Revenue Insurance as an Income Stabilization Policy: An Application to the Spanish Olive Oil Sector

Various forms of revenue insurance have been applied in Canada and in the US with relative success. In this paper different combinations of traditional agricultural policies and revenue and yield insurance are analysed for the Spanish olive oil sector. Taking a database containing about half million Spanish olive growers during 8 campaigns, five possible policies are studied and the results are examined according to different criteria including average revenue and its variability, growers utility gains, taxpayers cost and the transfer efficiency of support. The policies analysed are: (1) non-intervention; (2) the policy currently in force in Spain that combines a production aid with a yield insurance; (3) a revenue insurance, only; (4) revenue insurance combined with a production aid; and (5) an aid per tree in combination with revenue insurance. The methodology is based on Monte-Carlo simulations performed on about 100 groups of growers that have been grouped according to their expected yields and variability. Assuming and estimating olive oil price and yields correlations for each group of growers, the analysis allows for consistent policy comparisons at a very disaggregate level. Using the results for all analysed groups, policies are ranked based on the above criteria at the provincial and national levels. Results show that the current regime of EU production aids of olive oil eliminates the advantage of extending the current yield insurance to a revenue insurance. It is also shown that the level of support delivered by production aids cannot be reached with revenue insurance even with completely subsidised premiums. Finally, it is shown that the policy that combines tree aids with revenue insurance exhibits good results for all examining criteria.