How to calculate wine grape smoke damage payable loss for crop insurance claims
Wildfire smoke taint and crop insurance, oh my!
Wildfires and the lingering smoke produced are a continuing threat to wine grape producers. Let’s look at how federal crop insurance covers this peril?
The federal multi-peril crop insurance program, or MPCI, is the primary method wine grape growers can insure their crops for yield losses. It is based on a grower’s actual past production history, or APH. It’s designed to help a grower should they suffer crop yield losses due to damage from natural causes such as wildlife, disease, untimely rains, hail, frost, flood or wildfire.
The MPCI policy does not cover the vine, but rather crop loss to the fruit due to fire from a naturally occurring source such as wind or lightning.
Though not a specific named peril, smoke damage may be covered by the grape policy provisions allowing a quality adjustment, or QA, for deficiencies caused by a covered peril.
What’s a possible claim for smoke taint damage look like?
Let’s say Brian has pinot noir in Healdsburg. Nearby wildfires leave smoke in the atmosphere for an extended period. Brian is concerned and calls his crop insurance agent to open a claim within 72 hours of the possible damage occurring.
The insurance carrier’s adjuster inspects the vineyard and tells Brian that to qualify for the QA adjustment, certain criteria must be met.
Brian collects and sends a pre-harvest grape sample or a micro fermentation, to be tested by an independent lab, or a lab approved by the carrier in advance. At least one sample needs to be taken for each variety/location or insured unit.
The lab results come back positive, indicating elevated levels of guaiacol and 4-methyl guaiacol are present. The contaminant must be present for the claim to move forward, but no minimum threshold is currently set for MPCI policies.
Regrettably, Brian’s winery rejects buying the grapes in writing, stating the reason for rejection is due to smoke-taint compounds. He is forced to sell the grapes to an alternative buyer at a severely lower price.
There must be a 75% reduction in the value of the crop between what the original contact price or the average market price of undamaged grapes of the same or similar variety verses what the grower will receive for the damaged grapes.
Since Brian met both criteria of the positive lab results and the fruit salvage value was less than 25% of the original value, the crop policy may possibly pay on this type of loss.
With this information, the adjuster would use the following formula to calculate the quality-adjusted production to count.
Salvage value is divided by the original value to arrive at a factor. That factor is then applied to the actual crop tonnage harvested or appraise in the field. This adjusted tonnage amount is then subtracted from the policy tonnage guarantee. That may result in a payable indemnity.
Example of how payable loss is calculated
- $300 ton (salvage value) / $2,000 ton (original value) = 15%
- 4 tons per acre of grapes were harvested
- 4 tons x 0.15 = 0.6-ton appraised crop
- His policy guarantee was 3.0 tons per acre, minus 0.6 tons = 2.4-ton payable loss.
- If he has not harvested the crop, the policy will also subtract $200 per ton for the harvest-allowance factor.
What about if guaiacol or 4-methyl guaiacol show up in the wine after harvest? Is this covered by the policy?
If the grapes are delivered provisionally to the winery, and the grower asks their adjuster in writing every 30 days for an extension of time, that may provide enough time for further evaluation to be conducted.
The taint has to have originated in the vineyard, not from cross contamination in the winery. Coverage for quality-related issues beyond the farm gate are not covered. The grapes brought into the winery facility for fermentation must be isolated to prevent cross-contamination with grapes from another vineyard not belonging to the insured grower.