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Home > Business Areas > Agriculture & Fisheries > Sector Overview
Sector Overview
Arlindo Cunha Kindly written by
Arlindo Cunha, MPhil
Portugal's former Minister for Cities, Territorial Planning & Environment
  Portuguese Agriculture in an Age of Structural Evolution  

1. When Portugal joined the EEC (we shall refer to it as the European Union, or EU, from now on) in 1986, her agriculture had never previously had to face external competition. The only exceptions to this were the Port wine trade, which has been expanding on the international market for over two centuries now, and the cork and wood pulp industries.

Prior to EU membership, both external trade and internal market mechanisms were controlled by state boards. One board existed for each commodity - cereals, olive oil, wine, livestock products, and so on. All imports and exports were subject to authorisation by the appropriate board, though in practice the latter - exports - were practically non-existent. It must be stressed that this tradition of state intervention in agricultural markets was not an outcome of the 1974 revolution, but rather a legacy of Salazar's extreme-right government.

As a result of such protectionism, Portuguese agriculture had never been forced to adjust structurally to compete on an open market; and consequently it was very inefficient. The prices of major commodities such as cereals, beef and dairy products were higher than the corresponding prices throughout the EU; average farm size was only about 5 hectares; agricultural labour accounted for 23% of the nation's total workforce; and the organisation and marketing structures of farmers were extremely underdeveloped.


2. Membership of the EU therefore signified the first real challenge to Portuguese agriculture - for it meant the abolition of the state boards, the harmonisation of prices and the establishment, after a period of transition, of free trade within EU territory. This transition period was to last for ten years for most produce (two stages of five years each) and seven years for the less significant and less problematic areas (representing only 15% of final production). For the former, Portugal was only obliged start harmonizing prices and implement EU rules at the beginning of the second five-year stage, that is in 1990/91.

But the challenges which Portuguese agriculture faced as a result of EU membership were aggravated by a number of other factors, such as the continued decrease in EU prices which led to the 1992 CAP reform, and the implementation of the single market in 1993 which implied the overnight elimination of all existing transition arrangements and the reduction of the second stage of the transition period to two and a half years. For a sector so accustomed to protectionism, such a sequence of events was a shock therapy, which almost killed the patient. As a result of price adjustments and the abolition of border tariffs, farmer income per labor unit decreased by 40% between 1991 and 1993. In spite of all the tribulations which EU membership has brought with it, however, the fact is that Portuguese agriculture has been able to adjust to the new economic framework.

After that shock it has been recovering little by little, in such a way that it experienced an annual average increase of 4,5% between 1988/90 and 1998/2000, wile the equivalent rate for the agricultural added value was 2,4% in the same period.

To gain a more precise idea of such changes, it should be noted that total labour units in agriculture fell from more than 1.1 million in 1980 (29% of the country's total workforce) to 806 000 in 1990 (18%), 520 000 in 1993 (12%) and 408.000 (10%) in 1999. In the same period, the total number of farms has fallen from 823 000 in 1980 to 380.000 at present. In other words, in the last twenty years the agricultural workforce has decreased by 63%, while the total number of farms has fallen by 54% and average farm size has increased from 5 to almost 10 hectares. Since the agricultural market prices fell 50% in relation to those in the overall economy, the positive evolution in income was a result of: i) a moderate increase in production and added value; ii) a substantial decrease of labour and consequent increase in labour productivity; and iii) an increase in subsidies as a result of the CAP reforms started in 1992.


3. Now that the reforms arising from our EU commitments have been implemented, Portuguese agriculture has started stabilise its process of modernisation, having been able to keep a reasonably high investment effort of around 20% along the last decade. As a result of that effort our gap vis a vis the EU average has been made shorter along the period: 33% of EU average for labour productivity and 32% for labour income, against values of 23% and 22% at the beginning of the period. And, inspite of the structural adjustment (which was much needed) the overall chain associated to agriculture and forestry (production and first stage processing) still represents 11% of the total GDP, 17% of employment and 14% of all portuguese exports.

But the evolution of Portuguese agriculture has not been limited to the structural adjustments mentioned above, either from the physical or the economic point of view. It has gone much further:

  • Farmers are now much better organised and stronger, and have absorbed some of the functions previously performed by the state, such as vocational training, information and assistance and extension. They are also much better at marketing their produce.
  • Quality of produce has improved greatly. This is a result both of increased investment in production and processing and of the introduction of a quality control policy including the demarcation of specific production areas along the lines of the appelation contrôlée system.

Portugal is not, in general, an efficient producer in sectors such as oilseeds and cereals, except for some production systems, which rely on irrigation. But it has proved, in recent years, that it can be very competitive in products such as wine, fruit and vegetables (fresh and processed), olive oil quality meat and cheese and forestry products.

How this competitiveness will develop depends on the evolution of the Common Agricultural Policy (CAP). It is clear that agriculture in Europe needs some type of support. However, since the 1992 reform it has also become clear that this support cannot be linked to product quantity. It has to be more decoupled from production levels and yields. If the CAP follows this new course, the EU will attain four main goals: it will bring its agricultural policy into line with WTO regulations; it will positively discriminate in favour of farmers in the less-favoured areas in order to ensure their survival and to help them adjust to the new globalised economic framework; it will offer incentives to quality and not quantity; and it will ensure that agriculture fullfils its multifunctional role in our society.

It is impossible to say just how the CAP will be altered. But I am quite convinced that it will develop along the lines I have indicated the 1999 Agenda 2000 reform was consistent with the 1992 CAP reform and the adjustments to be made until 2006 in order to incorporate the new eastern Member States will likely continue that evolution. If the european agricultural and rural policy goes on that direction, then we have good reasons to hope a better future for the portuguese agriculture.  

  The main business areas in this sector:  
  • Agricultural Supplies
  • Food Products
  • Forestry
  • Horsebreeding
  • Wines & Beverages
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