Revenue insurance as an income stabilization policy: an application to the Spanish olive oil sector

Abstract

This paper analyses five combinations of agricultural policies and revenue and yield insurance for the Spanish olive sector : (1) non-intervention ; (2) the policy currently in force with production aid and yield insurance ; (3) revenue insurance ; (4) revenue insurance combined with production aid ; (5) aid per tree combined with revenue insurance. Each combination is tested with respect to various criteria : average revenue and its variability, growers’utility, taxpayers cost, and the transfer efficiency of support. We performed Monte-Carlo simulations on 100 statistically significant groups of growers. Three rankings of the five policy scenarios show that the current regime of EU production aids on olive oil eliminates the advantage of extending the current yield insurance to a revenue insurance at a reasonable cost. We also show that the level of support delivered by production aids can by no means be reached with revenue insurance even with 100% subsidized premia, and that scenario (5) exhibits good results based on all criteria.