In this case, there was an advantage to the neighbor who had a 6-mile radius circle applied, but there were other instances where a 3-mile radius circle is more advantageous to growers.

• AGRICORP has discussed the possibility of using a ‘smart circle’ methodology whereby the circle would be gradually expanded until at least two neighboring clients with complete records were in the circle of each insured grower. This would result in circles of many different sizes being used. A ‘smart circle’ could reduce the variation in SIMFOY results between close neighbors. But, there would still be variation between neighbors’ results due to the localized effect of rainfall.

• AGRICORP staff are responsible for ensuring the data entered into the SIMFOY program is correct; there is no discretion to personally adjust individual claims.

Summations

Mr. Hietkamp submitted that he had no argument with the computer model but submitted that it was not fair that his payout was only 7.46% when his nearest neighbour received a payout of 14%. He indicated that he felt the Tribunal should be able to increase his payout.

Mr. Thomson acknowledged that there is some frustration with the Forage Plan as it is less predictable than AGRICORP’s other policies and as the SIMFOY results do not always reflect individual results. However, he submitted that the Forage Plan was promoted as an area-based plan and that is what the appellant purchased. He asked that the Tribunal find in AGRICORP’s favour as the plan was administered as it was sold.

The Findings

The Tribunal finds that there was no dispute as to the accuracy of the information used in the SIMFOY calculation of Mr. Hietkamp’s claim. The Tribunal finds that the appellant’s claim was adjusted correctly, under the terms of the insurance policy he purchased. The Tribunal cannot order that the amount of the appellant’s claim be increased, simply because his neighbours fared better under the same Forage Plan. The claim of each insured grower must be adjusted on the basis of his/her own simulated final yield.

It is clear to the Tribunal, that the ‘circle system’ used in the Forage Plan ensures that growing conditions on insured farms in the vicinity of each insured grower’s farm have a significant impact on the simulated yields of each insured grower. It is clear that in some cases the size of the circle used - 3-mile radius or 6-mile radius – impacts the payout percentage calculated by the SIMFOY computer model. In this case the model allowed for different sized circles to be used for insured growers on adjacent farms and one neighbour benefited from dry conditions on lands encompassed in the larger circle, while the other did not. This highlights an apparent inequity inherent in the Forage Plan. It is the Tribunal’s view that the use of ‘smart circles’, which expand until the requisite number of data points are encompassed, would be fairer than the current system.

Decision and Reasons

After careful consideration of the evidence filed and submissions made, the Tribunal decided to deny the appeal for the following reason:

1. The evidence was that AGRICORP administered the Forage Plan correctly, as outlined in the insurance agreement, and the amount of the appellant’s crop insurance claim was consistent with the coverage he purchased.

Recommendation

The Tribunal recommends to AGRICORP that it investigate the possibility of amending the Forage Plan to use the ‘smart circle’ methodology. The Tribunal believes the ‘smart circle’ methodology would result in a fairer program than is provided by the current ‘circle method’.

DATED AT Lindsay, Ontario this 18th day of September, 2001.