The Role of area-yield crop insurance program face to the Mid-term Review of Common Agricultural Policy



the largest possible area, because it is the crop activity with the largest subsidy value by
hectare (Table 3.1).

Table 3.1 - Farm Characteristics

Descriptions

Farm

1

Farm Farm  Farm Farm

Farm

6

Farm

7

Farm

8

Farm

9

2

3      4      5

Agricultural Area

Total area

1200

660

180     570     600

200

260

1020

550

Cultivated area

1160

360

150     300     480

200

260

620

550

Pastures areas

40

300

30     270     120

-

-

400

-

Good Soils

60

150

Livestock Production

Beef cattle

400

150

90

450

Sheep_________

________100     600

Farm Income

The best

150.0

100.0

40.0    100.0    100.0

30.0

50.0

125.0

60.0

Normal

75.0

50.0

20.0     25.0     15.0

5.0

10.0

75.0

25.0

The worst______

-100.0

-50.0

-20.0    -50.0     -75.0

-25.0

-40.0

-75.0

-35.0

Notes: Areas in hectares, Livestock production in animal units and farm income in thousands of Euros.

Source: Data collected by inquiries.

This paper considers that the calculation of the premium rate is equal to the expected
value of the indemnity insurance. For the calculation of the premium rate, it was
considered the whole Alentejo region as constituting a single area in terms of insurance.
It was considered that the average production is the production of the state of nature 3,
where the level of critical production is of 90% of the average production and the farmers
choose a cover level of 100% (Miranda, 1991).

Table 3.2 - Premium rates and Indemnities

Durhum

Common
Wheat

Barley for
brewing

Common
Barley

Oats Tricale Sunflower

Wheat

Production - State 1    1050

1250

1250

950

900    ÏÔÔÔ      300

Production - State 2    1050

1250

1250

950

900    1000      600

Average Production    2100

2500

2500

1900

1800    2000      600

Critical Production     1890

2250

2250

1710

1620   1800      540

Indemnified Prod -St 1 840

1000

1000

760

720     800     240

Indemnified Prod -St 2 840

1000

1000

760

720     800_______0

Probability of Loss    0.37333

0.37333

0.37333

0.37333

0.37333 0.37333  0.18667

Premium rate        0.07148

0.08510

0.08510

0.06468

0.06127 0.06808  0.01021

Notes: Production in kilos per hectare and premium rate in thousands of euros per hectare
Source: Authors’ calculations

16



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