The European Union spent about two billion ECU per year on subsidies for the olive oil sector, of which Spain received about 35%. For the rainfed areas in southern Spain the olive oil sector is crucial, and so are these subsidies. The European Commission has formulated two options to change the subsidy system, but these do not take the production systems and environmental aspects into account. Many olive plantations are affected by soil erosion. This paper analyses the olive tree production systems in southern Spain, the subsidy systems and the soil erosion problems. It then raises the question whether the subsidies could not be provided in a different way, in order to make olive tree cultivation more sustainable by reducing soil erosion and flood hazard.