1

AssessingtheEffectsofAgriculturalPolicy,PriceandCost
ChangesonOliveFarmingSystemsinSouthernSpain

SamirMili*
LucinioJdez**
RosariodeAndrs*
ElviraUrzainqui*

*HumanandSocialSciencesCentre,CSIC,Madrid,Spain
**PolytechnicUniversityofMadrid
Correspondingauthor:SamirMili(samir.mili@cchs.csic.es)

SustainMedWorkingPaper02/2011

April2011

2

Abstract
This contribution explores the likely impacts of different policy, cost and price scenarios on
different olive farming systems in the Spanish Autonomous Community of Andalusia (by far
themostimportantoliveregioninSpainandintheworld).First,ithighlightsthemainfeatures
ofoliveoilproductionintheregionandthesectorsevolvingagriculturalpolicy.Subsequently,
itsimulatesthepossibleconsequencesofthemainpolicyschemeslikedecoupling,modulation
and specific agrienvironmental measures, using a Positive Mathematical Programming (PMP)
model.Differentcostandpricescenariosarealsoconsidered.Themainimpactscentreonthe
distribution of the different farming systems (conventional, integrated and organic) over the
production area and on the gross margin of farms. The analysis is carried out comparing the
resultsofthebaseyear2002withtheresultsoftwosimulationsfor2008and2009,definedby
specific agricultural policies and changes in costs and prices with respect to the base year.
Three calibration methods are tested in the model. The results show that the recent
agricultural policy change favoured the growth of integrated olive production, and that price
variations led to the expansion of conventional farming when negative and of integrated and
organic farming when positive. Moreover, in comparison with the base year, the subsidy
proportion of gross margin dropped in 2008 when prices increased and grew in 2009 when
theydecreased.Considerationofthetwoyearsallowedforthestudyofbothsituationsprice
increaseanddecrease.Thisinvestigationopensupanewresearchlinefortheolivesector.Itis
the first time that the impacts of agricultural policy changes and price and cost evolution, on
both the economic results of olive farms and on the distribution of different farming systems
onthelandavailablehavebeenexploredusingPMP.
Keywords:Policyimpact,PMP,olivefarmingsystems

Rsum
Cettecontributionexplorelesimpactsprobablesdediffrentsscnariosdepolitiqueagricole,
de cot et de prix sur diffrents systmes de production olicole dans la Communaut
autonomeespagnoledel'Andalousie(deloinlargionolicolelaplusimportanteenEspagne
et dans le monde). Dans un premier temps, elle dcrit les caractristiques principales de la
production olicole dans la rgion et lvolution de la politique agricole du secteur. Dans un
deuxime temps, elle simule les consquences possibles des principales dispositions de
politique telles que le dcouplage, la modulation et les mesures agroenvironnementales
spcifiques, utilisant un modle de programmation mathmatique positive (PMP). Diffrents
scnarios de cot et de prix sont galement considrs. Les impacts principaux portent sur la
distributiondesdiffrentssystmesdeproduction(conventionnel,intgretbiologique)ainsi
que sur la marge brute des exploitations. L'analyse est effectue comparant les rsultats de
l'anne de rfrence 2002 aux rsultats de deux simulations pour 2008 et 2009, dfinies par
des politiques agricoles et des changements des cots et des prix spcifiques par rapport
l'anne de rfrence. Trois mthodes de calibrage sont examines dans le modle. Les
rsultatsmontrentquelechangementrcentdepolitiqueagricoleafavorislacroissancede
la production intgre, et que les variations des prix conduisent l'expansion de l'agriculture
conventionnelle quand elles sont ngatives et de l'agriculture intgre et biologique quand
elles sont positives. Par ailleurs, en comparaison avec l'anne de rfrence, la proportion de
subventions dans la marge brute a baiss en 2008 suite laugmentation des prix et a
augmenten2009suiteleurbaisse.Laconsidrationdesdeuxannesapermisl'examendes
deuxsituationsaugmentationetdiminutiondesprix.Cetteinvestigationouvreunenouvelle
ligne de recherche sur le secteur olicole. C'est la premire fois que les impacts des
changements de politique agricole et de l'volution des prix et des cots, aussi bien sur les
rsultats conomiques des exploitations olicoles que sur la distribution de diffrents
systmesdeproductionsurlaterredisponible,onttexplorsutilisantlaPMP.
Motscls:Impactdespolitiques,PMP,systmesdeproductionolecole.
3

AssessingtheEffectsofAgriculturalPolicy,PriceandCostChangeson
OliveFarmingSystemsinSouthernSpain

1. Introduction

WorldoliveoilproductiontakesplacemostlyintheMediterraneanbasin,withSpainbeingthe
first producing country and having the largest olivegrowing area in the world (45% of world
production and 25% of world olivegrowing area in 2007). Within Spain, Andalusia is the
Autonomous Community
1
harbouring the largest production, with 75% of olive oil
production and 62% of the growing area. Moreover, in many parts of Andalusia olive oil
production constitutes the base of almost all economic activities. Andalusia is therefore the
most representative region for performing a study on the olive oil sector from a regional
perspective.

The economic performance of the olive oil sector is strongly dependent on the regulatory
environment.InSpain,themostimportantnormbyfaristheEuropeanUnion(EU)regulation
on the Common Market Organization (CMO) for olive oil. This body of rules, which was first
establishedin1966,hasbeenmoreorlesssubstantiallymodifiedovertime,inlinewithmore
comprehensive changes in commercial and agricultural policies at national, Community and
international levels, with modifications in the Common Agricultural Policy (CAP) being central
tosuchchanges.

Basedonthesepremises,themainobjectiveofthepresentcontributionistoexplorethelikely
impacts of different policy, price and production cost scenarios on olive farming systems in
Andalusia.Afterthisintroduction,section2highlightsthemainevolutionarytraitsoftheolive
oil sector in Andalusia, focusing mainly on the farm level. Specifically, it analyses yield and
production area under both dry and irrigated farming, producer and input prices, farm
structure and profitability, and the evolution of organic and integrated production systems in
Andalusianolivefarming.

Section 3 presents a rather detailed analysis of the agricultural policy for the sector since it
started up, with special focus on the last reform (2004) of the CMO for olive oil and the
changes for the sector resulting from the CAP health check. Section 4 assesses the possible
consequences for Andalusian olive production of the main provisions of reforms such as
support decoupling and modulation, as well as the effects of specific agrienvironmental
measures for certain production systems. For this purpose, a positive mathematical
programming(PMP)modelisusedtoexploretheimpactofdifferentagriculturalpolicy,price
and cost scenarios on the olive sector in the abovementioned Spanish Autonomous
Community. Special attention is placed on the impacts on 1) distribution of the different
farmingsystemsconventional,integratedandorganicovertheproductionarea,and2)the

1
Oneof17Spanishpoliticalunits,eachenjoyingdifferentdegreesofautonomywithintheoverallState.
4

grossmarginoffarms.Theanalysisiscarriedoutcomparingtheresultsofthebaseyear2002
with the results of two simulations for 2008 and 2009 defined by specific agricultural policies
and changes in prices and costs with respect to the base year. Finally, some conclusions and
implicationsintermsoffurtherresearchextensionsaredrawninsection5.

2. TheolivegrowingsectorinSpainandinAndalusia

2.1Productionareaandyields

Table1showstheevolutionofolivefarmsinSpainandinAndalusiafrom1996to2008.During
this period, total olive production area increased by 200,000 ha. Less accurate information
from previous years (from 1990 onwards) suggests that total growth was around 300,000 ha.
In Andalusia, the increase in growing area was remarkable, from 1,200,000 ha in 1996 to
1,370,000in2008.Andalusiahasaround61%ofthetotalSpanisholivegrowingarea.

The olive area under dry farming conditions in Spain remains stable at around 1,850,000 ha.
58% of this, a little below 1,100,000 ha, is located in Andalusia. Irrigated olive groves, on the
other hand, have undergone significant changes. At the beginning of the aforementioned
period,thetotalirrigatedareawasjustalittleabove150,000ha,butreachedalmost350,000
hain2008.AndalusiahasahigherpercentageofirrigatedolivegrovesthantherestofSpain,
always above 80%. In recent years, however, this indicator has shown a negative tendency,
dropping from 84% to 80%. Irrigated olive groves in other Spanish regions are being
establishedfast,thougharestillveryfarfromchallengingAndalusianpreeminence.

Regarding production of oil olives (for crushing), over the 19962008 period, this oscillated
around five million tons, with a low point of three million tons in 1999 and a peak of seven
million tons in 2003 (Table 2). In relative (percentage) terms, Andalusian production of oil
olives is stable at around 80% of the Spanish total, though for 2003 (minimum production
withintheperiod)itdroppedto70%,showingthattheproductionsetbackwaslocatedmostly
inthatregion.

Since the growing area did not change much during the period considered, the above
mentioned oscillations were essentially the result of yearly yield fluctuations, which in turn
were heavily dependent on weather conditions. Andalusian tonnage per hectare for oilolives
is consistently higher than yields elsewhere in Spain, under both dry and irrigated farming.
Both values move around certain levels over the years. In other words, no upward trend in
yield is observed except for the first few years of the period considered when yields from
irrigatedgrovesinAndalusiaincreasedsteadilyupto2000,afterwhichtheyremainedstable.

5

Table1:OlivegrowingareainSpain(1,000ha).
DRYFARMING 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Andalusia 1,083.4 1,083.7 1,100.9 1,076.5 1,071.9 1,108.0 1,112.1 1,075.1 1,080.3 1,085.2 1,093.2 1,088.0 1,091.6
CastileLaMancha 255.1 263.6 265.7 265.0 265.4 267.9 271.7 301.3 315.9 319.4 318,2 322.2 303.1
Catalonia 101.5 102.8 104.2 106.5 107.7 105.7 108.2 108.0 107.9 107.9 109,9 105.0 104.9
Extremadura 213.8 209.9 210.6 195.5 201.5 195.0 195.2 195.2 195.2 193.3 193,3 193.3 193.2
Other 34.5 24.4 25.4 185.0 183.1 184.9 177.0 177.2 179.6 184.3 174,7 169.7 167.2
Spain 1,841.9 1,845.1 1,868.4 1,828.5 1,829.7 1,861.4 1,864.3 1,856.8 1,878.9 1,890.1 1.889,3 1,878.2 1,860.0

PercentageAndalusia 58.82 58.74 58.92 58.87 58.59 59.52 59.66 57.90 57.50 57.41 57.86 57.93 58.69

IRRIGATED 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Andalusia 128.7 159.8 174.3 179.3 218.2 232.0 232.0 233.4 269.4 277.6 281,5 278.9 280.8
CastileLaMancha 3.8 4.1 4.5 4.7 6.2 6.7 6.7 8.0 12.4 13.5 15,1 15.8 14.0
Catalonia 4.6 6.7 8.6 8.4 11.1 12.1 12.1 12.7 11.4 10.5 12,7 15.1 17.4
Extremadura 0.2 0.3 0.4 0.5 0.5 0.5 0.5 1.0 1.5 3.0 3,5 3.5 3.7
Other 16.9 21.5 22.5 18.2 22.3 22.7 22.7 24.6 25.1 26.4 28,1 29.8 32.0
Spain 153.4 189.8 206.2 211.1 258.3 274.0 274.0 279.7 319.8 331.0 340.9 343.1 347.9

PercentageAndalusia 83.90 84.20 84.53 84.92 84.49 84.67 84.67 83.45 84.24 83.87 82,58 81.29 80.71

TOTALOLIVEGROVES 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Andalusia 1,212.0 1,243.5 1,275.2 1,255.8 1,290.2 1,339.9 1,344.1 1,308.5 1,349.7 1,362.8 1,374.7 1,366.9 1,372.4
CastileLaMancha 258.9 267.7 270.2 269.7 271.6 274.6 278.4 309.3 328.3 332.9 333.3 338.0 317.1
Catalonia 106.2 109.5 112.9 114.9 118.8 117.8 120.4 120.7 119.3 118.4 122.6 120.1 122.3
Extremadura 214.0 210.2 211.0 196.0 202.0 195.5 195.7 196.2 196.7 196.3 196.8 196.8 196.9
Other 51.4 45.9 47.9 203.2 205.4 207.6 199.6 201.8 204.7 210.7 202.8 199.5 199.2
Spain 1,995.2 2,034.8 2,074.6 2,039.6 2,088.0 2,135.4 2,138.2 2,136.5 2,198.7 2,221.1 2,230.2 2,221.3 2,207.9

PercentageAndalusia 60.7 61.1 61.5 61.6 61.8 62.7 62.9 61.2 61.4 61.4 61.6 61.5 62.2
Source:AnuariodeEstadstica(MARM,severalissues)andauthorscalculations.
6

Table2:OiloliveproductioninSpain(1,000t)

Totaloiloliveproduction
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Andalusia 3,628.8 4,434.0 3,389.3 2,159.1 4,168.6 5,346.6 3,269.3 5,877.0 3,931.5 2,804,0 4,430.1 4,727.5 4,064.0
CastileLaMancha 206.1 422.6 185.0 285.1 227.5 393.0 313.7 485.0 262.4 262.8 236.0 396.2 399.3
Catalonia 138.8 214.4 110.2 194.8 88.0 214.2 77.6 141.5 117.7 120.8 103.8 104.9 174.1
Extremadura 189.2 284.0 181.2 221.0 166.6 278.8 209.4 270.4 282.6 230.9 303.3 221.6 217.2
Others 165.3 237.8 154.8 212.1 121.6 264.1 187.0 281.2 150.4 227.8 210.1 251.5 234.3

Spain 4,328.3 5,592.8 4,020.7 3,072.3 4,772.3 6,496.6 4,057.0 7,055.1 4,744.6 3,646.3 5,283.3 5,701.7 5,088.9

PercentageAndalusia 83.8 79.3 84.3 70.3 87.4 82.3 80.6 83.3 82.9 76.9 83.9 82.9 79.9

Source:AnuariodeEstadstica(MARM,severalissues)andauthorscalculations.
7

OliveyieldinAndalusiais30%higherthantheSpanishaverage.Thelatteroscillatesaround2.2
t/ha and the former around 3.0 t/h, with greater fluctuations in Andalusia. This yield gap is
largerfordryfarmingsystems.Itremainsstableataround40%overtheyearsconsidered.Dry
farmingyieldsinAndalusiaarearound2.7t/haandforSpainaround2.0t/ha.Thislastfigureis
aSpanishaverageincludingAndalusia.Thegapwouldbeevenlargerifitwerefortherestof
SpainwithoutAndalusia.

The yield gap for irrigated olives is much smaller: 4.4 t/ha in Andalusia vs 4.2 t/ha in all of
Spain. The introduction of new technologies all over Spain seems to counterbalance, to a
certain extent, the natural advantages of the region of Andalusia for olive production. The
percentage difference between the Andalusian and Spanish average yields under irrigation is
the only variable that grew at the beginning of the period observed though it tended to
stabiliseafterwards.

2.2Productionprices

Between 1975 and 2006, olive oil producer sales grew, though with ups and downs due to
alternate bearing which affects sale prices (Garca et al., 2008). Measured in nominal euros,
olive oil prices showed steady increases during this period, with peaks in 1996 and 2005. In
thesetwoyears,droughtcausedadropinyieldswithamarkedreductioninproductionanda
riseinprices.

TheCAPsupportmeasuresplayedanimportantroleinpriceformationonce Spainjoined the

EU in 1986. Until the decoupling of European support from production volume in 2006,
farmers receipts came from two sources: the market through sales of olives or olive oil and
coupled public support. Table 3 shows the evolution of producer prices in nominal values
withintheperiod1990/2008.

Prices showed steady increases during the whole period, with large hikes in 19941996 when
unfavourableweatherconditionscausedsupplytodrop.EUsupportwasathighlevelsbut,as
from 2006, has been largely decoupled from produced quantities. Subsidies were clearly
important for growers income. The 1998 reform was a preliminary step towards fullblown
market exposure with the decoupling of support. Decoupling has had an effect on
rationalization of the production process, especially regarding labour, the most expensive
andincreasingcostitemintheproductionprocess(Mili,2009).

Regardingpaidprices,labouristhemaincostfacedbyolivegrowers,andbothpermanentand
seasonallabourhaveseenlargeincreasesinpriceinrecentyears.Accordingtotheindexesof
prices paid by agricultural producers in Spain, labour costs increased by 183 % (permanent
labour) and 188 % (seasonal labour) between 1985 and 2006. This is especially high
considering they add up to between 40% and 70% of total production costs, depending on
geographic location and production system (Mili, 2006). Hence it is not surprising that new,
intensive olive groves adopt plantation layouts for mechanical harvesting to avoid such high
labourrequirements.

8

Table3:Pricesandsupportreceivedbyolivegrowers(virginoliveoil,averagetype)

Year
Nominalprices
(/100kg)
Production
subsidies(/100
kg)
1990 151.35
39.60
1991 157.41
45.85
1992 163.12
55.42
1993 181.93
66.65
1994 219.09
106.84
1995 276.25
142.20
1996 355.22
142.20
1997 200.92
142.20
1998 159.17
132.25
1999 215.63
132.25
2000 186.32
132.25
2001 274.74
132.25
2002 180.78
132.25
2003 200.89
132.25
2004 227.16
132.25
2005 288.28
132.25
2006 158.20
Pds
2007 136.82
Pds
2008 229.15
Pds

Note:Forproductionsubsidiesbetween1998and2005,theeffectiveunitamountofsupport
was132.25multipliedbyacoefficientobtainedbydividingtheNationalGuaranteedQuantity
(NGQ)fortheMemberStateestablishedinthe1998CMOreformbyactualproduction.
Pds:Partiallydecoupledsupport.
Source:AdaptedfromGarcaetal.(2008).

The increase in spare part prices over the time period considered is also marked, 118%.
Considering different stages of that period, the index increased strongly up to 1998 and was
followed by a sharp decline in 1999. A gradual recovery followed until 2006. In fact, if all
physical inputs are considered (excepting labour, which is not a physical input), a decrease in
costs is seen in 1998/99 with a gradual recovery afterwards, up to 2006. The increase in fuel
pricesoverthewholeperiodisalsoimportant(53.5%).

A special case among prices paid by olive growers are land prices. Land demand is a derived
demand.Itdependsonthemarketsituationofthemainproductobtainedonit(oliveoilinthis
case) as well as on expectations for future trends. The price of olive land, which is normally
very specific for this crop, increased during the 19862005 period above the average price of
agricultural land as a whole. Measured in constant euros, the consolidated price increase in
this period was 16.42% for agricultural land as a whole and 127.84% for olive growing land
(Garcaet.al.,2008).

9

2.3 Productionstructureandentrepreneurialresultsofolivefarms

Regarding olive cultivation structure in Andalusia, the most detailed source available is the
1999 Agricultural Census of Spain, published by the Spanish National Statistics Institute
2
in
2002. Results of the 2009 Census (which comes out every ten years) have not yet been
published.Thismeansthatanycommentsontheresultsmustbecomplementedbyinformed
assumptions regarding structural changes occurring in the past decade, such as increased
concentrationoftheareainlargerproductionunits,theparallelincreaseofaveragefarmsize
andthedecreaseinthenumberofsmallerfarms.Accordingtotrendsatthebeginningofthe
2000s,withanimportantincreaseinoliveoilproductioninSpain,itcanbesupposedthatthe
irrigatedareaisslightlyunderestimated.

Numerically, small farms (less than 10 ha) predominate in both dry and irrigated farming
systems.Byarea,however,mediumsizedfarms(10to100ha)arethemostrepresentative.In
general,irrigatedfarmstendtobesmallerthandryfarms,exceptforthelargestfarmswhere
irrigatedunitsareonaverageslightlylarger(+2ha).

However,astudyofasampleof2,000olivefarmscarriedoutbytheJuntadeAndaluca(the
Andalusian regional government) almost in the same period (Prez Hernndez, 2008) shows
radicallydifferentstructuralresults.Theaveragefarmsizeobtainedis20ha.Thecensusresult
forthesameparameteris5.84ha.Theaveragesizeofirrigatedunitsinthesurveydoublesthe
value obtained in the census. Though the surveys report does not mention it, it is very likely
thatthesmallestfarmswerenotconsideredduetotheireconomicirrelevance.

ThesurveycarriedoutbytheJuntadeAndalucapresentsvaluesforfarmcosts,incomeand
results for all Andalusian olive farms under the two production systems considered (dry
farming and under irrigation). The gross margin per hectare of the average Andalusian
irrigated farm is 10.56% higher than that for dry farming (1,612 against 1,458). Expenses
underirrigationarealsohigherthanfordryfarming,consideringallkindsofinputs.Ofspecial
note are fertilizers (333/ha and 133/ha, respectively) and labour (1,254/ha and 616/ha).
But income is also larger for irrigated plantations, due to both yields twice the amount
obtainedunderdryfarmingandsubsidiesobtainedatthetime(PrezHernndez,2008).

Basedonthesurveyresults,thisstudyprojectsascenariofor2008modifyingcostsinlinewith
the evolution of prices paid by farmers, but leaving income, subsidies and technical
relationships unchanged. The aim is to establish changes in farm income if sales and support
remain stable at the same level. The result is that input price increases lead to remarkable
drops in gross margins (27.3% for dry and 36% for irrigated farming). The gross margin
decreaseislargerfortheproductionsystemthatusesmostinputs,thatis,irrigatedfarming.If
theexerciseweretoalsotakeintoaccountincomelossesestimatedat40%bytheseauthors,
Andalusianolivegrowers,butforfewexceptions,wouldhavesustainedlargelosses.

A third source for structural and economicfinancial data on olive holdings is the National
Agrarian Accounting Network (RECAN) database. Data are obtained from a sample of farms
participatinginthenetwork.Theyarestratifiedaccordingtoproductionsystem,farmsize
3
and
region(AutonomousCommunity).Theaggregatesforallfarmsinthedifferentregionsandat
nationallevelarealsopresented.

2
InstitutoNacionaldeEstadstica(INE).
3
FarmsizeismeasuredinESU(EconomicSizeUnits).OneESUequals1,200ofstandardgrossmargin
(SGM).
10

In the case of Andalusia, the 2004 sample contains 171 olive holdings. Cost analysis of the
wholesamplerevealsthatthemostimportantaverageentriesare,indecreasingorder,wages
and related social expenses (4,505), capital investment (3,322), plant protection (1,313),
fertilizers(1,218)anddepreciation(1,183).

Analysisofproductionratiosperfarmsizeshowsthatlandproductivitydecreasesasfarmsize
increases (from 2,283/ha to 783/ha, with a sample average of 1,793/ha). The opposite
happens with labour productivity, with net value added increasing from 10,748/AWU
4
to
57,026/AWUandthesampleaveragebeing16,383/AWU.

AnalysisofthesampleforthewholeofSpain(300holdings,includingAndalusianones)forthe
same variables shows slightly lower costs for all main components, except for depreciation.
This item, amounting for 1,380/year, takes the third position in absolute terms, behind
labour(4,006)andcapitalinvestment(2,953).

2.4 Integratedandorganicproduction

TheGeneralDepartmentforAgriculturalProductionoftheAndalusianGovernment(Direccin
GeneraldelaProduccin Agrcolay Ganadera dela Juntade Andaluca)isresponsibleforthe
integrated production (IP) programme in this Autonomous Community. It defines its goals as
to obtain high quality produce based on rational use of production factors with a
conservationist production system able to protect the environment using environmentally
friendlyprocedures.OtherelementsofIParetoreachbiologicalequilibriumandtooptimize
theuseofnaturalresources.

Introduction of this production system requires a welldeveloped extension service and the
adoption of practices like soil, water and plant analysis, insect trapping and certification. In
order to cover implementation and certification expenses, the regional government of
Andalusiaprovidedsupportamountingtoaroundsevenmillioneurosin2008/09.

An array of regulations are to be compulsorily observed for different crops. Observing these
rules is a precondition for labeling the products obtained. Without such labels, products
obtained using integrated production procedures cannot be distinguished from conventional
ones(AlarcnRoldnandSaavedraSaavedra,2003).

As a consequence, the development of IP systems is closely associated with development of

thesetofrules,andalltheSpanishAutonomousCommunitieshavebeenaheadofthecentral
government in this, especially Andalusia and Catalonia, where integrated pest control was
already in use in the 1980s. Up to 2002, all regulations on IP were located at Autonomous
Community level. That year, Royal Decree 1201/2002 established the norms for production
and general conditions for all IP operations and operators all over Spain, though other
regulations could also be applied. The 2002 rules cover recommending or prohibiting
agronomic aspects, tillage, seeding and planting, fertilizing, pruning, irrigation, pest control
andpostharvesttreatments,conservation,storageandpackaging.ThedecreeincludesalsoIP
regulationsfortheprocessingindustryinwhichtraceabilityplaysacentralrole.

TheSpanishMinistryfortheEnvironmentandRuralandMarineAffairs(MARM)hasdrawnup
technical regulations for IP for different crops, adapted to their physiological traits and soil

4
AgriculturalWorkUnit.
11

requirements. This work was done with the collaboration of most Spanish Autonomous
CommunitiesandcanbeappliedalloverSpain.

Regional IP regulations are very similar for IP definition, basic conditions, product promotion
and the appointment of a coordinating board. They all differ, however, in aspects such the
entities or persons that can practice IP, technical control of farms, the materials allowed for
pest,diseaseorweedcontrolandtheupperlimitsofresiduestoleratedinproduce.

In1985,Andalusiapublishedthefirstsetofrulesforintegratedproductionforstrawberryand
olive production. From then and up to 2008, the Department of Agriculture and Fisheries of
Andalusia brought out 29 IP Regulations, covering even processing industries. The current
specific Regulation for the olive sector, which covers both olive oil and table olives, is dated
July18
th
,2002,whiletheindustrialtechnicalstandardwaspublishedonOctober24
th
,2003.

Support addresses two kinds of beneficiaries: farm owners and producer organizations. The
May 6
th
, 2008 Regulation establishes which items are eligible for subsidies and the
corresponding amounts: technical advice, agronomic analysis during cultivation and
harvesting, integrated pest control and expenses resulting from authorized certification
inspections.

The conditions for granting subsidies to environmentallyfriendly agricultural production are

established in Royal Decree 1203/2006 of October 20
th
. The list is long and includes the
conditions on which farm owners must agree in order to be eligible for support. It basically
deals with extensification of agricultural production, flora, fauna and landscape protection,
integratedfarmmanagementandrationaluseofphysicalinputs,especiallychemicalproducts.
Chemical treatments are to be limited, crops rotated, certified seed sown, and pest control
carriedoutbiologically,environmentalcontrolmustbeexercisedbymeansofanalysisofsoil,
water and plant residues, technical advice must be followed, records kept and a yearly
statement issued. Support is paid per hectare, and for each crop a minimum surface must be
managedunderthissystem.Inthecaseofolivegroves,thefirstdecreeestablishedapremium
of 147.25/ha, with one hectare being the minimum surface area. To take part in an IP
programme requires submission of a schedule including control and certification, the aim
being to ensure compliance with regulations. Audits may be internal or external. Internal
audits are to be carried out by the technician in charge of the farm and results must be
recorded on the farm, while external audits must be carried out by authorized inspectors,
eitherprivateorpublic.

The IP area in Spain amounted to 601,400 ha in 2009, of which 381,000 ha (63.4%) were
locatedinAndalusia.Sevenyearsearlier(2002)therewereonly186,000haunderthissystem.
In absolute terms, most of the IP area in Spain grows olives (269,000 ha; 44.1 %) but, in
relative terms, a different picture emerges. Only 10% of the olive growing area is managed
under IP conditions. According to MARM (2010a), most of the IP olive groves are located in
Andalusia(253,316ha)andinCatalonia(10,477ha).

Asfororganicproductionsystems,therulesaremuchmorestringentthanforIPand,unlikeIP,
arenotonlyatregionalandstatelevel,butalsoatEuropeanlevel.Syntheticagrochemicalsfor
pestanddiseasecontrolandfertilizationareprohibited,whileIPallowscontrolledapplication
ofcertainamountsoftheseproducts.

Environmental protection and consumer health are powerful marketing tools; consumers link
organicagriculturewithhealthyeatinghabitsandenvironmentalprotection.Eventhoughthis
productionsystemallowsforsomecostreductionsnoagrochemicalsallowedhighercosts
12

appear in the form of reduced yields. These are made up for by monetary support with
different amounts for different crops. For olive production, according to the Rural
DevelopmentPlan20072013(MARM,2009),supportmayreach329/ha.

Organic agriculture has been regulated in Spain since 1989 when the regulation for the
Organic Agriculture generic denomination was passed. It was recognized at European level
by Regulation (EC) 2092/91. Measures on organic agriculture have priority among the
measurescoveredbytheSpanishRuralDevelopmentProgramme.Regardingoliveproduction,
the AgriEnvironmental Measures for 20002006 stated that organic olive production aims to
sustainandimprovesoilfertility,toincreaseusefulfaunaandtowidenecologicaldiversityby
means of a set of growing techniques. Under a later Rural Development Plan (20072013),
putting these production methods in practice entitles farmers to apply for the above
mentioned support. A farmer that decides to farm organically, however, must engage for at
least five years in order to obtain subsidies. In the case of IP, the engagement is only for one
year.

The number of organic olive groves worldwide and in Spain has become relevant. Spain is
presentlythesecondcountryintheworldfororganicolivegrowingarea.Worldwide,409,000
ha of olive groves are cultivated organically. Spain has 101,275 ha, just behind Italy with
109,992ha.Moreover,oliveisthesecondorganiccropinSpain(21.6%oftheregisteredarea
of organic agriculture), behind cereals. Andalusia has 41,500 ha (41% of Spanish organic olive
groves) and also 97 oil mills and bottling plants operating under organic regulations. Second
and third places after Andalusia for organic olivegrowing area are Extremadura (35,294 ha)
andCastileLaMancha(12,836ha).

The consequences of these programmes for Andalusia and for its olive oil markets can be
clearly seen from its sales of organic olive oil. In 2009 the region sold 9,000 t valued at 40
million worth, one third of it packaged and the rest in bulk. 2,992 t were sold in the Spanish
domestic market, 1,757 t in France and 1,342 t in Italy. Almost all shipments abroad were in
bulk.

3. Theregulatoryenvironmentfortheolivesector
5

EU regulation of the olive oil sector started out with Regulation 136/66/CEE in 1966 which
established a mixed regulatory system: an intervention regime based on indicative price,
intervention price, import levies (prlvements) and export refunds, on the one hand, and a
systemofdirectaid toproductionandconsumption,ontheother.
6
Thesystemwasdesigned
as compensation for Italy, the sole olive oil producer in the early European Community, for
having liberalised its markets for a range of other agricultural products from European
partners (Ti, 1997). EC protection for olive oil meant protection of Italian olive oil. This
explains why the intervention price for olive oil was much higher than the price fixed for
competingoils.TheEuropeanCommissiondecidedtoapplythesameschemebutstepbystep,
firsttoGreeceandthentoSpainandPortugal,whentheyjoinedtheEuropeanCommunity.In
Spain, application of the EC regulations for olive oil was subject to a transition period of ten
years,thelongestamongallSpanishagriculturalsectors.

5
ThissectionislargelybasedonMiliandRodriguezZiga(2005)andMARM(2007and2010b).
6
AmorecomprehensiveanalysisoftheseregulationscanbefoundinMili(2006).
13

ProfitsobtainedthroughthissystempromptedproductionincreasesallacrosstheCommunity,
mostlyinSpain,thelargestproducerintheworldandalsothecountrywiththelargestgrowth
potentialfortheoliveoilsector(MiliandRodrguezZiga,2001).

RelevantchangesstartedtobeintroducedaftertheagreementoftheUruguayTradeRoundof
the World Trade Organization (WTO) was signed in 1994. This agreement had important
effects on the olive oil sector, both in Spain and other EU producing countries where this
product had traditionally enjoyed a high level of protection, both through the CMO and
throughcomplementaryactionstakenbymemberstates.Importantchangesinapplicationof
the CMO for olive oil were introduced after the 199596 crop year as a consequence of the
agreements signed within the framework of the Uruguay Round, especially concerning the
regulationoftradewithnonmembercountries.

The EU export subsidies that were granted to all olive oil exports until the 199495 crop year
basedonthedifferencebetweenEUandworldpricesstartedtobemodulatedfromthattime
onwards, until 2000, as established in the aforementioned Uruguay Round agreements. The
agreement established that, during this period, the EU should cut down the volume of
subsidised exports by 21% and related budgetary expenses by 36%. The calculation base for
both estimations was the average for 198690 (in fact, refunds for olive oil exports were
eliminateddefactoin1998).Itshouldbeaddedherethatanyquantitiesexportedaccordingto
inward processing arrangements, which grant tariff benefits when oil is imported from non
member countries and equivalent quantities are reexported outside the EU, were not
includedinthecalculationstoestimatethelimitsestablishedbytheWTO.

Levies on imports were replaced by fixed import tariffs, the amounts differing for different
kinds of oil. These amounts were determined by the European Commission and decreased
yearly during the six years covered by the agreement down to a total reduction of 20%.
Besides the fixed tariffs, the Uruguay Round agreement allows the EU to apply additional
tariffsiftheCIFimportpricesdropbelowtriggerprices(pricesestablishedbytheCommission
that trigger the application of such complementary duties), or when the imported quantities
surpassacertainthresholdsomightleadtoalterationsintheUnionsinternalmarket.

InadditiontomodificationsoftheCMOasaconsequenceoftheUruguayRoundagreements,
other changes in the sectors regulatory systems were introduced. In 1998, Regulation (CE)
1638/98provisionallyestablisheda32%increaseinthequantityeligibleforsupport,anational
guaranteed quota system to divide up any support, a subsidy system for private storage to
replace public intervention, elimination of consumer subsidies and of the special regime for
small producers, and the granting, for the first time, of support for table olives. This
transitionalreform,whichwassupposedtocoverthreecropyears(1998/99to2000/01),was
extendedthreecropyearslongerafter2001whileawaitingmorepermanentchangesin2004.

More permanent changes were adopted in 2004, as part of a deeper reform of the CAP
covering Mediterranean products (European Commission, 2003). The new regulation, which
cameintoeffectin2006,introducedessentialinnovationsinthewaythesectorisprotected.A
largeproportionofaidtothesectorisnolongerlinkedtoquantitiesproduced,butisgranted
through decoupled payments to farmers, while quality is at a premium (product quality, food
safety, environmental protection) over quantity (yields). It was also determined that farms
largerthan0.3hashouldreceiveatleast60%oftheaveragesupportobtainedduring200002
asasingledecoupledpayment.(Paymentsforsmallerfarmsare100%decoupled.)Theamount
for each recipient is estimated according to a reference period of the four crop years from
199900to200203.ThesesinglepaymentsarelimitedtoplantationsexistingbeforeMay1
st
,
1998 and new ones approved under EU programmes. A maximum of the remaining 40% are
14

national funds for additional payments linked to objective criteria of sustainability and
environmentalgoals.

The 2004 reform was first established under Regulation 865/2004 that derogated Regulation
136/66/EEC and was later substituted by Regulation (EC) 1234/2007, creating a CMO for all
agricultural sectors and special provisions for certain agricultural products (the Single COM
Regulation). Simplified single payments were introduced, with complete decoupling of all
supportfrom2010onwards.

Regarding provisions on farmers income, two areas were distinguished: internal market and
external market. The internal market regime covers private storage, a quality system and
activitiesbyprofessionalorganizationslinkedtotheoliveoilsector.Privatestoragetakesplace
through organizations offering guarantees and recognized as trustworthy by member states
andisusedincasesofseriousdisturbanceoftheinternalpricelevel.Ittakestheformofbulk
storageofoliveoil.Regulation(CE)826/2008unifiesprivatestorageregimesforallagricultural
products.

The external trade regime with nonmember countries establishes fixed custom duties
according to the kind and quality of the product being traded. However, very high internal
prices allow the creation of import quotas with reduced or even zero duties. In addition,
special amounts with total or partial duty reduction are considered for EU Mediterranean
partner countries. Imports must be authorized and payments guaranteed (Regulation (EC)
1345/2005).Exportcertificatesbecameavoluntarymeasure.

The single payment system in Spain (Royal Decree 1618/2005) had applied since 2006. From
that year, up to and including 2009, 93.61% of support was decoupled and the rest was
coupled. Coupled payments are linked to environmental and landscaping measures. Up to
2009theyamountedto103.4million.Itwasalsodecidedthatsupportshouldbepaidtoolive
grovesonsmallfarms,accordingtofivecategories:

a) Olive groves located in areas highly dependent on this crop, where the olivegrowing
areacoversmorethan80%ofthetotalagriculturalareaofthemunicipality.
b) Olive groves with high cultural or landscape value, especially ancient ones or those
growingonterraces.
c) Olives groves located in regions with difficult natural conditions, like steep slopes or
lowprecipitation.
d) Olive groves at high risk of abandonment, with low yields or located in lessfavoured
areas.
e) Sociallyvaluable olive groves, especially those located in areas with a welldeveloped
tradition of olive oil production, or with poor economic indicators or included in
specialqualityschemes(organicproduction,designationoforigin).

Since the 2006/07 crop year, it has been allowed to claim single payments for areas planted
after May 1998 and also to plant olive trees on any surface area that may generate payment
rights. Nevertheless, this measure was not extended to coupled support, which has been
maintained only for groves planted before May 1
st
, 1998. The obligation of maintaining the
geographic information system for the olive sector is also dropped if support is completely
decoupled. However, in Spain no funds have been withdrawn from growers to cofinance
programmes proposed by professional organizations. The programme to fight the olive fly,
considered of utmost importance, is jointly financed by the MARM and the autonomous
communities.

15

The basic national legislation in force for administration of these payments was laid down in
Royal Decrees 1617 and 1618/2005 dated December 30
th
. The first year of application of the
programme was positively evaluated, as growers received large complementary payments.
495,034oliveoilproducersobtainedsupportinSpain,outofatotalnumberof854,016(58%).
InAndalusiathepercentagewas86%.

As from 2010, according to the provisions approved within the CAP health check of
November2008(Regulation(EC)73/2009),allcoupledsupportisgrantedasasinglepayment,
with 100% decoupling from crop yields. Under certain circumstances, member states are
granted large flexibility margins for crosscompliance. States also decide on any measures to
be adopted with additional modulation funds, within their own rural development
programmes. The measures are cofinanced up to 75%, or up to 90% if adopted in regions
subjecttoconvergenceobjectives.

While it enforces the adjustments introduced since the health check, the Spanish model is
based on the general structure of European agriculture as defined by the CAP, though some
specificobjectivesarealsoconsidered,suchasthefollowing:

PromotemarketorientationformostholdingsandsectorsinSpain.
Retain productive activity in lessfavoured areas or areas with environmental
problems.
Retainproductionactivityinintensivesectorswithspecialimportanceforregional
economyandemployment.
Ensureadjustmentsaremadesmoothlyinsectorsundercrisis.
Use new modulation funds to stimulate or compensate for activities in line with
productionandhealthcheckobjectives.

Inaddition,thepresentregulationisdesignedtoanticipateliberalizingpressuresarisingonthe
international scene, especially those resulting from trade negotiations of the Doha Round of
the WTO. The olive oil sector obtains much higher support levels than other Mediterranean
products like fruit, vegetables or wine. The Producer Subsidy Equivalent PSE (an indicator
designed by OECD to measure total monetary transfers from consumers and taxpayers to
agriculturalproducers)estimatedforEUoliveoilshowsthatsuchtransfersamountto50%of
producersgrossrevenue,asimilarleveltothatforEUcontinentalproducts.Moreover,before
adoptionofthe2004reform,mostofthesesupportmeasureswereincludedinWTOsamber
box so were subject to reduction commitments because of their distorting effects for
internationaltrade.

The fact that EU olive oil support is high and was granted through instruments linked to
productionincentives(pricesupport,supportlinkedtoproducedquantity)hasmadeitalikely
targetforreductionsinfutureWTOcommitments.Negotiationsarecurrentlytakingplacewith
the clear objective of reducing internal support and all kinds of export subsidies while
improving access to internal markets and introducing easier conditions for developing
countries (see the 2001 Doha Ministers Declaration, confirmed in many subsequent
ministerial meetings). The 2004 reform avoids this reduction of internal support to a great
extentbecause,underthenewsystem,mostdecoupledproductionsupportmeasurescanbe
assigned to WTOs green box, as they are not considered to distort international
competition. In fact, in many cases it will be possible to continue producing with production
costsabovesaleprices,coveringthedifferencewithdecoupledsubsidies.

16

In short, the olive oil sector can be considered to have entered a new stage of change in its
regulatoryenvironment,inboththeEUandinternationally,movinginthedirectionoffurther
trade liberalization and subsidy reduction. More competitive, marketoriented growers and
traders will be at an advantage. The system of support presently being phased out has
prompted extraordinary production growth and also fuelled sometimes excessively profit
expectationslinkedtotheoliveoilsector.Itwill,however,continuetobecrucialinthefuture
for the formation of expectations and for decisionmaking amongst all agents involved, even
thoughthewaysupportisgrantedischangingirreversibly.

4. Impactofdifferentagriculturalpolicy,costandpricescenariosonolivefarmingin
Andalusia

As indicated in the introduction, this section is devoted to the possible impact of different
agriculturalpolicyscenarios,costandpricechangesonthedifferentoliveproductionsystems
in Andalusia, using a positive mathematical programming model (PMP) (Howitt, 1995). In this
exploratorywork,asinglefarmisconsideredtorepresentthewholeoliveproductionsectorin
Andalusia. In the next subsection the procedure followed to define the standard farm is
explained. Afterwards, the scenarios considered, changes in prices and costs and model
formulationaredescribed.Regardingthislastaspect,itshouldbepointedoutthatoneofthe
mainproblemswhenusingPMPisthechoiceofthecalibrationprocedure.Inthepresentwork
three calibration methods are tested: the socalled average costs method, the method
including exogenous supply elasticities (Helming et al., 2000) and a calibration method to be
calledgeneral,introducedbyRhmandDabbert(2003).Acomparativeanalysisofthethree
procedures is performed in order to choose the one that best fits the needs of this research.
Finally, the impacts of different scenarios and changes on the standard farm described are
analysed.

4.1.Definitionofthestandardfarm

The characteristics, in the base year (2002), of the standard farm on which this analysis is
based are shown in Table 4. Data is obtained from the RECAN for 2002 for the average farm
under type of farming (TF) 300
7
for olive production, in the Autonomous Community of
Andalusia.Onlycharacteristicsrelevantforoliveoilproducingfarmsweretakenintoaccount,
becauseitissafetoassumethatolivesdonotcompeteinanysignificantwayforsurfacearea
withothercropsonthefarm.InadditiontotheRECAN,someotherinformationsourceswere
used.Theyarementionedbelow.

7
To compare different kinds of agricultural output, each one is translated into a common unit using
standard gross margin (SGM) coefficients representing the difference between the standard value of
production and the specific costs associated with it. Each coefficient relates to a hectare of crops or a
head of livestock. The relative proportions of the SGM for different outputs in a farms total gross
marginareusedtocategoriseeachfarmunderatypeoffarming(TF)accordingtoitsspecialisation.The
typeoffarmingisaEuropeanclassification.

17

Table4:Characteristicsofthestandardfarminthebaseyear(2002).

Farmingsystem
Area
(ha)(1)
Yield(Kg
olives/ha)(2)
Prices(/Kg
olives)(3)
Variablecosts
(/ha)(4)
Dryfarming
Conventional
Integrated
Organic
6.30
5.96
0.17
0.17

2.873
2.873
2.873

0.40
0.44
0.48

520.11
546.12
572.12
Irrigatedfarming
Conventional
Integrated
2.63
2.56
0.07

4.905
4.905

0.43
0.47

760.29
798.30

(1) Regardingsurfacearea,itisassumedthatthevaluesprovidedbytheRECANforolive
oil producing groves under dryfarming (6.30 ha) and under irrigation (2.63 ha)
correspond to the total dry and irrigated areas, respectively. The breakdown of dry
farming area is 94.58% conventional, 2.71% IP and 2.72% organic. Under irrigation,
97.22% is conventional production and 2.78% is IP. These proportions are estimated
based on data obtained from the Food and Agriculture Statistical Yearbook 2003
(MAPA,2004)andAlarcnandSaavedra(2003),applyingthesamepercentagesfordry
and irrigated farming as in the total: 82.21% and 17.79%, respectively. Irrigated,
organic olive groves were not taken into account due to their extremely small weight
inthetotalorganicarea.InJune2003Andalusiahad2,892haoforganicolivegroves,
i.e.0.2%ofthetotaloliveareaofAndalusia(CaseroRodrguez,2003).

(2) Regarding yields, the hypothesis adopted is of similar yields under dry and irrigated
farmingfromconventionalandIPolivegroves(GuzmnCasadoetal.,2002)andfrom
conventional and organic (Alonso Mielgo and Guzmn Casado, 2004; Alonso et al.,
2008). Yields for both dry and irrigated farming are obtained from RECAN, dividing
total production by the olivegrowing area. The average Andalusian oil yield for the
2002/03 crop year (21.3%) is applied. This is the average yield from homogeneous
SpanisholiveoilproducingareasapprovedbytheCommissionandclassifiedaccording
tothemunicipalitiesincludedintheECRegulation2138/97.

(3) Prices are obtained according to RECAN information. These, under both dry and
irrigated farming, are unit values resulting from dividing total production value by
producedquantity.Inordertoestimatethepricesforeachtype ofolivefarming,itis
assumed that prices of integrated olive are 10% higher than conventional olive, and
that organic olive is 20% more expensive than conventional. These assumptions are
based on Alonso Mielgo and Guzmn Casado (2004) and Alonso et al. (2008).
Moreover, the breakdown of surface area for each farming system, as established
above,istakenintoaccountintheestimations.

(4) Finally,variablecostsofconventionalolivegrovesareobtainedbyapplyingtheindex
of prices paid by producers in 2002, in comparison with base year 2000 provided by
MARM, to the costs reported for 2000 by Garca et al. (2008) Family labour costs,
included among total variable costs by these authors, have been subtracted. Variable
18

costs for IP and organic groves are estimated according to the abovementioned
studies by Alonso Mielgo and Guzmn Casado (2004) and Alonso et al. (2008). These
calculationsestablishthatvariablecostsforIPandorganicgrovesare,respectively,5%
and10%higherthanforconventionalsystems.

4.2 Scenarios

Thesimulationsproducedbythemodel,describedinsection4.3,showtheeffectsofswitching
from completely productioncoupled support the situation in 2002 to partially decoupled
support, and of variations in prices and costs in 2008 and 2009 with respect to those in base
year2002.

4.2.1 Agriculturalpolicyscenarios

Table5showstheagriculturalpolicymeasuresconsideredforthebaseyear2002andalsofor
thesimulations(2008and2009).

Table5:Agriculturalpolicymeasuresincludedinthemodel

Typeofsupport

Baseyear
Simulationyears
Coupled
support
Decoupled
support
Productionsupportpaid 103.43/100Kgoliveoil 48.87/ha 715.91/ha
Agrienvironmentalsupportfor
organicolivegroves
266.85/ha 266.85/ha

Supportforcertificationand
implementationofintegrated
olivegroves
_ 49.14/ha

Total support for oil production was 103.43/100 kg in 2002. It is assumed that total support
for the simulated years would be the same amount that the farm received in the base year
(6,829.49
8
),equivalentto764.78/haforthestandardfarm.93.61%ofthisisdecoupledand
therestiscoupledtoproductionlevel.

Environmental support for organic olive groves was 266.85/ha in 2002 (Ariaza Segun et al.,
2002)andstayedatthesamelevelin2008and2009.

Publicsubsidiesforintegratedoliveplantationsmostlyservetopaythewagesofthetechnical
advisorsneededtoputinplacetheIPrulesandcertificationexpanses.Thissupporthasbeen
estimated at 49.14/ha. This amount was paid in 2008 and 2009, but not in the base year.

8
Considering,asalreadymentioned,that1kilogramofolivesproduces0.213kilogramofoliveoil,the
total production support received by the standard farm in the base year would be: 1.0343 x 0.213 x
(2,873x6.3+4,905x2.63)=6,829.49.
19

There are no records for 2002 showing this kind of payment because the environmental
support foreseen (147.25) was not applied in Andalusia (Ariaza Segun et al. 2002). Nor are
thereanypaymentrecordsforsystemimplementationandcertificationforthatyear.

Later,however,supportpaymentsstartedtobegrantedundertheenvironmentalprogramme,
and also for implementation and certification. In 2009 (the last year with available
information), public support for olive production under IP systems can be estimated at
49.14/ha.Thisestimationisobtainedfromtheaverageperhectarebasedontotalsupportfor
environmental measures of this type of 7,800,000 for all Andalusian agricultural sectors,
allocatedto253,316.18haofolivegrovesthatyear.Theresultis30.79/ha.Tothisshouldbe
added the subsidy for implementation and certification of 18.35/ha. This results from
applying the proportion of integrated olive groves in the total integrated surface area of
Andalusia (66.42%) to the total sum granted for that purpose (implementation and
certification)forthewholeAndalusianIPsurfacearea(7,000,000);i.e.66.42%of4,649,400
divided by 253,316.18 ha. Moreover, the amount of 7,800,000 for agrienvironmental
support was granted for integrated production in river basins leading to water reservoirs for
humanconsumptionorotherspecificareas.Notethatbothagrienvironmentalsubsidies(the
CAP second pillar) and support for IP implementation and certification are not subject to
modulation.

4.2.2 Costandpricevariationscenarios

4.2.2.1Costvariations

Cost variations between the base year 2002 and the simulation years 2008 and 2009 are
estimated,consideringthecostspresentedforthe1999/2000cropyearbyGarcaetal.(2008)
for conventional dry and irrigated olive groves according to their respective yields and the
indexes of prices paid by growers published by MARM. The costs for the standard farm
consideredandthepriceindexesusedforthecalculationsareshowninTable6.

Table6: Variable cost components for dry and irrigated olive farming and indexes of
pricespaidbythegrowers

Item Costdry
farming
/ha2000
(1)
Cost
irrigated
farming/ha
2000(1)
Index2002
2000=100
(2)
Index2008
2002=100
(3)
Index2009
2002=100
(3)
Fertilizers 110 128 106.90 207.11 171.75
Plantprotection 59 82 105.30 111.22 114.71
Machinery 68 31 108.40 125.52 127.77
Processing 24 55 102.90 138.97 123.27
Labour 259.11 464.29 110.73 124.12 125.85
Sources:(1):Garcaetal.(2008)excludingfamilylabourcosts;(2):MARMindexofpricespaid;
(3):AuthorsestimationsbasedonMARMindexofpricespaid.

20

The price variations between the base year and the simulated years, shown in Table 7, are
basedonthedatapresentedinTable6.

Table7: Variablecostsforolivecultivationandcostchanges(indices)ofthesimulated
yearscomparedtothebaseyear

Costs/ha
2002
Costs2008 Costs2009
/ha Index
2002=100
/ha Index
2002=100
Dryfarming 565.03 795.58 140.80 758.92 134.31
Irrigatedfarming 527.49 1,138.35 137.57 1,093.75 132.18

4.2.2.2 Pricevariations

PricevariationswereestimatedbasedonaveragepricesforoilolivespublishedbyMARMfor
2002, 2008 and 2009. These prices show a 19.38% increase in 2008 compared to 2002 and a
12.62%decreasein2009.Thesetwosituationsforproducerpricesareanalysed.

4.3 ThePMPmodel

OnecrucialaspectwhenworkingwithPMPmodelsischoiceofthecalibrationmethod.Inthis
study, three different methods were tested before choosing the one that is best adapted to
analysetheimpactofpolicymeasuressimultaneouslywithpriceandcostvariations.

For the purpose of simplification, the model formulated in the next section includes only the
objectivefunctionassociatedwiththecalibrationsuggestedbyRhmandDabbert(2003).As
shown in section 4.4.1 this calibration method is the best adapted to the objectives of this
research.

4.3.1Generalformulation

X
]
istheareainhectaresforcropi(i=1:conventionalolive,i=2:integratedolive,i=3:organic
olive) on land type j (j=1: dry land, j=2: irrigated land). The model to simulate different
agriculturalpolicies,pricesandcostsandestimatetheresultsofdifferentproductionsystems
canberepresentedasfollows:

mox |p
]
- y
]
+o
]
-c
]
+(o
]
+[
]
- X
]
)]

2
]=1
- X
]
+XP1 +moJ
- XP2 (1)

X
]

A
]
v] (2) z
2]

21

-s
]
- X
]
-J - E

2
]=1
+XP1 +XP2 u (S)
XP1 H (4)
X
]
, XP1, XP2 u

WherethefollowingvariablesareaddedtoX
]
:

XP1:amount,ineuros,ofdirectpaymentsnotliabletobereducedviamodulationwithinthe
simulatedyears.Inthebaseyearnomodulationisapplied.
9

XP2:amount,ineuros,ofdirectpaymentsaboveXP1,liabletomodulationreductionsof5%
in2008(mod=0.95)andof7%(mod=0.93)in2009.Inthebaseyearthereisnomodulationat
all(mod=1).

Andwhere:
p
]
, y
]
, o
]
, c
]
: price, in /kg of olives; yield, in kg/ha; coupled support, in /ha as direct
payments;andcosts,in/ha,ofcropionlandtypej.
s
]
:directcoupledpayments,in/ha.
J:entitlementsperhectare,in,singlepayment.Inthebaseyearthereisnosinglepayment
andJ=0.
E:area,inhectares,eligibleforsinglepayment.Insimulationyears2008and2009E=A
1
+A
2
.
InthebaseyearE=0.
o
]
and[
]
:parameterstocalibratethemodelinthebaseyear.Theirexpressionsareshown
below.

In the model, expression (1), to be maximized, represents the farms gross margin. It is made
upofdecreasinggrossmarginfunctionsforeachcropwithrespecttocroplevel.Expression(2)
isthelandarearestriction,forbothdryandirrigatedfarming.Equation(3)definestotaldirect
paymentstothefarm:XP1+XP2,andequation(4)limitstheamountofdirectpayments,N,
freefrommodulationreductions.Namountsto5,000insimulationyears2008and2009and
zerointhebaseyear,whennomodulationtakesplace.

Expressionsofo
]
and[
]

The necessary condition for Kuhn and Tuckers optimum at point X

]
= X

]
(with X

]
being
the olivegrowing area i on land type j in the base year) and the supplementary condition
required for this calibration process (o
]
+[
]
- X

]
= u ) lead to the following o
]

and [
]

expressions:

[
]
= |z
2]
-(p
]
+o
]
+s
]
-c
]
)]X

o
]
= -[
]
- X

Where z
2]
istheopportunitycostoflandtypej.

9
Regarding modulation of direct payments, all such payments (both coupled and decoupled) were
reduced,afterthefirst5,000,by7%in2009(thatyear,Spanishdecouplingwasstillat93.61%),8%in
2010 (100% decoupling), 9% in 2011 (100% decoupling) and 12% in 2012 (100% decoupling). These
percentagesincreasedby4%foramountsabove300,000.
22

4.3.2 Economicfunctionsfortheothercalibrationmethodstested

The expression of the economic function (gross margin with quadratic cost function) is the
sameforbothcalibratingmethods:withaveragecostsandwithexogenoussupplyelasticities:

_p
]
y
]
+o
]
-:
]
- _o
]
+
1
2
[
]
X
]
]_

2
]=1
X
]
+XP1 +moJ - XP2

Where:
]
isthecostvariationindexforolivegrovesionlandj(inthebaseyear:
]
= 1).

Thisfunctionisthesumofthegrossmarginsofeacholivegrovewherethecostfunctionsare
increasingregardingthecroplevel.

Theexpressionsofo
]
y[
]
,nevertheless,differbetweencalibrationmethods.

Expressionsofo
]
and[
]
inthecaseofcalibrationwiththeaveragecostsmethod

[
]
= 2 - (p
]
- y
]
+o
]
+s
]
-c
]
-z
2]
)X

o
]
= c
]
-
1
2
[
]
- X

Expressionsofo
]
and[
]
inthecaseofcalibrationwiththeexogenouselasticitiesmethod

[
]
=
(p
]
- y
]
+o
]
+s
]
)
X

]
- e
]

o
]
= p
]
- y
]
+o
]
+s
]
-z
2]
+[
]
- X

Wheree
]
representsthesupplyelasticityofolivegroveigrownonlandtypej.

4.4 Results

Asstatedabove,anessentialaspectofPMPisthecalibratingprocedureusedinthemodel.In
order to establish the best procedure for this case, the results for the standard farm under
differentcalibrationsandunderthedifferentagriculturalpolicy,priceandcostscenarioswere
compared.AllresultswereobtainedusingGAMS
10
/CONOPT(Brookeetal.,1992,GAMS,2001).

4.4.1 Evaluationofcalibrationmethods

From a strictly theoretical viewpoint, the average costs and exogenous supply elasticities
calibrationmethodsarelesssuitableforsimultaneouslyincludingvariationsofpricesandcosts
thanthegeneralcalibrationprocedure.Tacklingtheproblemfromanempiricalangle,annex1
showstheresultsfordifferentagriculturalpolicy,priceandcostscenariosandforeachofthe
differentcalibrationmethodsconsidered.Theresultsindicatethat:

10
GeneralAlgebraicModellingSystem.
23

The supply elasticity used for all olive cultivation systems (0.1) means that the
objective function value resulting from calibration with exogenous supply elasticities
doesnotcalibratethefarmsgrossmarginwell.

Greater consistency exists between gross margins per hectare estimated in Annex 2
for different olive growing systems and scenarios and the results obtained with the
general calibration method, than between the results obtained from the other two
calibration methods. In particular, the results obtained from calibrating with average
costs and exogenous elasticities do not reflect the fact that, with 2008 prices and
costs, the gross margin per hectare for organic olive groves drops less, in relation to
the base year, than for integrated or conventional groves. However, this is captured
wellbythegeneralcalibrationmethod.

The above tests determined that the general calibration method should be used to carry
out the impact analysis for different scenarios for the standard farm defined in section
4.1.

4.4.2 Impact of agricultural policy, cost and price changes on the olive area
distributionandeconomicresults

Tables 8 and 9 show the results obtained by the model for the standard farm defined in
section4.1inthebaseyear2002andthesimulationsfor2008whenolivepricesincreasedby
19.83%abovepricesin2002,andfor2009whentheydroppedby12.62%withrespecttothe
baseyear.Basedontheseresults,thefollowingcomparisonscanbemade:

A) Comparisonofthebaseyearresultswiththesimulationsregardingagriculturalpolicy,
pricesandcostsfor2008.

Price and cost evolution showing an increase over the base year, favoured the
expansionofintegratedandorganicoliveproductiontothedetrimentofconventional
farming.

Agricultural policy change in 2008 favoured the expansion of integrated olive

production against conventional and, to a lesser extent, organic olive production.
However, this increase was not due to the change from total coupling of support in
2002topartialdecouplingin2008,butrathertothefactthatthenewpolicybrought
specific, coupled support to integrated olive production of 49.14/ha, which did not
existinthebaseyear.

The combined effect of agricultural policy, price and cost changes triggered a
significant increase in integrated olive production and a smaller increase in organic
production,substitutingpartoftheconventionalgrowingarea,bothdryandirrigated.
Thischangeinthedistributionofolivegrowingsystemsonthesurfaceareabroughta
2.63% increase in gross margin (revenue from olive sales variable costs + subsidies)
with respect to the base year, despite a 1.14% decrease in support because of
modulation.

24

Table 8: Results for the base year and simulations with 2008 prices and costs and
differentagriculturalpolicies.Generalcalibrationmethod.

Base
year
2002
Changesinsimulationyear2008(%)
Partialdecoupling
(mod.5%).
Constantprices
andcosts(base
year)
Baseyear
policies.
2008
pricesand
costs
Partialdecoupling
(mod.5%).
2008pricesand
costs
Conventionaldryfarming(ha)

5.96 0.15 0.08 0.23

Integrateddryfarming(ha)

0.17 5.27 1.27 6.55

Organicdryfarming(ha)

0.17 0.07 1.47 1.40

Conventionalirrigatedfarming(ha)

2.56 0.08 0.05 1.59

Integratedirrigatedfarming(ha)

0.01 2.94 1.65 4.59

Economicfunction(000) 14.44 0.55 3.16 2.61
Subsidies(000) 68.75 1.15 0.01 1.14
Grossmargin(000) 14.44 0.54 3.17 2.63
%support/grossmargin 47.60 0.61 3.06 3.67
Valuesroundedtotwodecimalposition.

Table 9: Results for the base year and simulations with 2009 prices and costs and
differentagriculturalpolicies.Generalcalibrationmethod.

Base
year
2002
Changesinsimulationyear2009(%)
Partialdecoupling
(mod.7%).
Constantprices
andcosts(base
year)
Baseyear
policies.
2009
pricesand
costs
Partialdecoupling
(mod.7%).
2009pricesand
costs

Conventionaldryfarming(ha)

5.96 0.15 0.15 2.13

Integrateddryfarming(ha)

0.17 5.27 2.45 1.11

Organicdryfarming(ha)

0.17 0.07 2.82 3.85

Conventionalirrigatedfarming(ha

2.56 0.08 0.07 0.02

Integratedirrigatedfarming(ha)

0.01 2.94 2.33 0.62

Economicfunction(000) 14.44 0.80 23.51 24.31
Subsidies(000) 68.75 1.68 0.00 1.80
Grossmargin(000) 14.44 0.79 23.53 24.65
%support/grossmargin 47.60 0.90 30.75 30.33
Valuesroundedtotwodecimalposition.

25

B) Comparisonofthebaseyearresultswiththesimulationsregardingagriculturalpolicy,
pricesandcostsfor2009.

Asindicatedabove,in2009olivepricesdroppedby12.62%comparedtothebaseyear
prices. This price change drove an increase in conventional farming at the expense of
theintegratedandorganicareasexistingin2002.

The 2009 agricultural policy, being virtually the same as for 2008 except for the
modulationratewhichincreasedfrom5%in2008to7%in2009,hadthesameeffect
asin2008,i.e.partialsubstitutionofconventionalbyintegratedfarmingwhileorganic
farming areas remained stable. In fact, the substitution rate between the different
typesofproductionsystemswasthesamein2009and2008,inspiteoftheincreasein
themodulationrate.

Thecombinedeffectsofagriculturalpolicy,pricesandcostsin2009causedanincrease
in integrated olive production (though smaller than in 2008) at the expense of both
other methods (conventional and organic). This change in land use structure came
together with a 1.8% loss of support (mainly due to modulation) and a reduction in
grossmarginof24.65%mostlyduetoloweroliveprices.

5.Conclusionsandfutureextensions

ThisresearchworkaimedtoanalysetherecentevolutionoftheoliveoilsectorintheSpanish
Autonomous Community of Andalusia from the primary supply and regulatory standpoints,
and to explore the possible effects of different agricultural policy scenarios and changes in
prices and production costs. These effects were investigated for both land use structure and
thegrossmarginofastandardolivefarminthisSpanishregion.APMPmodelwasused.This
technique has been seen to be well suited for mathematically modelling agricultural policy
instrumentsanddiversetechnicaleconomicrestrictionsinordertoprovideusefulinformation
fordecisionmaking.

Inbrief,itcanbeconcludedfromthisanalysisthattherecentagriculturalpolicychangeforthe
olivesectorhasfavouredthegrowthofintegratedoliveproduction,duetospecificsupportfor
implementation, while price variations led to expansion of conventional olive growing when
negative and of integrated and organic growing when positive. The proportion of public
support in the gross margin, which amounted to 47.6% in the base year, dropped in 2008
because of price increases then grew again in 2009 as prices decreased. Hence, considering
bothyearsallowedinvestigationofbothsituationspriceincreaseanddecrease.

Thisworkopensupanewresearchlinefortheolivesector.Itisthefirsttimethattheimpacts
of agricultural policy changes and price and cost evolution, on both the economic results of
olivefarmsandonlanddistributionamongdifferentfarmingsystems,havebeeninvestigated
using PMP. In a following stage, work could be done on other agricultural policy scenarios,
includingtotaldecoupling(100%),togetherwiththe8%to10%modulationforeseengradually
for 20102012. Moreover, options for the CAP 2020 recently proposed by the European
Commission (2010) which will certainly imply changes in olive farming support could be
explored.Specifically,theoptionconsideringdirecthectarepaymentsaccordingtoamultilevel
approach (basic and uniform income support, plus an amount linked to compulsory cross
compliance, plus other support for natural specificities similar to the current article 68) is
probably the most relevant, and implicitly entails several partial scenarios corresponding to
26

different combinations of measures. These scenarios would also include price and cost
forecasts. Another possible research avenue would be an analysis across different farm sizes
followingtheRECANsizestrataforAndalusia,forotherSpanisholivegrowingregionsandfor
Spainasawhole.Finally,theanalysiscouldbeextendedtootherEUoliveproducingcountries
usingharmonized,comparabledata.

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28

Annex 1: Impact of agricultural policy, costs and prices on olive grove structure and
oneconomicresultsunderdifferentcalibrationmethods.

Table A1.1 Simulation results under constant prices and costs (2002) and partial decoupling
policywithdifferentcalibrationmethods.5%modulation.
Base
year
2002
Variationinsimulatedyear(%)
Average
costs
Exogenous
elasticities
General
Conventionaldryfarming(ha)

5.96 0.15 0.01 0.15

Integrateddryfarming(ha)

0.17 5.27 0.25 5.27

Organicdryfarming(ha)

0.17 0.07 0.01 0.07

Conventionalirrigatedfarming(ha)

2.56 0.08 0.00 0.08

Integratedirrigatedfarming(ha) 0.01 2.94 0.14 2.94
Economicfunction(000)
General

14.44

0.55
Averagecosts 14.44 0.55
Exogenouselasticities 111.56 0.07
Subsidies(000) 68.75 1.15 1.16 1.15
Grossmargin(000) 14.44 0.54 0.55 0.54
%support/grossmargin 47.60 0.61 0.61 0.61
Valuesroundedtotwodecimalposition.

TableA1.2Simulationresultsunderconstantpricesandcosts(2002)andpartialdecoupling
policywithdifferentcalibrationmethods.7%modulation.
Base
year
2002
Variationinsimulatedyear(%)
Average
costs
Exogenous
elasticities
General
Conventionaldryfarming(ha)

5.96 0.15 0.01 0.15

Integrateddryfarming(ha)

0.17 5.27 0.25 5.27

Organicdryfarming(ha)

0.17 0.07 0.01 0.07

Conventionalirrigatedfarming(ha)

2.56 0.08 0.00 0.08

Integratedirrigatedfarming(ha) 0.01 2.94 0.14 2.94
Economicfunction(000)
General

14.44

0.80
Averagecosts 14.44 0.80
Exogenouselasticities 111.56 0.11
Subsidies(000) 68.75 1.68 1.69 1.68
Grossmargin(000) 14.44 0.79 0.80 0.79
%support/grossmargin 47.60 0.90 0.89 0.90
Valuesroundedtotwodecimalposition.
29

TableA1.3Simulationresultsunder2008pricesandcostsandpartialdecouplingpolicywith
differentcalibrationmethods.

Base
year
2002
Variationinsimulatedyear(%)
Average
costs
Exogenous
elasticities
General
Conventionaldryfarming(ha)

5.96 0.14 0.01 0.23

Integrateddryfarming(ha)

0.17 2.06 0.10 6.55

Organicdryfarming(ha)

0.17 6.81 0.48 1.40

Conventionalirrigatedfarming(ha)

2.56 0.01 0.00 1.59

Integratedirrigatedfarming(ha) 0.01 0.51 0.02 4.59
Economicfunction(000)
General

14.44

2.61
Averagecosts 14.44 2.61
Exogenouselasticities 111.56 34.55
Subsidies(000) 68.75 1.20 1.16 1.14
Grossmargin(000) 14.44 2.57 2.60 2.63
%support/grossmargin 47.60 3.68 3.67 3.67
Valuesroundedtotwodecimalposition.

Table A1.4 Simulation results under 2008 prices and costs and base year policy with
differentcalibrationmethods.

Base
year
2002
Variationinsimulatedyear(%)
Average
costs
Exogenous
elasticities
General
Conventionaldryfarming(ha)

5.96 0.24 0.016 0.08

Integrateddryfarming(ha)

0.17 1.68 0.08 1.27

Organicdryfarming(ha)

0.17 6.76 0.48 1.47

Conventionalirrigatedfarming(ha)

2.56 0.05 0.00 0.05

Integratedirrigatedfarming(ha) 0.01 1.63 0.08 1.65
Economicfunction(000)
General

14.44

3.16
Averagecosts 14.44 3.16
Exogenouselasticities 111.56 34.62
Subsidies(000) 68.75 0.05 0.00 0.01
Grossmargins(000) 14.44 3.11 3.15 3.17
%support/grossmargin 47.60 3.06 3.06 3.06
Valuesroundedtotwodecimalposition.

30

TableA1.5Simulationresultsunder2009pricesandcostsandpartialdecouplingpolicywith
differentcalibrationmethods.

Base
year
2002
Variationinsimulatedyear(%)
Average
costs
Exogenous
elasticities
General
Conventionaldryfarming(ha)

5.96 14.36 0.59 2.13

Integrateddryfarming(ha)

0.17 11.95 0.57 1.11

Organicdryfarming(ha)

0.17 15.64 1.11 3.85

Conventionalirrigatedfarming(ha)

2.56 0.06 0.00 0.02

Integratedirrigatedfarming(ha) 0.01 2.05 0.10 0.62
Economicfunction(000)
General

14.44

24.31
Averagecosts 14.44 23.86
Exogenouselasticities 111.56 25.76
Subsidies(000) 68.75 2.40 1.72 1.80
Grossmargin(000) 14.44 26.60 24.41 24.65
%support/grossmargin 47.60 32.97 30.02 30.33
Valuesroundedtotwodecimalposition.

Table A1.6 Simulation results under 2008 prices and costs and base year policy with
differentcalibrationmethods.

Base
year
2002
Variationinsimulatedyear(%)
Average
costs
Exogenous
elasticities
General
Conventionaldryfarming(ha)

5.96 0.38 0.02 0.15

Integrateddryfarming(ha)

0.17 4.10 0.19 2.45

Organicdryfarming(ha)

0.17 8.98 0.63 2.82

Conventionalirrigatedfarming(ha)

2.56 0.12 0.01 0.07

Integratedirrigatedfarming(ha) 0.01 4.28 0.20 2.33
Economicfunction(000)
General

14.44

23.51
Averagecosts 14.44 23.50
Exogenouselasticities 111.56 25.86
Subsidies(000) 68.75 0.06 0.00 0.00
Grossmargin(000) 14.44 23.56 23.52 23.53
%support/grossmargin 47.60 30.75 30.74 30.75
Valuesroundedtotwodecimalposition.
31

Annex2:Grossmargin(GM)perhectareindifferentscenariosdecoupledpaymentsexcluded.

BASEYEAR
Price(/kg)
Yield(kg
olives/ha) Cost(/ha)
Specific
support
(/ha)
Direct
payments
(/ha)
GM/ha
excluding
support()
GM/ha
including
specific
support()
GM/ha
includingtotal
coupled
support()
Conventional
dryfarming
(ha) 0.40 2,873.02 520.11 0.00 632.94 629.10 629.10 1,262.04
Integrated
dryfarming
(ha) 0.44 2,873.02 546.12 0.00 632.94 718.01 718.01 1,350.96
Organicdry
farming(ha) 0.48 2,873.02 572.12 266.85 632.94 806.93 1,073.78 1,706.72
Conventional
irrigated(ha) 0.43 4,904.94 760.29 0.00 1,080.59 1,348.83 1,348.83 2,429.42
Integrated
irrigated(ha) 0.47 4,904.94 798.30 0.00 1,080.59 1,521.73 1,521.73 2,602.32

SIMULATIONYEARCONSTANTCOSTSANDPRICES

Price
(/kg)
Yield(kg
olives/ha)
Cost
(/ha)
Specific
support
(/ha)
Total
support
(/ha)(1)
GM/ha
excluding
support
()
GM/ha
including
specific
support
()
GM/ha
including
total
coupled
support()
(2)
GM/ha
including
coupled
support
(BASE)()
Gap
simulation
base
Conventional
dryfarming
(ha) 0.40 2,873.02 520.11 0.00 764.78 629.10 629.10 677.97 1,262.04 584.07
Integrated
dryfarming
(ha) 0.44 2,873.02 546.12 49.14 764.78 718.01 767.15 816.02 1,350.96 534.93
Organicdry
farming(ha) 0.48 2,873.02 572.12 266.85 764.78 806.93 1,073.78 1,122.65 1,706.72 584.07
Conventional
irrigated(ha) 0.43 4,904.94 760.29 0.00 764.78 1,348.83 1,348.83 1,397.70 2,429.42 1,031.72
Integrated
irrigated(ha) 0.47 4,904.94 798.30 49.14 764.78 1,521.73 1,570.87 1,619.74 2,602.32 982.58

(1)Decoupled+coupled.(2)(Unitpricexyield)cost+specificsupport+(0.0639xtotalsupport).

32

Annex2(Contd1).

SIMULATIONYEAR2008PRICESANDCOSTS
Gap
simulation
base

Price
(/kg)
Yield(kg
olives/ha)
Cost
(/ha)
Specific
support
(/ha)
Total
support
(/ha)(1)
GM/ha
excluding
support
()
GM/ha
including
specific
support()
GM/ha
including
total
coupled
support()
(2)
GM/ha
including
coupled
support
(BASE)()
Conventional
dryfarming
(ha) 0.48 2,873.02 795.58 0.00 764.78 581.52 581.52 630.39 1,262.04 631.65
Integrateddry
farming(ha) 0.53 2,873.02 835.36 49.14 764.78 679.45 728.59 777.46 1,350.96 573.50
Organicdry
farming(ha) 0.58 2,873.02 875.14 266.85 764.78 777.38 1,044.23 1,093.10 1,706.72 613.62
Conventional
irrigated(ha) 0.52 4,904.94 1,138.35 0.00 764.78 1,389.01 1,389.01 1,437.88 2,429.42 991.54
Integrated
irrigated(ha) 0.57 4,904.94 1,195.27 49.14 764.78 1,584.83 1,633.97 1,682.84 2,602.32 919.48

(1)Decoupled+coupled(2)(Unitpricexyield)cost+specificsupport+(0.0639xtotalsupport).

SIMULATIONYEAR2008PRICEANDCOSTSANDBASEYEARSUPPORT

Gap
simulation
base

Price
(/kg)
Yield(kg
olives/ha)
Cost
(/ha)
Specific
support
(/ha)
Coupled
direct
payments
(/ha)(1)
GM/ha
excluding
support
()
GM/ha
including
specific
support
()
GM/ha
including
total
coupled
support()
(2)
GM/ha
including
coupled
support
(BASE)()
Conventional
dryfarming
(ha) 0.48 2,873.02 795.58 0.00 632.94 581.52 581.52 1,214.46 1,262.04 47.58
Integrateddry
farming(ha) 0.53 2,873.02 835.36 0.00 632.94 679.45 679.45 1,312.39 1,350.96 38.56
Organicdry
farming(ha) 0.58 2,873.02 875.14 266.85 632.94 777.38 1,044.23 1,677.17 1,706.72 29.55
Conventional
irrigated(ha) 0.52 4,904.94 1,133.5 0.00 1,080.59 1,389.01 1,389.01 2,469.60 2,429.42 40.18
Integrated
irrigated(ha) 0.57 4,904.94 1,195.27 0.00 1,080.59 1,584.83 1,584.83 2,665.42 2,602.32 63.10

(1)Decoupled+coupled(2)(Unitpricexyield)cost+specificsupport+(0.0639xtotalsupport).
33

Annex2(Contd2).

SIMULATIONYEAR2009PRICESANDCOSTS

Gap
Simulation
base

Price
(/kg)
Yield(kg
olives/ha)
Cost
(/ha)
Specific
support
(/ha)
Total
support
(/ha)(1)
GM/ha
excluding
support
()
GM/ha
including
not
modulated
support()
GM/ha
including
total
coupled
support
()(2)
GM/ha
including
coupled
support
(BASE)()
Conventional
dryfarming
(ha) 0.35 2,873.02 758.92 0.00 764.78 245.26 245.26 294.13 1,262.04 967.91
Integrated
dryfarming
(ha) 0.38 2,873.02 796.87 49.14 764.78 307.73 356.87 405.74 1,350.96 945.22
Organicdry
farming(ha) 0.42 2,873.02 834.81 266.85 764.78 370.20 637.05 685.92 1,706.72 1,020.80
Conventional
irrigated(ha) 0.38 4,904.94 1,093.57 0.00 764.78 749.38 749.38 798.25 2,429.42 1,631.17
Integrated
irrigated(ha) 0.41 4,904.94 1,148.25 49.14 764.78 879.00 928.14 977.01 2,602.32 1,625.31

(1)Decoupled+coupled(2)(Unitpricexyield)cost+specificsupport+(0.0639xtotalsupport).

SIMULATIONYEAR2009PRICEANDCOSTSANDBASEYEARSUPPORT

GAP
simulation
base

Price
(/kg)
Yield(kg
olives/ha)
Cost
(/ha)
Specific
support
(/ha)
Coupled
direct
payments
(/ha)
GM/ha
excluding
support()
GM/ha
including
specific
support()
GM/ha
including
total
coupled
support()
GM/ha
including
coupled
support
(BASE)()
Conventional
dryfarming
(ha) 0.35 2,873.02 758.92 0.00 632.94 245.26 245.26 878.20 1.262.04 383.84
Integrated
dryfarming
(ha) 0.38 2,873.02 796.87 0.00 632.94 307.73 307.73 940.67 1.350.96 410.28
Organicdry
farming(ha) 0.42 2,873.02 834.81 266.85 632.94 370.20 637.05 1,269.99 1.706.72 436.73
Conventional
irrigated(ha) 0.38 4,904.94 1093.57 0.00 1,080.59 749.38 749.38 1,829.97 2.429.42 599.45
Integrated
irrigated(ha) 0.41 4,904.94 1148.25 0.00 1,080.59 879.00 879.00 1,959.59 2.602.32 642.73