Talking Points for Risk Management
Solutions for Biotech, Organic and
Conventional Producers
Prepared by:
Watts and Associates, Inc.
4331 Hillcrest Road
Billings, Montana 59101
[email protected]
Watts and Associates, Inc. has developed this material for the sole use of its recipients for use in developing
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TALKING POINTS FOR RISK MANGEMENT SOLUTIONS
FOR BIOTECH, ORGANIC AND CONVENTIONAL PRODUCERS
The Problem: USDA, agricultural crop producers, and other stakeholders recently have been confronted
with a significant quandary. Injunctions have been requested in Federal Courts to curtail or halt planting
of biotechnology (biotech) seed for some crops. The talking points for the proposed risk management
solutions contained herein will focus on the concerns involving contamination and/or cross pollination of
organic crops and seed from farms or fields growing like kind crops, inclusive of biotech crops. The
contamination and/or cross pollination from a crop may cause the other crop/seed to suffer a potential
diminution in value, attendant business interruption, and/or potential breach of contract claims by a
purchaser of the crop/seed.
Solving the Problem: One way to achieve the goal of reducing the financial exposure of a producer
growing seed or crops for a specialty market and thereby reducing the attendant risk of injunctions may
be to provide a safety-net for crop/seed producers who claim losses (diminution in value, attendant
business interruption and potential breach of contract claims) resulting from contamination or cross
pollination from another crop. This safety-net could be provided in many forms, and discussions should
center initially on (a) whether a safety-net approach of any form would provide sufficient financial
mitigation to comfort a Federal Court deciding an injunction case, and (b) what would be the best risk
management approach for agriculture producers, other stakeholders, and interested parties. Several
approaches could be considered such as:
 Establishing a Risk Retention Group (RRG): The RRG could be structured as a member
organization for organic and/or crop/seed producers, other stakeholders, and other interested
parties that would pay verified claims from crop producers on a no-fault basis, assuring such
claims are addressed quickly, efficiently, and in an cost effective manner;
 Establishing a USDA RMA/FCIC Solution: An endorsement to an organic crop insurance policy,
that provides coverage to (organic and seed) producers in the event of losses due to contamination
or cross pollination on a no-fault basis;
 Development of a Non-Reinsured Supplemental Policy: A policy could be initially developed and
then delivered by SRA-holding private insurance companies that would provide private coverage
for adjudicated claims;
 Establishing a Risk Retention Group for Biotech Producers: This RRG would cover biotech
producers and other stakeholders by paying adjudicated claims.
The above solutions rely on an insurance approach to provide liquidity and financial depth upon
establishment of a valid claim. Insurance does not eliminate cost or risk, but (a) it spreads the cost across
a far larger group of at–risk producers and other potential stakeholders while reinsurers provide liquidity
and financial depth, and (b) it allows indemnities to be paid quickly in a crisis on pre-arranged terms
without litigation. If the biotech producer is insuring against an adjudication of liability, the ability of the
agriculture producer to “trace back” their contamination or cross pollination may need to be possible for
there to be true liability to cover. This may not be feasible given the current status of like crops growing
in an area . If the Federal Court(s) believe there may be damage, but there may be no ability to trace back
to a producer who has coverage, then the Federal Court may not believe insurance is a true safety-net or
solution to this problem. Therefore it may be necessary for the non-biotech/ seed producer to be the
insured under a no-fault provision for cross pollination or contamination which is the avenue pursued in
the first two solutions above. It should be noted that the initial risk to be covered being contemplated is
solely at the producer level. The four potential solutions are further overviewed next.
Establish a Risk Retention Group for Organic or Crop/ Seed Producers: The Liability Risk
Retention Act (LRRA) is a federal law that was passed by Congress in 1986 allowing the creation of Risk
Retention Groups. A Risk Retention Group (RRG) is a liability insurance company owned by its
members. Under LRRA, RRGs must be domiciled in a single state. Once licensed by its state of
domicile, an RRG can insure members in all states. Because the LRRA is a federal law, it preempts state
regulation, making it much easier for RRGs to operate nationally. As insurance companies, RRGs retain
risk and may “partner” with a reinsurance company to cover off risk that may exceed the ability of the
RRG to absorb. An RRG could be established wherein producers of seed or organic crops would be
Use or disclosure of data contained on this sheet is subject to the restriction on the title page of this report.
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members and would pay an annual fee for coverage against cross pollination or contamination no-fault
claims. In this event, an insured would be indemnified for claimed losses resulting from contamination or
cross pollination for three proposed covered financial impacts: (a) claimant suffering a potential
diminution in value of the crop, (b) claimant suffering attendant business interruption, and (c) claimant
suffering potential breach of contract claims by a purchaser of seed or the organic crop. To assure widest
participation in the insurance system, a simplified, web-based sign-up process would be developed. This
solution, if viable, may be capable of being implemented significantly quicker to address the Federal
Court issue than the following options. Other stakeholders (if politically palatable) such as biotech
companies and biotech producers may also seek membership and possibly the attendant protection from
risks covered by the RRG. If stakeholders, other than producers are provided coverage, it is critical that
the additional coverage is financially and actuarially separated from the farm level coverage, so the
additional stakeholders “pay their own way” such that the additional cost of the risk is not imposed on
producers. The above outlined approach, if palatable to the stakeholders, is the most flexible long term
solution and may be capable of addressing the widest range of future unanticipated complexity.
Government Subsidized Endorsement: An endorsement to the combo policy could be developed such
that a federally subsidized solution could be available for organic and/or seed producers. The
endorsement could be developed (submitted and expedited under the new 508(h) concept paper rules) to
cover the damaged producer similar to a quality loss in conventional crops. Careful review of the Act and
discussion with FCIC/RMA administration and counsel would be the first step in this process. It is our
understanding that the USDA Office of General Counsel for RMA has initially indicated concern that the
Act may not permit coverage of this type. Even if this barrier is removed, the FCIC and RMA would
need to be “on board” with an expedited timeline or this effort could span two to three years given the
uniqueness of the request. The risk covered by this effort will be small and therefore the agent
commission will be very small which will provide very little incentive to the companies and agents. The
cost of this effort to the companies may exceed the revenue.
Non- Reinsured Supplemental: This effort would provide a private insurance alternative, leveraged
through the current crop insurance delivery system. A Non- Reinsured Supplemental could be developed
and made available to all SRA holders. Insurance risk would be borne by the SRA holders and their
attendant reinsurance companies. This effort could be effectuated in a more timely fashion – not
requiring approval of the FCIC Board – but may not be as well received by the crop insurance community
due to the lack of subsidy and a “private” product being offered by all the SRA community. Again, the
risk covered by this effort will be small and therefore the agent commission will be very small which will
provide very little incentive to the companies and agents and the cost of this effort to the companies may
exceed the revenue. After reflection, given the construct of the delivery system, this approach probably
will not result in an effective solution.
Establish a Risk Retention Group for Biotech Producers: This potential solution would be highly
similar to the first option with the difference being the insured party. This approach potentially could be
designed to provide coverage on an adjudicated basis. Coverage would be triggered by the notice of a
filing of a lawsuit and the RRG would assume the responsibility of litigation defense and would pay the
claim upon adjudication. This solution is provided to cover the potential that a Federal Court would rule
that the biotech producers should bear the cost of the risk management solution. If this is the outcome,
the trace back issue becomes important to solve in order to provide true liability coverage or the RRG
may effectively assume risk for the insured and non-insured alike.
Summary: If the Federal Court(s) is concerned about providing a “pool” for liquidity and financial depth
in case of cross pollination or contamination, the above safety-net or insurance approaches may assist in
solving the problem. Of the above potential solutions, the RRG for organic/seed or non-biotech
agriculture producers appears the most feasible and the most likely to quickly solve the problem faced by
producers, the Court, USDA, and other stakeholders. Initial development funding will be needed for the
chosen potential solution and may be a first-rate example of a public-private partnership which will
benefit all stakeholders.
Use or disclosure of data contained on this sheet is subject to the restriction on the title page of this report.
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