Communication from the Commission to the Council and the European Parliament - Report on the situation in Portuguese agriculture
Date: 2003-06-19
Institutions: European Commission
Subjects: Portugal, farming sector, report

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 19.6.2003
COM(2003) 359 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL
AND THE EUROPEAN PARLIAMENT

Report on the situation in Portuguese agriculture

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL
AND THE EUROPEAN PARLIAMENT

Report on the situation in Portuguese agriculture

1.

INTRODUCTION

At Copenhagen in December 2002, the European Council was asked by Portugal to
take  action  pursuant  to  the  conclusions  of  the  Berlin  European  Council  in  March
1999,  in  which  the  Council  “taking  into  account  the  specificity  of  Portuguese
agriculture  recognised  the  need  to  improve  the  balance  of  support  granted  to
agriculture  by  means  of  rural  development  measures,  financed  by  EAGGF
Guarantee”.

The Council also noted that Portugal considers that a specific problem, arising from
the  way  the  CAP  currently  applies  to  Portuguese  agriculture,  still  exists.  To  this
effect, the Council invited the Commission to present a report analysing the situation.

This report responds to the request made by Council to the Commission to present a
report analysing the situation of Portuguese agriculture1.

2.

MAJOR TRENDS IN PORTUGUESE AGRICULTURE

2.1.

Economic Output, Production and Consumption

Over the period 1986-1995, Portuguese agricultural output decreased in real terms at
a rate of 3.1% per year. The rate of decline in Portuguese agricultural output slowed
down in the period 1995-2001 to 1.6% per year, a somewhat lesser rate than the EU
average (2.2% per year). Consequently, the share of Portuguese agriculture in the EU
total agricultural output has increased slightly  from 2.0% in 1995 to 2.2% in 2001.
However, in a growing national economy, Portuguese agriculture reduced its share of
GDP from around 5.1% in 1990 to 2.8% in 2001.

Since  Accession,  the  key  trend  in  Portuguese  agriculture  has  been  the  major  shift
from  arable  crop  to  animal  production,  which  has  been  reflected  in  a  considerable
increase  in  forage  area.  Over  the  period  1990-2001,  volumes  of  crop  products
decreased by 0.3% per year, while final animal output volumes increased by 1.5% in
average.  Wine,  fresh  fruit  and  fresh  vegetables  are  the  three  most  important  crop
products, accounting for a little under a third of the total value of agricultural output.
However, crop output has been more volatile than animal output in Portugal, due to
the  dependency  of  those  most  important  crops,  particularly  wine  production,  on
weather conditions. Within the fresh fruit and vegetable sector, however, there have
been upward trends in the volumes of citrus fruit and, to a lesser extent, tomatoes.

1

The main findings of this report are based on official data published in Eurostat and EAGGF Financial
Reports.  In  addition,  where  indicated,  a  more  detailed  analysis  of  the  Portuguese  situation  has  been
made using the FADN database.

2

                                                
As  for  cereals,  production  tends  to  decrease  for  many  products  except  positive
developments recorded for maize and durum wheat. For the latter, unfortunately the
development in areas and production would appear to have been poorly valorised by
the  food  industry.  Other  notable  trends  have  been  observed  in  rice  and  tobacco,
which  have  increased  their  production  significantly,  and,  starting  from  very  low
levels,  the  increase  recorded  for  sugar  beet  has  been  the  highest  among  the  less
important Portuguese arable crops.

In relation to the CAP production limits in the arable sector, in 2002/03 the areas for
which  aids  were  requested  are  still  below  the  maximum  level  for  the  base  area,  as
well as for irrigated base area. Furthermore, since no use has been made so far of the
reserve  of  60 000  ha  created  in  Agenda  2000  for  new  irrigated  areas,  it  must  be
concluded that currently these ceilings are not binding. The reverse is true in the case
of  durum  wheat,  for  which,  despite  that  the  five-fold  increase  in  eligible  area  in
Agenda 2000, an overshoot has been recorded in claims of nearly 60%.

However, the declines in output volumes do not imply that the share of the value of
crop output in that of agricultural output has been decreasing. On the contrary, since
the real value of output has been decreasing more in the animal sectors, with a 3.5%
drop  against  an  average  decline  of  2.6%  for  the  real  value  of  crop  output  over  the
period  1990-2001,  the  share  of  final  crop  output  in  the  value  of  agricultural
production is higher now than it was a decade ago.

Within  the  animal  sector,  milk,  pigs,  poultry  and  cattle  output  are,  in  decreasing
order  of  magnitude,  the  most  important  activities.  Volumes  of  pig  production  have
been  growing strongly  while poultry production  is  rapidly  expanding  following  the
shift away from cattle production. On the other hand, the cattle market in 2001 was
still  not  showing  significant  signs  of  recovery  after  the  BSE  crisis,  which
significantly affected Portuguese production. Indeed, in spite of a certain overshoot
in  claims  on  suckler  cow  and  special  beef  premium  claims,  the  decline  in  cattle
production  has  been  the  main  reason  for  the  subsequent  decrease  in  the  share  of
animal production in total agricultural production in Portugal.

It should be noted that the demand for pig meat has also continued to grow in recent
years, which has pushed up real producer prices. As for poultry meat, despite long-
term positive trends, the development of real prices has been less favourable with a
consequent fall in the level of real output values. Over the period 1993-2001, poultry
consumption increased by 37% and pork consumption by 29%.

The expansion of the pig industry has positively affected the volume of animal feed
demanded.  In  the  absence  of  a  supply  response  from  the  Portuguese  arable  sector,
this increase has been met by an increase in imports, which contributed to a decline
in the self-sufficiency rate for cereals by 5% from the early 1990s. Furthermore, the
degree  of  self-sufficiency  for  all  the  main  kinds  of  meats  has  also  deteriorated,
reaching levels of less than 100% in recent years.

In the milk sector,  over  the  last  decade  there  has  been  a  steady  rise  in  milk  output
volumes, though the BSE crisis has lead to certain disturbances in production in the
last two years. While milk economic output has not grown to a significant degree, in
spite of a rise in prices in recent years, milk is one of the few sectors that increased
its contribution to Portuguese agricultural output.

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The  role  of  the  milk  sector  is  particularly  important  in  the  Azores,  where  annual
production has almost doubled in the last decade and, at 500 000 t, represents about a
quarter of Portuguese production. However, the accompanying high density of dairy
cows  has  put  pressure  on  the  environment  and  has  raised  problems  for  other
agricultural  sectors.  In  particular,  increased  dairy  cow  numbers  have  created  an
oversupply of cow beef on the local market, which has resulted in an outlet problem.
Furthermore,  the  fact  that  arable  land  has  been  converted  into  pasture  for  milk
production, has caused a shortage of supplies to the local sugar industry.

2.2.

Land use

In  1999,  of  the  total  land  area  in  Portugal,  about  one  third  (3.35  million  ha)  was
covered  with  woods  and  forests.  Around  42%  of  the  land  area  (3.86  million  ha)
makes  up  the  Utilisable  Agricultural  Area  (UAA),  of  which  about  86%  has  been
designated  Less  Favoured  Areas.  Arable  land  was  46%  of  the  UAA,  permanent
pasture 36% and 18% permanent crops.

During the period 1990-1999, the UAA showed a net decrease of around 130 000 ha,
arable  land  area  and  permanent  crops  having  retracted  by  about  600 000  ha  and
80 000  ha, respectively, and permanent pasture  having  increased  by  550 000  ha.  In
the same period, irrigated land decreased by 85 000 ha to about 800 000 ha, or 21%
of the UAA. Portuguese UAA represents just less than 3% of the total UAA of the
EU.

2.3.

Farm Size and Farm Size Distribution

Portuguese  farm  structures  continue  to  be  characterised  by  a  strong  dichotomy.
Between  1990-1995,  Portuguese  holdings  decreased  at  a  greater  rate  than  EU-12,
falling by 5.5% per year against a rate equal to 2.7% per year for the EU-12. In the
period  1995-2000,  the  total  number  of  agricultural  holdings  in  Portugal  fell  by  a
further 35 000, going down from 451 000 to 416 000, at an average of 1.6% per year,
compared to a reduction in the EU-15 as a whole of 1.7% per year.

Consequently,  in  recent  years,  the  percentage  of  Portuguese  holdings  in  the  EU-15
has  remained  stable  (about  6.1%  in  2000),  while,  with  total  UAA  in  Portugal
remaining  virtually  stable,  the  average  agricultural  area  of  the  Portuguese  holdings
increased from 6.7 ha to 9.3 ha.

However,  the  average  size  of  Portuguese  agricultural  holdings  is  still  roughly  half
that of the EU average (18.7 ha) and the distribution of farm size in Portugal remains
very uneven. Holdings less than 2 ha in size represented 54% of all holdings in 2000
and covered only 6% of the UAA while 1.4% of holdings had more than 100 ha and
covered 53% of total UAA.

2.4.

Farm Labour

According  to  the  2000  census,  1 064 000  people  were  employed  in  Portugal  in
agricultural  activity,  which  represented  476.000  Annual  Working  Units  (AWU).
Between 1995 and 2000, the total labour force in agriculture decreased by 2.4% per
year in Portugal, as compared to a fall of 3.1% per year for the rest of the EU-15.

4

Thus, Portugal’s contribution to the agricultural workforce of the EU-15 only slightly
increased,  staying  around  8.0%  of  the  total.  Given  the  similar  proportion  (28%)  to
the  EU  of  holding  managers  with  a  gainful  activity  outside  farming,  high  under-
employment remains a key feature of Portuguese agriculture.

In  fact,  part-time  working  of  holding  managers,  though  quite  stable,  is  particularly
prevalent  in  Portugal,  where  83%  of  managers  were  working  part-time  in  2000,
compared to 76%  for the EU-15.  This basic characteristic  of the Portuguese labour
force is correlated with the higher number of small-sized holdings.

In 2000, 90% of total agricultural labour force was of family origin (against 82% for
the  EU-15).  The  regularly  employed  non-family  labour  force  represented  only
47 000 AWU, corresponding to 9% of the total. Between 1995 and 2000, in contrast
with the gradually downward trend in Europe, the share of family labour in Portugal
has remained stable.

A  facet  of  Portuguese  farm  labour  is  that  only  1%  of  holders  is  declared  to  have
received full agricultural training, against an average for the EU-15 of 5%. Another
key  feature  is the high percentage  of  agricultural  holdings  run  by  older  farmers.  In
2000, the proportion of the Portuguese agricultural labour force over 55 was equal to
65%, significantly greater than that in EU-15 (53%).

2.5.

Trade

In 1978, in the Commission opinion on the Accession of Portugal, the trade deficit in
agricultural products was identified as being a key problem. Indeed, since Accession,
agri-food  products  have  slightly  increased  their  weight  in  the  trade  deficit,  rising
from  17%  in  1988-1990  to  18%  in  2000-2002.  When  world  prices  reached  their
peaks  from  1995  to  1998,  agricultural  deficit  was  representing  even  a  higher  share
(26%) of Portuguese trade deficit. In the period 2000-2002, the total agri-food deficit
(intra + extra EU-15) has stabilised at an average level of 2 800 million € per  year.
Though  the  overall  trend  still  indicates  a  growing  deficit  in  absolute  terms,
agricultural exports have been growing faster than agricultural imports since the mid-
1990s.

Intra-EU trade is  increasing  as  a  percentage of total  trade  for  agri-food  products  in
Portugal,  such  that  the  share  of  intra-EU  agri-food  trade  is  now  about  78%.  While
intra-EU trade is still more important for industrial products, in recent years this gap
has  tended  to  close.  The  importance  of  intra-EU  agri-food  trade  in  total  agri-food
trade has thus begun to match that of industrial intra-EU trade for Portugal.

It is  worth remarking here that  the import  effect  of  the  integration  into  the  EU  has
been  predominant,  resulting  in  a  rising  deficit  in  intra-EC  trade  for  agri-food
products.  While  the  extra-EU  agri-food  trade  for  Portugal  has  improved  for  almost
all  the  main  categories  of  products,  with  the  exception  of  some  fresh  and  tropical
fruits and sugar, intra-EU agri-food trade has more than offset the extra-EU positive
trends, resulting in a worsening overall trade position.

A  product-based  analysis  indicates  that  Portugal  has  negative  trends  for  the  large
majority  of  agricultural  commodities,  including  some  dynamic  sectors  of  the
Portuguese agriculture such as fresh fruits and pigmeat. Furthermore, since the early
1990s, Portugal has become a net importer of dairy products. On the other hand, the

5

reduction in net imports for live bovines is mainly a consequence of the BSE effects
on demand. Portugal has maintained, if not strengthened, its traditional positive trade
balance  in  the  wine  sector.  The  picture  is  also  positive  for  sugar  trade,  where  net
imports are declining.

In relation to the current CAP, it should be noted that agricultural exports are mainly
based  on  “high-quality”  and  processed  products  such  as  wine,  fresh  fruits  and
vegetables, while Portugal is notably an importer of products receiving high levels of
price support, especially milk, bovine meat and cereals.

3.

CURRENT ECONOMIC PERFORMANCE OF PORTUGUESE AGRICULTURE

3.1.

Productivity

In  macroeconomic  terms,  agricultural  output  per  hectare  in  Portugal  can  be
calculated at €1 642/ha UAA, about three-qua rters of the EU level (€2 205/ha UAA).

This situation is further aggravated when productivity is expressed per labour unit. In
view  of  the  relatively  high  proportion  of  the  EU  agricultural  workforce  present  in
in  Portugal  averages
Portugal 
€13 298/AWU, that is, about 28%  of its EU level (€47 218/AWU).

(8%),  agricultural  output  per 

labour  unit 

When expressed in terms of Net Value Added at basic prices (NVA) per ha and per
AWU, the Portuguese situation is slightly more positive. In 2001, NVA was €636/ha,
about 71% of EU average levels, and NVA was €5 149/AWU about 27% of the EU
average.

3.2.

Inputs

Currently,  the  intermediate  consumption  in  Portugal  is  about  50%  of  the  total
agricultural  output.  The  share  of  Portuguese  intermediate  consumption  in  EU  is
almost equal to the share of Portuguese agricultural output, that is 2.3%.

Over  the  last  decade,  though  the  use  and  the  share  in  Portuguese  intermediate
consumption  of  seeds,  pesticides  and  fertilisers  has  increased,  the  share  of  these
inputs  has  remained  below  the  EU  average.  Conversely,  the  share  of  animal
foodstuffs  has  remained  above  the  EU  average,  though  their  share  in  Portuguese
intermediate consumption has declined.

The  real  value  of  costs  such  as  rents,  interest  payments  and  paid-labour  costs  has
been decreasing. However, the share of rents in these external costs is inferior to the
EU  average  values,  the  importance  of  interests  paid  being  almost  the  same  while
labour costs are more important in Portuguese agriculture than for the EU as a whole.
As for depreciation costs, their relative importance is low in Portugal, implying a low
degree of capital investments of the agricultural sector.

3.3.

Income

Eurostat’s  Economic  Accounts  for  Agriculture  show  that  between  1986  and  1995
Portuguese  agricultural  incomes  increased  by  around  30%,  significantly  more  than
the EU average of 25%. From 1995 to 2002, the income growth of 32% in Portugal
has been the highest in the EU, far exceeding the EU average income growth of 8%.

6

However, using FADN data to calculate Net Added Value (NVA) per AWU, in real
terms, over the last five years, income increased in Portugal at a rate of 5.8% and of
2.0% per year in the EU, which represents a cumulative increase of 48%.

Despite this higher rate of increase, agricultural incomes in Portugal (€4 200/AWU),
based  on  FADN  data,  were  still  only  27%  of  the  EU  average  in  2002  and  there
remain  substantial  differences  in  income  between  regions  within  Portugal.  The
average for 1999-2000 ranges from around €2 400 in the Algarve region to €10 900
in the Alentejo region.

In  terms  of  type  of  farm,  specialist  arable  producers  have  the  highest  income  per
head  at 
(€10 562/AWU), 
(€5 923/AWU).

€11 751/AWU,  followed  by  specialists  poultry  and  pig  producers
producers

(€7  879/AWU) 

and  wine 

producers 

dairy 

Finally,  the  low  productivity  and  average  efficiency  of  use  of  inputs  in  Portugal,
mean that income per hectare of UAA, based on Eurostat data, is amongst the lowest
in the EU, at €416/ha UAA, just under half the EU average (€882/ha UAA).

4.

PREVIOUS RECOGNITION OF THE SPECIFICITY OF PORTUGUESE AGRICULTURE

As  long ago  as  1978,  as  part  of  Portugal’s  application  to  Accession  to  the  EU,  the
Commission  made  a  report  observing  the  major  structural  weaknesses  of  the
Portuguese  agriculture  and  the  high  dependence  on  imports  of  basic  foodstuffs.
These  specificities  were  covered  by  a  series  of  transitional  arrangements,  in
particular for agriculture, within Portugal’s pre-accession program, set up in 1981.

After  Accession,  EU  structural  policies  were  fully  applied  to  Portugal.  In  addition,
700  million  ECU  was  devoted  to  the  farm  sector  within  a  special  program  for  the
development of Portuguese agriculture (PEDAP), over the 10-year transition period
(1986-1995).

Specific transition measures were also introduced to take into account the sensitivity
of  the  agricultural  sector,  with  the  bulk  of  Portuguese  agricultural  production
following the path of a mixed transition, with two main stages. From 1986 to 1990,
market organisations, while remaining national (including for their financing) had to
be progressively adapted, according to common objectives. Customs duties had to be
gradually dismantled with a view to a liberalisation of trade but special mechanisms
applied  for  sensitive  products.  From  1991  to  1995,  in  preparing  for  the  full  CAP
implementation, Portuguese prices and aids were aligned on EC levels.

In  the  1992  reform  of  the  CAP,  independently  of  the  degree  of  alignment  of
Portuguese  support  prices,  EC  prices  were  reduced  from  1993  onwards.  The  price
cuts  were  compensated  by  direct  payments,  and  this  switch  from  price  to  income
support  was  relatively  favourable  for  Portugal.  Though  the  1992  reform  was  fully
applied to Portugal, it was granted some special conditions. The reference  yield for
cereals  are  higher  than  the  historical  and  present  yields  and  special  conditions
applied  for  the  beef  premium  payments.  Moreover,  transitional  arrangements  were
still applying in some sectors. A specific measure for livestock premia in the form of
a reconversion programme of land used for arable crops towards extensive livestock

7

production  within  a  200 000  ha  limit,  was  also  granted  at  that  time  and  has  been
extended until 2005.

In  relation  to  the  completion  of  the  Single  Market,  some  of  the  agreed  transition
measures still applying to sensitive agricultural products in Portugal appeared to be
incompatible  with  this  goal.  Thus,  these  measures  were  phased  out  in  1993,  and
digressive,  transitional  compensation  was  granted  in  sensitive  sectors,  mainly  for
cereals, milk and beef.

Under  the  Agenda  2000  Reform  of  the  CAP,  Portugal  benefited  specifically  from
increases  in  the  ceiling  for  durum  wheat,  the  extended  irrigated  area  in  the  cereal
sector and the increased ceilings in beef premia in the livestock sector. Furthermore,
in having a relatively high proportion of land in designated LFA, Portugal benefited
from the switch in the funding of LFA measures to EAGGF-Guarantee.

Currently,  in  relation  to  the  Azores,  the  Community  grants  specific  support  for  the
milk and beef sectors  and  an  exemption  was  granted  in  2001,  for  the  period  1999-
2003,  from  the  dairy  levy  for  73 000  t  of  milk,  in  order  to  enable  the  Azores  milk
sector to continue being restructured, without interfering with the milk market.

5.

BUDGET

Before  1993,  Portugal’s  percentage  contribution  to  the  EU  budget  was  higher  than
the  share  of  total  EAGGF-Guarantee  expenditure  granted  to  its  agricultural  sector.
Since  then,  with  some  fluctuations,  the  opposite  has  been  true  and  Portugal  has
received around 1.6% of total EAGGF expenditure.

The years 1994 and 1995 saw the combined effect of the 1992 Reform and of certain
specific, one-off measures applying to Portugal. The “1993” package was applied in
the 1994 financial year to the Portuguese agricultural sector  and agri-food industry,
exceptional payments were made following the droughts  of 1992 and  1993 and  the
agri-monetary compensations were granted in 1994 and 1995.

The  combined  effect  of  these  transitory  measures  was  that  EAGGF-Guarantee
expenditures to Portugal in 1996 and 1997 decreased  from  over  €700  million  to  an
average of €650 million, a figure which bette r reflects the consequences of the 1992
CAP Reform. In turn, the significant increase in 2001 (up to €873 million, i.e. 2.1%
of total EAGGF expenditure) was in part the result of the  modifications introduced
by  Agenda  2000  in  the  financing  of  certain  measures  and,  in  particular  LFA
payments, which until then had been financed by the Guidance section.

Analysis  of  the  evolution  of  the  share  of  Heading  1a  of  EAGGF-Guarantee
expenditure in Portugal, as a share of Gross Value Added, at market prices, showed
that it increased significantly to 26% by 1994 and then stabilised at around 20%. This
level  situates Portugal in the  lower part of the  middle  range  of  Member  States,  the
EU average being 20%, but above Luxembourg, the Netherlands and Italy.

On  the  other  hand,  in  relation  to  labour  units  (AWU),  due  to  the  low  labour
productivity  of  Portuguese  agriculture,  Heading  1a  of  EAGGF-Guarantee
expenditure  in  Portugal  is  low,  being  only  20%  of  the  EU  average.  Moreover,
expenditure per hectare of agricultural land (UAA) increased to €173/ha in 1993 and

8

has  remained  at  a  similar  level  since  then,  but  is  still  low  at  only  60%  of  the  EU
average (€293/ha).

On  top  of  this,  over  the  periods  1994-1999  and  2000-2006,  €2 125  million  and
€2 279  million  respectively,  were  allocated   to  Portugal,  as  EAGGF-Guidance
expenditure, for speeding up the adjustment of agricultural structures and facilitating
the development of rural areas. The 100% rate of  execution of the measures within
these  programmes  reflects  the  necessity  and  the  success  of  the  EAGGF-Guidance
intervention in Portugal.

6.

CONCLUDING REMARKS

While  the  above  analysis  of  these  economic  performance  indicators  shows  an
impressive  and  steady  growth  in  Portugal  in  real  agricultural  income  per  unit  of
labour, Portuguese agriculture continues to manifest several specific difficulties:

– 

– 

economic output and income per labour unit, even though they are improving,
are still very low;

these  low  incomes  arise  largely  from  the  fact  that  Portuguese  agricultural
labour  is  poorly  equipped  with  land,  variable  and  fixed  capital,  and  from  the
fact that there is important, underlying underemployment in the sector.

The  assessment  of  the  Commission  is  that  the  specificity  of  the  problems
experienced  by  Portuguese  agriculture  can  not  just  be  traced  to  deeply  rooted
structural  adjustment  problems,  but  are  also  affected  by  the  manner  in  which  the
CAP currently applies to Portugal.

Therefore, the critical issues for Portuguese agriculture, in the coming  years, would
appear to be essentially the need to:

– 

– 

– 

re-launch  and  speed  up  structural  adjustment.  Current  farm  structures  in
Portugal  still  do  not  allow  an  optimal  use  of  both  variable  and  fixed  inputs,
even though Portugal is making savings on inputs at a faster rate than the EU
average.  This  situation  hampers  improvement  in  profitability  and  investment
capacity in the Portuguese agriculture sector;

support the development of a sustainable and market-oriented agriculture
focused  on  quality.  Increased  value  for  Portuguese  agricultural  products
would  be  possible,  as  a  result  of  better  product  differentiation  and  further
investment  in order to  improve  quality  and  enhance  marketing  methods.  This
would  enable  Portuguese  agriculture  to  benefit  more  from  the  opportunities
open to it in the Single Market;

improve  the  sustainability  and  competitiveness  of  rural  areas.  This  can
only be achieved through a more diversified and flexible labour market, which
facilitates the creation of new job opportunities and thus a better use of surplus
labour present on Portuguese farms.

9

6.1.

Re-launching and Speeding up Structural Adjustment in Portuguese agriculture

Through EAGGF-Guidance funding, Portugal has made considerable progress in the
promotion  of  agriculture  as  a  modern  and  competitive  productive  activity,
particularly on infra-structural investments related to the improvement  of  quality in
some important sectors in Portugal as olive, wine and fruit, together  with  irrigation
investments.  The  competitiveness  of  Portuguese  quality  products  has  consequently
been substantially reinforced at Community level.

Since the rate of structural adjustment of Portuguese agriculture continues to be the
main  factor  hampering  economic  development  in  the  sector,  the  Commission
recommends  that  the  next  generation  of  Rural  Development  programmes  should
certainly continue to support the improvements being made in this domain.

6.2.

Developing a Sustainable, Market-oriented Agriculture in Portugal, focused on
Quality

The  presence  of  sector  supply  management  tools,  such  as  Maximum  Guaranteed
Areas, quotas, national and regional ceiling etc, has in general not limited Portuguese
production during the last decade. The impact of such measures has therefore played
a minor role in holding back the development of Portuguese agriculture, although in
recent  years  concerns  have  been  expressed  by  the  Portuguese  authorities  that  such
limitations are playing a more important role than in the past.

Thus,  within  the  framework  of  the  common  market  organisations  and  the
Commission’s  current  proposal  for  their  reform,  the  proposed  implementation  of  a
single farm payment system  has  elements  compatible  with  the  needs  of  Portuguese
agriculture since it will lead to a removal of production limitations, with the notable
exceptions of dairy quotas, cattle and sugar quotas, the latter not being a part of the
current reform proposal.

Within the restraints of the proposed prolongation of the quota regime until 2014, the
Commission  sees  benefits  for  Portuguese  agriculture  from  the  current  dairy  reform
proposal  since  extra  increases  in  Member  State  quotas  are  foreseen  in  2007  and
2008. However, the Commission recognises that the particular economic importance
of this sector in the Azores, and the problems linked to the development of Azores
milk production, merit specific attention and that these problems need a solution with
appropriate measures.

On  the  other  hand,  an  important  feature  of  Portuguese  agricultural  developments
over the last decade has been the shift in land use from arable crop production, with
very  low  productivity,  to  extensive  animal  rearing,  based  in  particular  on  an
expansion  of  the  suckler  cow  herd.  This  movement  has  been  supported  through
specific policy measures for Portugal and  would  appear  to  correspond  better  to  the
conditions in many of its Less Favoured Areas. The Commission would therefore be
prepared to monitor how this positive development for Portugal may continue to be
encouraged in the future.

In global terms, the Commission would therefore expect that Portuguese agriculture
will profit from the new perspectives offered by the various elements of the current
CAP  reform  proposal.  In  becoming  more  market-oriented  and  thereby  facilitating

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quality production, the CAP will be better adapted to the possibilities for growth in
Portuguese agriculture.

6.3.

Improving the Sustainability and Competitiveness of Portuguese rural areas

It could be argued that continued structural adjustment and the introduction of better
a  market-orientation  into  the  CAP,  may  not  solve,  in  the  short-term,  Portugal’s
productivity problems and may not bring about the necessary increase in incomes for
Portuguese producers because of underlying rural development problems.

In  this  light,  specific  attention  will  need  to  be  paid  to  the  impact  of  the  reform  on
agricultural  production  in  Less  Favoured  Areas,  all  the  more  because  these  areas
have  a  considerable  overlap  with  those  of  high  nature  value.  For  Portugal,  this
concerns, in particular, extensive suckler cow and sheep farming activities.

The Commission believes that its current proposal to strengthen the Second Pillar of
the  CAP  is  consistent  with  these  concerns  and  would  offer  new  possibilities  for
Portugal to promote the development of its agriculturally dependent rural areas and
respond fully to society’s demand for environmental services.

Consequently, the Commission considers that economic measures, such as the  LFA
and  agri-environmental  programmes,  may  provide  a  crucial  answer  to  the  need  to
consolidate the income of Portugal’s semi-subsistence holdings, while the necessary
restructuring of the sector is continuing to take place.

For that reason, the Commission is prepared to look favourably into the possibility of
taking up the  Berlin  European  Council’s  conclusions  of  March  1999,  on  a  possible
strengthening  of  support  to  Portugal  from  Heading  1  b)  of  the  EAGGF-Guarantee
Fund (Rural Development) and the conclusions of the Brussels European Council of
October 2002, that the needs of producers in the disadvantaged regions of the present
EU should be safeguarded, and that multifunctional agriculture will be maintained in
all areas of Europe.

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