Report No. 2380-PO

Prices and Subsidies in Portuguese AgricultureJuly 31, 1979

Country Programs Department IEurope, Middle East and North Africa Region

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS - YEARLY AVERAGE

1971 US$1 = Esc. 28.751972 = Esc. 27.251973 = Esc. 24.521974 = Esc. 25.411975 = Esc. 25.541976 = Esc. 30.02

1977 = Esc. 38.28

1978 = Esc. 45.00

GLOSSARY OF ABBREVIATIONS

AGAR - Alcohol and Sugar AuthorityCPI - Consumer Price Index

EAGGF - European Agricultural Guidance and Guarantee Fund

EPAC - State Cereals Supply EnterpriseIAPO - Oil and Oilseeds Institute

IFADAP - Financial Institute for Agriculture and FisheriesDevelopment

INE - National Institute of StatisticsJNF - National Fruit Board

JNPP - National Livestock Production Board

JNV - National Wine Board

FOR OFFICIAL USE ONLY

PRICES AND SUBSIDIES IN PORTUGUESE AGRICULTURE

Table of Contents

Page No.

I. INTRODUCTION .......................................... 1

II. PRICE CONTROLS IN PORTUGAL ............................ 3

Background to Price Controls .......................... 3

Price Control Regimes ................................. 3

Extent of Price Controls .............................. 5

The Experience of Price Controls ...................... 6

III. THE PORTUGUESE AGRICULTURAL SECTOR .................... 8

The Land Resource Base ................................ 8

Agrarian Structures ................................... 9

The Growth of Agricultural Production .... ............. 10

IV. PRICE AND SUBSIDY POLICIES IN PORTUGUESE AGRICULTURE .. 12

Price and Subsidy Policies ............................ 12

The Cereals Subsector ................................. 14

Milk and Livestock Subsector .......................... 17

Vegetable Oils Subsector .............................. 20

Other Subsidized Sectors (Potatoes, Fish, Fertilizers). 21

An Overview of the Portuguese Agricultural Price/

Subsidy Situation ................................... 22

V. EFFICIENCY OF PORTUGUESE AGRICULTURE IN THE INTER-

NATIONAL (FREE TRADE) CONTEXT ......................... 23

Removal of Market Distortions: A Partial Equilibrium

Analysis ....................... ..................... 25

Removal of Market Distortions: A General Equilibrium

Analysis ....................... ..................... 27

VI. PRICE SUBSIDIES, PRIVATE CONSUMPTION AND INCOME

DISTRIBUTION .......................................... 28

Cost of Living Effects of Removal of Subsidies ........ 28

Income Distribution Effects of Removal of Subsidies ... 28

VII. THE EEC's COMMON AGRICULTURAL POLICY AND ITS

IMPLICATIONS FOR PORTUGAL ............................. 29

The Choice of "Green Rates" ............................. 29

Price Support Systems ................................. 29

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (Continued) Page No.

Implications of EEC Price Levels for Portuguese

Production .......................................... 31

The Application of Community Preference .... ........... 32

Possible EAGGF Operations ............................. 35

VIII. CONCLUSIONS ........................................... 37

Attachments

1. Price System Applicable to Agricultural Sector

2. Role of Agricultural Products in Private Consumption and

Total Intermediate Demand3. Partial Equilibrium Evaluation of Price Distortions

4. Terms of Reference for a Price and Subsidy Study of Greek

Agriculture

Statistical Appendix

This Report was prepared by Shahid Amjad Chaudhry with the assistance of

Ms. Jerri Dell.

CHAPTER I

INTRODUCTION

1.1 This report examines Portugal's agricultural price/subsidy policies

with regard to commodities directly subsidized by the Government through the

Fundo de Abastecimento (The Commodities Supply Fund) viz. cereals, milk and

livestock, vegetable oils, potatoes, fish and fertilizers. Certain aspects

of the pricing policy of olive oil are also examined due to its importance

in the Portuguese economy. The analysis focuses both on the benefits which

Portuguese producers and consumers draw from the current price/subsidy situa-

tion as well as the implications for prices and subsidies of Portugal's poten-

tial entry into the European Economic Community (EEC).

1.2 The methodology used in this report for analyzing price subsidy

issues comprises: (i) the identification of beneficiaries of pricing policies

for individual commodities by the estimation of producer and consumer "tax/

subsidy equivalents" as developed by Josling; 1/ (ii) the evaluation of

Portugal's economic efficiency in the production of certain agricultural

products in both the international "free trade" and EEC context by the esti-mation of "nominal protection co-efficients" and "effective protectionco-efficients" as measures of incentives/discentives confronting Portugal's

farmers and the estimation of "domestic resource cost" as a measure of

comparative advantage; 2/ (iii) the estimation (through the use of price

elasticities) of the "social costs" imposed on national production and con-

sumption as a result of particular price/subsidy policies (as well as the

welfare gain or loss to producers and consumers) and the changes which would

occur with regard to these if Portugal moved either to a "free trade" price

regime or an "EEC pricing policy"; 3/ and (iv) a rough estimation (through

examination of Portugal's latest Family Expenditure Survey) of the consumer

price and income distribution effects of removal of subsidies presently appli-

cable to agricultural products.

1.3 The above methodology, whilst useful, can by its very nature only

give us partial insights into the very complex issues raised in any examina-

tion of agricultural price/subsidy policies. The study is also limited by its

1/ "Agricultural Protection and Stabilization Policies: A Framework of

measurement in the Context of Agricultural Adjustment," FAO Document

C75/LIM/2, Rome, October 1975.

2/ Bruno, M. "Domestic Resource Costs and Effective Protection," Journal

of Political Economy, January-February 1972. Belassa B. "Methodology

of the West Africa Study on Agricultural Prices and Subsidies," unpub-

lished World Bank Document, February 1977.

3/ "Policy Paper on Agricultural Prices and Subsidies," Economics and Policy

Division, Agricultural and Rural Development Department, The World Bank,

June 1978.

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coverage (it excludes fruits and vegetables, forestry and wines and brandies

which constitute a significant portion of Portugal's agricultural production)

and is dependent upon the reliability of the "Farm models" (constructed by the

Gulbenkian Foundation for a joint Gulbenkian/Bank Study on Portuguese Agricul-

ture) 1/ for the relevance of some of the results. Inspite of these qualifica-

tions, however, it is believed that the analysis and conclusions of the report

have relevance to Portugal today.

1.4 The report draws heavily upon work done earlier on this and related

subjects both in the Bank and the Agricultural Research Centre of the

Gulbenkian Foundation (Oeiras, Portugal).

1/ Hyung, M. Kim, "Agricultural Prices and Subsidies--Portugal Case Study,"

World Bank Staff Paper, 1978.

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CHAPTER II

PRICE CONTROLS IN PORTUGAL - AN OVERVIEW

I. BACKGROUND TO PRICE CONTROLS

2.1 The emergence of extensive price controls throughout the Portugueseeconomic system was in many ways an inevitable consequence of the socialistcharacter of the 1974 Revolution. Public control was established over theeconomy through intensive nationalizations which increased the size of thepublic sector to encompass about 25% of total value added and 45% of grosscapital formation in the economy. The traditional public sector (publicadministration, defense, education, health) was supplemented by almost totalcontrol over energy, water, banking, insurance, public transport and communica-tions. Agrarian structures underwent substantial change in the southern partof Portugal (discussed later in Chapter III of this report) but the total landaffected--1.2 million hectares--was less than 25% of the country's croppedarea. Certain large industrial enterprises were also nationalized. However,the bulk of agricultural and individual production, as well as the fishing,mining, construction and distribution sectors remained in private hands. Inorder to gain some measure of control over these "independent" sectors andinfluence income distribution throughout the economy, successive PortugueseGovernments have armed themselves with legal powers which allow them to estab-lish the prices of virtually all important commodities.

II. PRICE CONTROL REGIMES

2.2 The Legal Framework. Decree Law no. 329-A/74 of July 10, 1974 asamended by Decree Law No. 750-Q/77 of February 28, 1977 constitutes the legalframework under which price controls are exercised in Portugal. Under theselaws, the Ministry of Trade (specifically the Secretary of State of InternalTrade) can determine the price regime applicable to a commodity ('controlled'or 'free') and also fix the price of the commodity. In practice the Ministryof Trade exercises its price control functions in coordination with the con-cerned ministries.

2.3 Controlled Price Regimes. These are currently four distinct con-trolled price regimes involving (i) maximum fixed prices, (ii) "declared"prices, (iii) commercial trade margins, and (iv) contract prices. Theirsalient features are as follows:

(i) Maximum Fixed Price Regime: While this is theoreticallyapplicable to any commodity its most important applicationis to the "commodity basket" and the "essential goods."The "commodity basket" currently 1/ comprising nineteenproducts viz. bread (first and second quality), massas

1/ Diario da Republica, April 7, 1978, p. 636-(4).

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(spaghettis), biscuits, corn meal (for human consumption),

rice, sugar, margarine, vegetable oil, milk, powdered milk,

cheese, whiting fish, eggs, chicken, pork (nationally pro-

duced), sausages, Italian sausage and soap. The composition

of the basket and the appropriate level of prices is fixed

by Cabinet decision and the prices of goods involved are

guaranteed by the Government to remain unchanged for one

year. Another important category of goods controlled by the

maximum price regime are the so-called "essential goods"

which currently comprise seven products viz. butter, pork,

beef, coffee, sandwiches and cakes. In their case the Gov-

ernment undertakes that it will "do its best" not to change

the "maximum prices" during the course of the year but does

not guarantee against changes as is the case with the "com-

modity basket."

(ii) Declared Price Regime: Under this regime, firms with total

annual sales exceeding 50 million escudos and individual

product sales exceeding 10 million escudos have to make a

request for price changes for the product to the Ministry

of Trade. The Ministry has 60 days either to agree, dis-

agree or come up with counterproposal (which is then pro-

mulgated). The regime regulates the major industrial

enterprises (automobiles, other consumer durables, textiles,

etc.).

(iii) Fixed Trade Margin Regime: For the commodities covered

under this regime, the Government (Ministry of Trade) deter-

mines the commercial trade margins allowed in percentage

terms. Items covered include salt, ham, preserves, dried

fruit, beer, wines, and metallic and electrical products.

(iv) Contract Price Regime: Here the Government public sector

negotiates changes in prices with firms, groups of firms

and employers associations. Commodities whose prices are

regulated in this way include tomatoes, hops and flax.

2.4 Non-Controlled Prices. Prices of non-controlled items may be

increased after a period of ten days from the date of informing the Ministry

of Trade about the proposed increase.

2.5 Prices for Agricultural Products. Agricultural product prices are

fixed in most cases at both the producer and consumer level, and necessary

subsidies are granted to processing and marketing organizations. Whilst the

overall price review is formally undertaken by the Ministry of Trade, initia-

tive for price increases could come from the Ministry of Agriculture (e.g,

wheat producer prices for the 1978/79 crop season); organizations under the

Ministry of Agriculture (e.g., EPAC for maize, sorghum, and rice producer

and consumer prices in the 1978/79 crop season or JNPP for livestock or milk

prices); organizations under the Ministry of Trade (IAPO for vegetable oil

seed and olive oil, JNF for fruits, AGAR for sugar and alcohol, JNV for wines)

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or from producer organizations. Agencies involved in the agricultural pricereview include the Ministry of Agriculture and the Trade Unions. Impli-cations of price changes on the general level of consumer prices (and specif-ically its impact on the family budget of various income groups) are studied inthe Planning Department of the Ministry of Trade.

III. EXTENT OF PRICE CONTROLS

2.6 An exercise to evaluate the extensiveness of price controls inPortugal was undertaken recently by the Ministry of Planning. Commoditieswere defined as 'controlled' or non-controlled' with the former encompassingprice regimes falling under 'maximum prices', 'declared prices' and fixedmark-ups.' Their relative share in three areas viz. private consumption,total intermediate demand and gross fixed capital formation were examined.The results of the study are summarized below.

2.7 Private Consumption: About 46 percent of private consumption issubject to some form of price control. Food items are subject to the greatestamount of controls (83 percent controlled, 65 percent through the mechanism of'maximum prices').

Table II.1: PRICE CONTROLLED GOODS IN PRIVATE CONSUMPTION

Category Percentage Weight Weight of Price Systems Percentage ofof in Controlled Goods Category

Goods Private Consumption in Private Consumption Controlled

Food 33.1 27.4 (21.5) /1 83Non-food 28.9 18.5 (5.4) 64Services 28.1 0

/1 Subject to 'maximum prices'.

Source: Ministry of Planning

2.8 Intermediate Demand: Agricultural and Livestock products destinedfor meeting 'intermediate demand' are most affected by price controls (51percent of products originating in the primary sector and destined as inputsinto the food industry have controlled prices). Conversely intermediate goodsoriginating in manufacturing industry are least subject to price controlsalthough they have the greatest input in total intermediate demand.

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Table 11.2: PRICE CONTROLLED GOODS IN INTERMEDIATE DEMAND

Structure of Percentage of Sector

Intermediate Production Subject

Demand % to Price Controls

Agriculture 4.9 48.0

Forestry 0.8 36.4

Livestock 5.5 60.0

Extractive Industry 2.5 28.0

Mining Industry 69.5 26.6

Services 20.0 28.6

Source: Ministry of Planning

2.9 Gross Fixed Capital Formation: Forty-one percent of commodities in-

volved in gross fixed capital formation are subject to price controls.

IV. THE EXPERIENCE OF PRICE CONTROLS

2.10 Portugal's experience with price controls has been mixed. The

Portuguese Revolution sparked a "wages explosion" - the inflationary impact

of which was compounded by the increase in international raw material prices

(particularly petroleum and cereals). Price controls managed to exercise

some curb on inflation--primarily by reducing profit margins. Such a policy,

of course, could not be sustained for long since the financial position of

enterprises (especially those belonging to the public sector) began to deter-

iorate fairly rapidly from 1976 onwards. Successive Governments have, there-

fore, systematically allowed adjustments to commodity prices in order to

reflect changes in costs. They have, however, also sought to moderate some

of the price increases by subsidizing certain categories of essential products

(particularly foodstuffs).

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Table II.3: BEHAVIOR OF CONSUMER PRICESAnnual Percentages Changes

Jan.-Sept.1974 1975 1976 1977 1978

Consumer Prices, Lisbon

Total, without Housing 29.2 20.4 19.4 27.3 21.6Food and Drink 32.6 23.6 23.3 31.9 22.0Clothing and Shoes 31.9 8.5 1.8 18.7 18.2Housing 9.6 -8.0 32.1 26.5 24.3

MemoAverage Unit Import Value 48.3 14.0 12.0 7.5 6.0Exchange Rate against US$ 4.8 -11.7 -14.8 -26.3 -14.5Average Wages in Manufacturing 41.0 32.0 19.0 18.0 12.0

Source: I.N.E. and Mission Estimates

2.11 Table II.3 (above) which reviews post-1974 consumer price behaviorshows that the "food and drink" component of the CPI experienced substantialprice increases throughout the period. This was almost inevitable, given thefact that the price of imported food (on which Portugal is heavily dependent)continued to rise and the Portuguese escudo had to be depreciated continuouslyin order to combat balance of payments difficulties. It is important to note,however, that the-increase in food prices would have been substantially higherin the absence of food subsidies (which were retained at a level betweenUS$250-300 million per annum in the period 1976-September 1978). In addition,emphasis was placed on moderating food price fluctuations through the insti-tution of the "commodity basket" under which food items comprising the "basket"had their prices fixed for one year (discussed earlier in this Chapter).

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CHAPTER III

THE PORTUGUESE AGRICULTURE SECTOR - A BRIEF OVERVIEW

3.1 In order to understand the influence of price controls and subsidies

in the Portuguese agricultural sector it is necessary to have some background

of the role of agriculture in the economy. During 1977, the latest year for

which comprehensive data are available, value-added in the agricultural sector

(excluding forestry and fisheries) amounted to about Esc. 62 billion (US$2.1

billion) or about 11 percent of the country's GDP. The sector employed about

840,000 workers (22 percent of total employment). Agricultural imports during

the year amounted to Esc. 34.5 billion (US$900 million) of which about 60

percent were food imports. Agricultural exports (excluding wine and cork)

amounted to Esc. 12.8 billion (US$330 million) or about 16 percent of total

exports. In general, the agricultural sector exhibited low productivity, and

Portugal could ill afford the additional strain imposed by this on the coun-

try's balance of payments. However, as we shall see below, the sector as a

whole faces substantial structural problems, and the restoration of its effi-

ciency is likely to be a formidable challenge.

The Land Resource Base

3.2 Portugal's land area is about 8.9 million ha of which about 5 mil-

lion ha is in farms and about 3 million ha in forests. This implies the

existence of about 0.5 ha of arable land for each Portuguese inhabitant, a

figure which compares very well with the rest of Europe (where the comparable

ratios range between 0.25-0.33 ha of arable land per inhabitant). These

figures must, however, be interpreted with caution since as much as 2.2 mil-

lion acres of this farm-land consists of poor quality soils and would be

regarded in other parts of Europe as suitable only for pasture (despite its

use for fieldcrops in Portugal).

Table III.1: ESTIMATED ACTUAL AND 'SUITABLE' LAND USE

Non-Irrigated Irrigated Total

'Actual' 'Suitable' 'Actual' 'Suitable'

Crops (including 3,985 2,168 658 4,693 2,827

tree crops)Pasture 367 2,183 17 384 2,100

Sub-total (4,352) (4,352) (675) (5,027) (5,027)

Forests 3,030 3,030 - 3,030 3,030

Total 7,382 7,382 675 7,597 7,597

Source: "Portugal Agricultural Sector Survey," World Bank Report No. 1689b-PO,

May 16, 1978.

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Agrarian Structures

3.3 Portugal's agrarian structures may conveniently be divided into

those typical of the "North" and the "South" with the Tagus river as thedividing line between the two regions.

3.4 The "North" is characterized by high density rural populations

with small holdings. Most of the area is mountainous and there is a shortage

of cultivable land. Over three-fourths of the holdings are under 4 ha in area

and about 40 percent are under 1 ha. Even these holdings are substantially

fragmented. More than half the owner-operators are more than 50 years of age.

A substantial number of the younger farmers have emigrated abroad but this has

not resulted in increased size of holdings (emigrants do not sell their land).

Overall, farming in the North remains a low productivity activity.

3.5 The "South" has traditionally been an area of larger sized farms.

Ninety percent of all land was (and still is) in farms of more than 20 ha,

more than 50 percent in farms of more than 500 ha. A large number of these

farms were taken over forcibly by peasants after 1973. The situation is now

being regularized after the promulgation of Land Reform Law No. 77/1977 which

exempts farms of 30 ha or less from expropriation (although larger farms up

to 500 ha may also be exempt if they fall within a maximum "70,000 point"

cadastral productivity measure). It is now estimated that of the 3.5 million

ha of land in the "agrarian reform zones" of the South, some 1.4 million ha

will be in collective or cooperative forms of tenure, 1.4 million ha in small

and medium sized farms (less than 30 ha), and the remainder (0.7 million ha)

will be the "reservas" allowed the former landowners under the exemption of

70,000 points. A summary of the structure of the new cooperative institutions

is given below.

Table III.2: COOPERATIVES AND UCP'S L1; AREA AND NUMBER OF WORKERS

No. of Total Area Average Average Area/UCP's (ha) Area/Coop. Worker (ha)

Beja 64 248,033 3,990 33.9Catelo Branco 7 8,853 1,264 43.6

Evora 154 411,370 2,766 28.1

Fara 8 1,637 204 6.7

Lisboa 9 6,140 682 22.7

Portalegre 60 247,920 4,132 32.4

Santorem 105 222,801 2,122 72.5

Setubal 74 107,962 1,459 34.4

Total 481 1,254,716 2,607 34.4

/1 Cooperative Production Units.

Source: "Portugal Agricultural Sector Survey," World Bank, 1978.

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The Growth of Agricultural Production

3.6 The basic task facing Portugal's policy makers is to use Portugal's

land resource base optimally taking into account the structure of Portuguese

soils (discussed in paragraph 3.2 above). While in the Portuguese content it

does appear to make economic sense to retire land marginal for field crops

like wheat and replace it by suitable permanent or annual crops e.g. fodder,

the latter has not been done. A substantial part of the problem of the slow

growth (average growth rate of about 0.5 percent per annum during 1963-65/

1974-76) of Portuguese agriculture in the past has in fact been due to an

aggregate reduction in areas planted in cereals and an expansion of land area

which is left largely fallow. Thus, in the past decade, the increase in area

planted (largely through expanding tomato production and the introduction of

oil seeds) has been insufficient to compensate for a 800,000 ha (31 percent)

reduction in the area of major field crops. Table III.3 below shows the

percentage acreage declines in the areas under major field crops.

Table III.3: CHANGES IN YIELDS AND AREAS OF MAJOR CROPS, 1963-75

1963-75 1973-75 Yield Area

Average Average Increase (%) Increase (%)

------- tons/ha ------

Wheat 0.82 1.18 +44 -47

Rye 0.62 0.72 +16 -37

Rice 4.38 3.24 -26 -8

Maize 1.08 1.30 +20 -24

Barley 0.50 0.82 +64 -26

Oats 0.33 0.60 +82 -38

Potatoes 9.98 9.50 -5 +5

Pulses 0.21 0.21 - -31

Source: "Portugal Agricultural Sector Survey," World Bank, 1978,

3.7 The reductions in crop acreages were to a large extent inevitable

given the poor quality of the lands involved, the generally depressed inter-

national prices for agricultural products prevalent in the 1960's and the

increased opportunities to agricultural labor offered by expanding employment

opportunities in Europe (agricultural employment decreased from 1.3 million in

1960 to 988,000 in 1970 and 841,000 in 1975). A more significant feature of

the Portuguese agricultural situation, however, related to the fact that both

land use and investment did not increase to compensate for the loss of labor.

There were several reasons responsible for this situation including the

pattern of land tenure in Portugal and the absence of any significant policy

measures--either incentives or penalties--to stimulate more efficient use of

land. The overall result was that agricultural crop production experienced

continuous declines throughout the period (Table III.3). The only exception

to this was the growth of the livestock sector which is discussed in the next

paragraph.

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Table III.4: NET VALUE AND RATES OF GROWTH OF AGRICULTURAL PRODUCTION(million esc. in 1963 prices)

Total AverageYears Value Added Crops Livestock Forestry

1953-55 15,779 8,583 4,939 2,2561963-65 17,224 8,873 5,628 2,7261974-76 18,256 8,100 7,322 2,834

Rates of Growth

1953-55/1974-76 0.7% -0.3% 1.9% 0.9%1963-65/1974-76 0.5% -0.8% 2.4% 0.4%

Source: "Portugal Agricultural Sector Survey," World Bank, 1978.

3.8 A major driving force of the growth of the livestock sector wasincreased beef production. This was achieved without any perceptible increasein the number of cattle, i.e. by high annual offtake achieved through themassive feeding of concentrates (imported feed grains comprising mainly corn,and more recently sorghum). This method of beef production (which, as willbe demonstrated later is economically inefficient for Portugal) was largelyconfined to the medium (50-100 ha) and large (above 100 ha) sized farms whichpredominate in the "south" of Portugal. It reflected the fact that under theeconomic policies adopted during this period, landowners could maintain, andeven increase their incomes through (socially subsidized) beef productionwithout the substantial investments which would have been necessary to plantpermanent pastures for livestock production and to increase the productivityof their field crops. Livestock production through pasture development (whichappears to be economically much more beneficial for Portugal) was, therefore,largely neglected in the past.

3.9 Ultimately, of course, the pattern of land use, investments andstructure of agricultural production in Portugal reflected the price relation-ships confronting Portuguese agriculture. These relationships (as they existat present or as they are likely to exist in the EEC context) are examined inthe remainder of this report.

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CHAPTER IV

PRICE AND SUBSIDY POLICIES IN PORTUGUESE AGRICULTURE

Price and Subsidy Policies

4.1 Prices. The bulk of Portuguese agricultural production is subject

to price controls in some form or another. Attachment I lists the price

regime applicable to particular product groups. Products of particular

interest are those for which producers received fixed guaranteed prices (viz.

wheat, rye, barley maize, rice, oil-seeds, olive oil, wine, beef and milk)

and those on which the Government grants subsidies (wheat, rye, maize, rice,

sorghum, vegetable oils, pork, milk and milk products, beef, fish, sugar and

potatoes). An additional product fertilizer is also of interest because of

the amount of subsidies involved and for its role as a vital production

input.

4.2 The complex structure of price regulating individual commodities is

detailed in Statistical Appendix Tables VIII-XII. The difference between

Portuguese producer prices, international (import) prices, and EEC producer

prices are presented in Statistical Appendix Table V. Consumer price com-

parisons are made in Statistical Appendix Table VII. The implications of

current pricing policies (in conjunction with the Government's expenditure

on subsidies)are discussed by individual product groups in the following

sections of this Chapter.

4.3 Subsidies. The level of direct subsidies to the agriculture sector

(including both producer and consumer subsidies) is currently (1978) estimated

at 12.3 billion escudos (US$273 million). The largest subsidy is on cereals

(4.3 billion escudos or (US$96 million), vegetable oils (2.6 billion escudos

or US$58 million), milk and products (2.4 billion escudos or US$53 million)

and fertilizers (1.9 billion escudos or US$42 million). These subsidy expendi-

tures are summarized in Table IV.1 below.

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Table IV.1: SUBSIDY EXPENDITURES ON AGRICULTURAL PRODUCTS(in million escudos)

1975 1976 1977 1978

Cereals and Flour 2,380 2,710 4,700 4,304Meat 1,100 2,130 379 342Milk and Products - - 1,881 2,418Fish - - 111 208Sugar - - 12 9Vegetable Oils - 1,337 3,936 2,614Potatoes 20 333 326 500Fertilizers - 1,148 905 1,888

TOTAL (million escudos) 3,500 7,658 12,250 12,283(million US dollars) (137) (255) (320) (273)

Source: Fundo de Abastecimento.

4.4 Fundo de Abastecimento. (The Commodities Supply Fund) administersPortugal's direct subsidy systems. It was created in 1947 (Decree Law 26501)to stabilize the cost of living and increase agricultural incomes by providingand monitoring agricultural prices and subsidies. It operates entirelythrough marketing institutions. The financial operations of the Fundo revolveessentially around channelling the public sector profits on its petroleumoperations to subsidizing the agricultural sector. Losses are financed bothby borrowing from the banking system and by direct subsidies from the budget.

Table IV.2: FINANCIAL OPERATIONS OF FUNDO DE ABASTICEMENTO(in million escudos)

1977 1978

Receipts 13,694 16,267Profits on Trade of Agricultural Products 1,139 1,965Price Differential on Petroleum 12,555 14,302

Expenditures 18,452 20,765Subsidies on Agricultural Products 10,045 12,396Subsidies on Petroleum Consumption 8,407 8,369

Net Profits (loss) million escudos -4,758 -4,498(million US dollars) (-124) (-100)

Source: Fundo de Abastecimento

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The Cereals Sub-sector

4.5 As Table IV.3 below indicates, Portugal's production of cereals isinadequate to meet its requirements. Productivity is low, and despite thelow quality of soils in certain areas, could be substantially increased. TheGovernment has tried to achieve a higher level of production and domesticavailability through appropriate producer pricing policies (domestic pricesfor wheat and maize have consistently been above international prices exceptin 1973 and 1974 when these product prices reached spectacular highs in theinternational market as a result of failure of the Russian grain crop), pro-curement policies (involving both compulsory and voluntary delivery), and bysubsidizing imports (particularly fertilizer). Consumers, on the other hand,have been protected through a policy of active subsidies.

Table IV.3: CEREALS SECTOR(Average 1975-76, 1000 metric tons)

CommonWheat Maize Rye Oats Sorghum Barley Rice

Area Planted 497 361 215 211 - 122 26Production 644 415 155 124 - 101 115Av. Yield kg/ha 1,295 1,150 721 588 - 828 4,423(EEC Av. Yield kg/ha) (3,800) (4,780)(3,040) (2,630) (-) (3,360)(4,435)Consumption 939 1,714 258 108 283 86 218Imports/Exports -295 -1,299 -103 16 -283 15 -103(EEC Surplus/Deficit) (2,994)(-12,242)(-251) (-300) (-) (1,578) (371)Producer Price Esc/kg 5.47 5.36 4.56 3.57 - 4.60 6.17'Wholesale' Price Esc/kg 4.50 3.70 .. ..

Import Price Esc/kg 4.80 3.61 4.21 - 3.55 5.64 7.05EEC Price Esc/kg 5.86 5.31 5.79 n.a. - 5.86 6.41

Not available.

Source: Estatisticas Agricole for production data, EPAC for consumption/importdata, Fundo de Abastecimento for producer/consumer price data.

4.6 Procurement and Marketing. EPAC (Empresa Publica de Abastecimentode Cereais) replaced the Cereals Institute in 1977 in its role as the publicmarketing agency for cereals. EPAC intervenes in producer markets as the solebuyer (wheat) or as a residual buyer (other major cereals). It also has amonopoly on imports of all cereal products. It stores purchased cereals anddistributes them to millers. Purchase of wheat is subject to fixed prices;other major crops--rice, barley, corn, oats--to minimum guaranteed prices.All sales of cereals by EPAC (including the sale of imported corn and sorghumfor the feed industry) are at prices fixed by the Government.

4.7 Wheat. Domestic producers are guaranteed a fixed price but aresubject to a system of compulsory deliveries. The complex system of producersubsidies which prevailed in the past (viz. crop subsidies, crop re-conversionsubsidies, subsidies on small deliveries) have now been eliminated (except for

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a small $2 million seed subsidy) by incorporation into a higher producer

price. Domestic producer prices have been set consistently above inter-

national prices (except in 1973 and 1974 when international prices shot up).

However, whilst Portugal remains a high cost wheat producer in the world con-

text, it is not necessarily so in the EEC context (this is examined further

in Chapter VII).

4.8 Government subsidies now in existence in the wheat sector currently

amount to about $40 million per annum. They are summarized by 'financial

category' in Table IV.4 below (a more detailed statement is available in

Statistical Appendix Table XIII).

Table IV.4: FINANCIAL INTERVENTIONS IN WHEAT SECTOR

(in million escudos)

1975 1976 1977 1978

Subsidies on Consumptionof Domestic Wheat 453 577 508 468

Subsidies on Imports 430 173 840 945

Flour Subsidy 303 300 240 222

Seed Subsidy 102

Total Million Escudos 1186 1050 1588 1737

(US$ million) (46) 63-5) (41) (39)

Source: Fundo de Abasticemento

4.9 It is possible to get an estimate of the relative beneficiaries of

pricing and subsidy policies and the implications for the government account

through estimating producer and consumer "subsidy/tax equivalents." Such an

analysis assumes that the price policy affecting the agricultural and food

markets can be divided analytically into two parts: that which represents a

benefit to or burden upon producers, and that which acts as a subsidy to or a

tax upon consumers. In deriving these producer subsidies/taxes, reference

prices used are border prices (c.i.f. import prices). Thus the difference

between import and producer price is the implicit producer subsidy (tax) while

the difference between the processers price and the import price is the

implicit consumer subsidy (tax). The government bears the difference of the

two situations and this enables us to get an estimate of the net effect on the

government's account. Table IV.5 below analyses the situation in the wheat

sector using this methodology. It shows that the government is currently

subsidizing both wheat production and consumption with the former (i.e. the

wheat producers) being more heavily subsidized.

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Table IV.5: WHEAT PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS 1/

1975 1976

Producer Subsidy Equivalent mil esc. 331 720(As % of Total Producer Value) (10) (19)Consumer Subsidy Equivalent mil esc. 770 340(As % of Total Consumer Exp.) (17) (8)Net Subsidy mil esc. 1211 1060Net Subsidy (US$ million) (7T) (35)

/1 Producer and Consumer Subsidy Equivalents for wheat andother products are estimated only for 1975 and 1976 sincethe additional data needed for this analysis was availableonly for these years.

Source: Statistical Appendix Table XVI.

4.10 Other Cereals. Total government subsidies for other cerealsexcluding wheat) currently (1978) amounts to 2.6 billion escudos (US$57million) and is almost entirely directed to subsidizing the consumption ofimported cereals. Three main cereals are involved viz. maize (subsidy is1,457 million escudos or US$32 million), sorghum (337 million escudos orUS$8 million) and rice (590 million escudos or $13 million). The case ofmaize is distinct in that while domestic producer prices are somewhat higherthan international prices, domestic maize is subject to voluntary deliveryand is largely consumed on farms. Imported maize and sorghum 1/ are almostexclusively supplied to the feed grain industry by EPAC and are subsidized.The import of the other major cereal, rice, is meant to supplement domesticproduction. The subsidies in this case are intended to bring the price ofimported rice down to domestic fixed price levels. The structure of allthese subsidies is detailed in Statistical Appendix Table XIV.

4.11 Producer and consumer subsidy "equivalents" for maize and sorghumwere not estimated,since these commodities are inputs into livestock (beef)production--and these subsidies have been included in the subsequent analysison beef as an indirect producer subsidy for that commodity. Producer andconsumer subsidy "equivalents" for rice are summarized in Table IV.6 below(a more detailed presentation is available in Statistical Appendix Table XVII).Here, as expected, domestic producers of rice are "taxed" and consumersreceive a substantial "subsidy" from the existing price/subsidy structure.

1/ Domestic production of sorghum is negligible.

Table IV.6: RICE PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS

1975 1976

Producer Subsidy (tax -) Equivalent mil. esc. -150 -136(As % of Total Producer Value) (-13) (-16)

Consumer Subsidy Equivalent mil esc. 341 403

(As % of Total Consumer Expenditure) (20) (22)

Net Subsidy mil esc. 191 267

Net Subsidy (US$ million) (8) (9)

Source: Statistical Appendix Table XVII

Milk and Livestock Subsector

4.12 Portugal has bolstered its livestock and dairy sector through a

variety of policy measures including direct and indirect subsidies. Current(1978) government subsidy expenditures for the sector consists of milk sub-

sidies amounting to 2.4 billion escudos ($54 million), direct meat subsidies

amounting to 343 million escudos ($8 million), and,as discussed in the earlier

section on cereals, livestock feed subsidies (viz. maize and sorghum) amount-

ing to 1.8 billion escudos ($40 million). The total government subsidy

expenditure on the milk and livestock subsector is therefore about 4.6 bil-

lion escudos ($101 million) or about 37 percent of all direct subsidies

received by the agricultural sector.

4.13 These subsidies, which have existed in some form or another at least

over the past decade, have led to rapid rates of growth being experienced in

this sector--the average annual growth rate for milk and beef production being

3.3 percent and 5.5 percent per annum over the last decade. However, as Table

IV.7 below indicates, this growth has not been enough to satisfy domesticdemand and Portugal still remains a substantial net importer of milk and beefproducts.

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Table IV.7: MILK AND LIVESTOCK SUBSECTOR, 1977

('000 metric tons)

Liquid Powdered Sheep &

Milk Milk Butter Cheese Beef Pork Goats

Production 000 tons 776 7 1 22 78 101 10

Consumption 000 tons 783 8 4 23 118 105 10

Exports/Imports 000 tons -7 -1 -3 -1 -40 -4 -

(EEC Surplus/Deficit) /1 000 tons (374) (248) (145) (62) (-67) (-102) (-284)

ProducerPrice esc/kg/l 12.0 /2 - - - 50.0 50.7 45.0

'Wholesale'Price esc/kg/l 7.8 /2 55.0 /3 54.0 54.1 58.0 65.7 -

Import Price esc/kg/l 15.3 /2 23.2 /3 46.3 38.1 55.2 99.6 -

EEC TargetPrice /4 esc/kg/l 12.0 /2 44.6 /3 120.1 116.0 122.80 - -

/1 1976.75 Processed milk./3 With cream./4 Or 'equivalent' taking into account processing costs.

Source: JNPP and Fundo de Abastecimento for Portuguese data.

4.14 Milk. This sector is heavily subsidized. The aim of Government

policy appears to have been to guarantee a relatively high price level to

producers and subsidize consumption. As Table IV.7 indicates, domestic

producer price levels are now somewhat lower than Portuguese import prices

(largely from the EEC) whilst consumer prices are substantially lower. The

direct price subsidy on domestic milk is estimated for 1978 to amount to 1.7

billion escudos (US$37 million) which is somewhat lower than the levels for

earlier years (in real terms the 1976 subsidy was about US$56 million).

Direct producer subsidies (mainly for herd improvement and for purchase of

equipment) are estimated to amount to only 249 million escudos ($5.5 million)

in 1978. As Table IV.8 below indicates, net producer subsidies for milk are

marginal, whilst consumer are heavily subsidized (by more than 50 percent

under this definition which uses liquid milk import prices as the appropriate

reference criterion). Further details of estimation of milk producers and

consumer subsidy equivalents are available in Statistical Appendix Table

XVIII.

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Table IV.8: MILK PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS

1976

Producer Subsidy Equivalent mil esc. 34(As % of Total Producer value) (-)Consumer Subsidy Equivalent mil esc. 1548(As % of Total Consumer Expenditure) (52)Net Subsidy mil esc. 1688Net Subsidy (US$ million) (56)

Source: Statistical Appendix Table XVIII

4.15 A price policy for milk aimed at supporting producer prices andminimizing consumer prices would normally be expected to impose the greatestpressure on processing and marketing margins. In the Portuguese situation itis interesting to note that, primarily because of the way these subsidies areapplied (with the Government making subsidy payments to the marketing orga-nization which itself estimates the 'cost' of the pricing policies), this hasnot happened. In fact as Table IV.9 below indicates, it is the producersmargins that have been squeezed.

Table IV.9: STRUCTURE OF MILK PRICES

ProcessingPaid to and Retail- Consumer

Year Producers /1 Index ing Margin Index Price Index(Esc/liter (Esc/l) (Esc/l)

1971/72 3.30 100 1.20 100 4.10 100March 1974 4.10 124 1.60 133 4.90 1201975 6.40 194 2.50 208 6.00 1461976 7.50 227 3.70 308 6.00 1461978 9.50 288 5.00 417 7.50 183

/1 "Raw" milk.

Source: Fundo de Abastecimento

4.16 Meat. Direct price subsidies in the livestock production sector arenow deceptively small (US$7 million in 1978). Producer and consumer pricesare controlled through appropriate margins fixed by the Government. Govern-ment interventions with regard to price support in the sector are marginal(the system works through fixed guaranteed prices, voluntary delivery).Direct subsidy policies relate to trade in livestock products since Portugalis substantially dependent on beef imports and marginally so with regard topork. The concerned Government agency, JNPP, makes profits on all meat

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imports except pork (where international prices are substantially higher than

domestic prices).

Table IV.10: FINANCIAL INTERVENTIONS IN MEAT SUBSECTOR

(in million escudos)

1975 1976 1977 1978

Profits on Imported Meat 407 565 153 676

Loss on Imported Pork

and other -35 -311 -32 -37

Other Price Interventions -982 -1730 -293 -241

Subsidies to Production -118 -89 -54 -65

TOTAL million escudos -728 -1,565 -266 333

(US$ million) (-29) (-52) 7-) _TT)

Source: Fundo de Abastecimento

4.17 However, a more detailed investigation (which includes the cost of

maize and sorghum subsidies as a subsidy to the beef subsector) indicates

that beef production in Portugal is very heavily subsidized. As Table IV.l1

below shows both the Government (through input subsidies) and Portuguese con-

sumers of beef (who are 'taxed' through paying higher prices) subsidize the

sector. The detailed producer and consumer subsidy equivalent calculations

for beef are displayed in Statistical Appendix Table XIX.

Table IV.11: BEEF PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS

1975 1976

Producer Subsidy (tax -) Equivalent mil esc. 4,528 3,853

(As % of Total Producer Value) (67) (61)

Consumer Subsidy (tax -) Equivalent mil esc. (-3,665) (-1,625)

(As % of Total Consumer Expenditure) (-52) (-22)

Net Subsidy mil esc. 863 2,228

if it (US$ million) (34) (74)

Source: Statistical Appendix Table XIX

Vegetable Oils Subsector

4.18 Portugal imports about 90 percent of its requirements of vegetable

oils. The bulk is imported as seed (coconut, copra, soya, sunflower) and

processed locally. Palm oil and tallow are imported in processed form.

Government policy is aimed at subsidizing the consumption of these oils

through direct subsidies administered to the importing agency (IAPO). The

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financial costs of the subsidies to the Government are given in Table IV.12

below. Since Portugal's consumption of these vegetable oils is almost equiv-

alent to the total quantity imported, the entire subsidy in this case can

reasonably be classified as a consumer subsidy.

Table IV.12: SUBSIDIES ON VEGETABLE OILS

1976 1977 1978

Quantity imported (tons) 467,193 647,225 681,000

Total Cost of Import (mn. esc.) 5,497 9,616 10,204

Sales proceeds (mn. esc.) 4,160 5,680 7,590

Subsidy (mn. esc.) 1,337 3,936 2,614

(US$ million) (44.5) (102.8) (58.1)

Source: Fundo de Abastecimento

Other Subsidized Sectors (Potatoes, Fish, Fertilizers)

4.19 The potatoes subsector benefitted from a variety of minor subsidies

(for imported seeds, etc.) in the past. These have now (1978) been replaced

by a single producer subsidy the cost of which is estimated at 0.5 billion

escudos ($11.1 million). The fish subsector has a minor subsidy (estimated at

209 million escudos or $4.6 million) relating to price aid on imported whiting

fish (which is part of the "commodity basket").

4.20 The current (1978) level of fertilizer subsidies which accrues

directly to Portuguese farmers is about 1.9 billion escudos (US$42 million).During 1977/78, farmers' fertilizer prices were substantially below ex-factoryprices (which are determined by the Government on the basis of production

costs). Thus farmers paid a railhead price of only US$76/ton for ammonium

nitrate 26% N as compared to the ex-factory price of US$115/ton. The financialstructure of the fertilizer subsidy is summarized below. It did not prove

possible to distribute the fertilizer subsidy as an indirect subsidy to the

production of various crops because appropriate data were not available.

- 22 -

Table IV.13: FERTILIZER PRICES AND MARGINS IN 1977/78 /1(Esc/ton)

RailheadEx-factory Compensation Price Paid Producers Dealers

Price Freight Payment by Farmer Margin Margin

AmmoniumSulphate 3,895 165 1,770 2,290 126 121

CAN 20.5 4,054 165 1,749 2,470 129 130CAN 26.0 4,718 165 1,853 3,030 174 161

/1 Paid by Fundo Abastecimento to fertilizer companies.

Source: World Bank "Fertilizer Modernization Project," Report No. P-2437-PO,December 20, 1978.

An Overview of the Portuguese Agricultural Price/Subsidy Situation

4.21 The brief analysis conducted above on major Portuguese agriculturalproducts indicates that the benefits of existing price/subsidy policies arespread (at least for the commodities analyzed) largely in favor of producers(particularly beef producers). In order to put this situation in its properperspective it is important to look at the efficiency of Portuguese agricul-tural production before conducting any analysis of the effects of removal ofmarket distortions imposed by price/subsidy mechanisms. This is done in thenext Chapter.

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CHAPTER V

EFFICIENCY OF PORTUGUESE AGRICULTUREIN THE INTERNATIONAL (FREE TRADE) CONTEXT

5.1 A useful way of examining the 'efficiency' of agriculture in anyparticular situation is to study its competitiveness in an international 'freetrade' context. Since typically 'farm models' are used to undertake such ananalysis, the relevance of the results obtained are dependent upon accuracywith which such models are constructed and their ability to represent as faras possible the complex farm structures in any agricultural system. The WorldBank, in collaboration with the Gulbenkian Foundation, undertook a study I/based on such farm models to examine certain aspects of Portuguese price andsubsidy systems. Thirty-four 'representative' farm models (8 wheat, 6 corn, 6rice, 6 olive oil, 3 grain-fed beef, 5 milk) were used. Findings relating toprotection and efficiency of Portuguese agriculture in the internationalcontext are discussed below. The conclusions drawn are of course subject tothe qualifying remarks made above.

5.2 Nominal Protection Co-efficients (NPC's). This relationship (cal-culated as the ratio of the domestic producer price and the border price of acomparable product) gives the extent of 'nominal protection'. The 'nominalprotection coefficient' expresses the effects of the various incentive mea-sures (tariffs, quotas, etc.) on the price of a particular product. As TableV.1 below indicates, Portuguese producers of beef and maize enjoyed variouslevels of 'nominal' protection (this being heaviest in the case of beef).Rice, milk and olive oil producers, on the other hand, received prices lowerthan the international price. Wheat producers also did not receive any'nominal protection' in the 1973-75 period.

Table V.1: NOMINAL PROTECTION COEFFICIENTS FOR MAJOR AGRICULTURAL PRODUCTS

Wheat Maize Rice Beef Milk Olive Oil

1971 1.98 1.34 0.76 1.56 0.43 0.691972 1.67 1.55 1.27 1.56 0.77 0.741973 0.91 1.04 0.74 1.61 0.73 0.831974 0.76 0.99 0.55 1.43 0.74 0.781975 0.94 1.46 0.80 2.20 0.99 -

Source: Hyung, M. Kim "Agricultural Prices and Subsidies," op. cit.

1/ Hyung, M. Kim, "Agricultural Prices and Subsidies--Portugal Case Study"World Bank Staff Paper, 1978.

- 24 -

5.3 Effective Protection Coefficients (EPCs) measure the combinedeffects from protective measures of taxes and subsidies on both inputs andoutputs (being measured by the ratio of value-added expressed in domesticmarket prices to value-added expressed in border prices). An EPC>1 means thatat the existing official exchange rate, protection measures provide positiveincentives to produce the commodity or carry out the activity under considera-tion; and vice-versa, an EPCQ1 indicates that protective measures discriminateagainst the commodity in question. An EPC<O signifies an absolute loss offoreign exchange to the economy. Table V.2 shows (for the most efficientPortuguese farms in our sample) negative EPCs for grain-fed beef, and EPCs>lfor wheat and corn. This indicates that the wheat and corn farms in thesample enjoy even more protection than is obvious from the examination of'nominal protection' (above). The results of the grain-fed beef farms in thesample indicate that the incentives given to the sector (both direct and in-direct) conceal negative value added in the sector.

Table V.2: EFFECTIVE PROTECTION COEFFICIENT FOR MAJOR AGRICULTURAL PRODUCTS 1

Wheat Corn Rice Beef Milk Olive Oil

1971 2.59 1.15 1.21 -0.14 0.34 0.621972 1.47 0.69 -0.91 0.79 0.701973 0.59 1.73 1.53 -0.25 0.72 0.821974 1.24 1.10 0.64 -0.04 0.74 0.761975 1.06 0.40 0.90

/1 For "most efficient" farm in sample.

Source: Hyung, M. Kim "Agricultural Prices and Subsidies," op. cit.

5.4 Domestic Resource Cost (DRC) compares the cost of domestic primaryresources (i.e., the sum of labor, land and capital, shadow priced in domesticcurrency) against "value-added" in border prices. Thus if the DRC estimateis larger than the official exchange rate (or if appropriate the shadow ex-change rate) then the product in question does not have comparative advantage.Table V.3 below estimates DRCs for the "most efficient" as well as the "leastefficient" farms in our sample. These show that if our farm models can beconsidered representative of Portuguese agriculture, then Portugal doeshave a comparative advantage in the production of rice, milk and olive oil.With regard to wheat and corn, the results indicate that the more efficientfarms are competitive but that resources used in marginal farms for theproduction of these crops could perhaps be used most efficiently elsewhere.Grain-fed beef production in the livestock farms in our sample is again shownto be "absolutely inefficient" in an internationally free trade situationbecause of negative value-added.

- Z5 -

Table V.3: DOMESTIC RESOURCE COST COEFFICIENTS FOR MAJOR AGRICULTURAL PRODUCTS

Official Wheat Corn Rice Beef Milk Olive Oil

Exchange /1 /2 /1 /2 /1 /2 /1 /2 /1 /2 /1 /2

Rate ME LE ME LE ME LE ME LE ME LE ME LE

1971 28.8 22.6 -96.5 34.9 48.7 36.6 31.8 -9.2 2.5 25.2 39.5

1972 27.3 42.8 61.8 20.1 24.9 -10.8 6.3 12.1 20.8

1973 24.5 4.5 24.7 48.4 53.0 37.5 52.8 -11.3 6.0 15.0 10.8 20.8

1974 25.4 7.7 -616.7 29.0 32.6 9.9 18.2 -5.2 4.9 41.1 14.7 23.4

1975 25.5 27.2 35.6 10.3 15.2 5.1

/1 For "most efficient" farm.7_ For "least efficient" Farm.

Source: Hyung, M. Kim, "Agricultural Prices and Subsidies," op. cit.

Removal of Market Distortions:A Partial Equilibrium Analysis

5.5 While a useful indication of the existing price/subsidy situation

in Portugal was obtained by estimation of price-subsidy "equivalents" earlier

in Chapter IV of this report, a slightly more elaborate methodology involving

''partial equilibrium analysis" is also useful for analysis of agricultural

price subsidy situations. 1/ A summary of the "partial equilibrium" evalua-

tion methodology is given in Attachment III. It should be noted that the

methodology, in addition to being able to analyze the effect of price changes

by use of price elasticities (short or long-term) of supply and demand also

enables an estimation to be made of the "social costs" imposed on nationalproduction and consumption as a result of the price/subsidy policies as well

as the welfare gain (or loss) to producers and consumers. It is also able to

quantify the effect of the removal of the subsidy in question on the balanceof payments (as well as on Government revenues). However, it is important to

remember that the methodology, while useful, suffers from all the weaknesses

of partial analysis (in addition to the problems associated with the estima-

tion of price elasticities).

5.6 Table V.4 below summarizes the effects of adjustment of Portugueseproducer and consumer prices to "free-trade" levels for wheat, rice, milk and

beef (the most glaring omission here is the vegetable oil sector for which,as mentioned earlier, appropriate data for analysis were not available). It

indicates that the "rationalization" (to free-trade levels) would, in the

1976 context, have saved the Portuguese Government US$173 million (5.2 bil-

lion escudos) in Government expenditures and about US$62 million in foreign

1/ This methodology is developed in the World Bank's "Policy Paper on

Agricultural Prices and Subsidies," Economics and Policy Division,

Agriculture and Rural Development Department, June 1978.

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exchange. 1/ Producers of these commodities would have suffered a "welfare

loss" of about US$142 million (4.3 billion escudos)--this being incurred

largely by the beef producers (US$122 million or 3.7 billion escudos). The

net effect on consumers' welfare would have been relatively minor (the losses

of US$71 million on wheat, rice and milk being offset by a gain of US$60

million on beef). "Efficiency" gains to the economy would have amounted to

US$20 million (600 million escudos).

Table V.4: EFFECTS OF ADJUSTMENT OF CERTAIN PORTUGUESE PRODUCER

AND CONSUMER PRICES TO FREE TRADE LEVELS

(US$ million on basis of 1976 data)

Wheat Rice Milk Beef Total

Previous Net Social Loss Voided -1 -1 -6 -12 -20

Welfare Gain of Producers -25 6 -1 -122 -142 /1

Welfare Gain of Consumers -12 -13 -46 60 -11 /2

Increase in Government Revenues +38 +8 +53 +74 +173 /3

Government's Expenditure onImports /4 45 11 (45) 120 131

Foreign Exchange Implications

of Elimination of Subsidies /5 +2 -11 (-47) -53 -62(-109)

/1 Inclusion of the fertilizer subsidy amount of US$38 million in 1976 would

bring this total to US$180 million.

/2 Inclusion of the vegetable oils subsidy amount of US$37 million in 1976

would bring this total to US$48 million.

/3 Total savings including the elimination of the fertilizer and vegetable

oils subsidy would amount to US$248 million.

/4 After price changes./5 Savings (-) or increased foreign exchange expenditure (+) compared to

previous (before free trade) situation.

Source: Statistical Appendix Tables XXIV and XXV

5.7 It is imperative, however, in this sort of analysis to examine

detailed commodity behavior fairly closely. Appendix Tables XXIV and XXV (on

which Table V.4 above is based) present the more detailed results. Certain

interesting policy issues arise,viz. would it have been socially desirable

to have a substantial drop in milk consumption as a result of increasing milk

1/ The higher consumer prices for milk envisaged in this scenario would also

(because of reduced consumption) make available substantial surpluses of

milk 'for exports'. However, given the milk surpluses currently been

experienced by the EEC it is unlikely that Portuguese milk (processed or

otherwise) would be competitive in international markets. However, the

magnitudes of 'export' possible are indicated in parenthesis in Table V-4.

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prices to existing world price (and Portuguese producer price) levels? Is itsocially desirable to increase the consumption of beef (with its increasedbalance of payments cost)? Since it was obviously not possible to make thesechanges immediately, what would have been an appropriate time-path to bringabout needed adjustments, etc.

Removal of Market Distortions:A General Equilibrium Analysis

5.8 It would obviously be most useful to examine the effects of removalof price/subsidy mechanisms in a general equilibrium context where the imposi-tion of a constrained "free trade" situation (i.e., free trade of majorsurplus/deficit commodities only) would have a range of price, production,consumption, and trade effects which could be computed simultaneously. Inthe Portuguese case it may prove possible to do this since a comprehensivedevelopment model of the agricultural sector of Portugual has been developedin the Bank 1/ by Messrs. Egbert and Kim in collaboration with Messrs. Estacioand Labao of the Gulbenkian Foundation (Portugal). 2/ Features of thisspatial mathematical programming model include specification of product demandfunction for each region in Portugal at the retail level and joint analysisof agricultural processing industries and on-farm production. The model hasrecently been updated with 1974 data and it is contemplated that (i) a con-strained "free trade" sensitivity and (ii) an "EEC trade-condition" sensitivitybe undertaken. The results when available will be circulated as an addendumto this report.

1/ Egbert and Kim, "A Development Model for the Agricultural Sector ofPortugal," World Bank Occasional Paper, Number 20, 1975.

2/ Mr. Estacio has since moved to become a member of the Board of Directorsof IFADAP.

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CHAPTER VI

PRICE SUBSIDIES, PRIVATE CONSUMPTION AND INCOME DISTRIBUTION

Cost of Living Effects of Removal of Subsidies

6.1 Total subsidy expenditures (12.4 billion escudos in 1978) are

roughly 7-8 percent of total private consumption expenditures on agriculture

products (the latter accounted for about 31 percent of total private consump-

tion expenditures amounting to 475 billion escudos in 1977). A rough adjust-

ment of prices of agricultural products to take into account removal of

subsidies when applied against the appropriate weights of the commodities

in the Consumer Price Index (Attachment II) resulted in the agricultural

component of the CPI rising by about 10 percent.

Income Distribution Effects of Removal of Subsidies

6.2 Farm Incomes. The division of subsidies into producer and consumer

subsidy equivalents on the basis of 1976 data indicates that about 5.4 billion

escudos (of the total subsidy 1976 bill of 7.6 billion escudos) may be attri-

buted to benefitting agricultural producers. Agricultural income in Portugal

in 1976 (excluding forestry and fisheries) is estimated at about 55 billion

escudos. The elimination of subsidies would therefore have reduced agricul-

ture incomes (which are already low compared to urban incomes), on aggregate,

by about 10 percent. In fact, of course, different categories of farmers

would have been differently affected. Livestock breeders who used imported

grain as feed would suffer the greatest loss in income, followed by corn and

wheat producers. In addition, all crop producers would have been adversely

affected by the loss of the fertilizer subsidy.

6.3 Income Distribution. Data available from the 1973/74 Expenditure

Survey 1/ indicate: that about 65 percent of Portuguese families received

incomes of less than 60,000 escudos per annum (i.e., less than US$200/month)

of which about 52 percent was spent directly on the provision of food. This

section of the population would, therefore, suffer a loss in real income of

about 5 percent if food subsidies were removed. At the other end of the

spectrum about 11 percent of Portuguese families received income of more than

120,000 escudos per annum (i.e., more than US$400/month) and spent about 25

percent of this on food. Removal of subsidies would result in this group

suffering a loss of less than 2 percent in real income. The abolition of

subsidies of agricultural products will therefore, inevitably worsen income

distribution (in the absence of offsetting measures) besides adversely affect-

ing certain categories of the population (children who benefit from milk

subsidies, old-age pensioners with fixed incomes, etc.).

1/ "Inquerito As Despesas Familiares, 1973/74," Instituto Nacional de

Estatistica, May 1977.

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CHAPTER VII

THE EEC's COMMON AGRICULTURAL POLICYAND ITS IMPLICATIONS FOR PORTUGAL

7.1 The following aspects of the EEC's Common Agricultural Policy "CAP"have particular significance for Portugal from the point of view of price andsubsidy policies in agriculture (a) the choice of "green rates" i.e. theexchange rate between the European Agricultural Unit of Account (UCA) and theEscudo; (b) the extent of the price support systems and their implication forproducer prices (and production efficiency in the EEC context), (c) the appli-cation of Community Preference--implications for the balance of payments, thebudget, and consumer prices, and (d) the net effects of the operations of theEAGGF (the European Agricultural Guidance and Guarantee Fund) in Portugal.

The Choice of "Green Rates"

7.2 Exchange rate variations have led the EEC to establish a systemof "green rates" (exchange rates applicable to the agricultural sector),"monetary compensatory amounts" (levies and subsidies to offset the differ-ence between the "green rate" and the actual exchange rate) and "accessioncompensatory amounts" (applicable during new member states' transitionalperiod to ease the effect of price differences). During 1977 the rates ofthe MCAs varied from +7.5 percent for Germany to -31.9 percent for theUnited Kingdom. The EEC is now endeavouring to "rationalize" the system,both for its adverse effect on the working of the "single market" as wellas its cost (in excess of UA 1.5 billion). However, if the present systemcontinues, the level(s) of the "green rate" negotiated by Portugal will bean important determinant in the final price levels established. StatisticalAppendix Table I presents estimates of some of the historical "green rates"in the Portuguese context.

Price Support Systems

7.3 The EEC's price support systems generally fall into four categories,viz. (i) direct price support, (ii) external protection, (iii) additionalproduct aid, and (iv) flat-rate aid per hectare. Some of the implications ofthese support systems for Portuguese agriculture are discussed below.

7.4 Direct Price Support (or "Common Price") Systems operate through asystem of "target prices (called "guide prices" in the case of beef, veal andtable wines; "norm" prices for tobacco, and "basic" prices for pig meat and,certain 1/ fruits and vegetables) which the EEC considers should be paid to

1/ These are covered by Annex II of Reg. (EEC) 1035/72 (cauliflowers, toma-toes, sweet oranges, mandarins, lemons, table grapes, apples (otherthan cider apples), pears (except pears for perry), peaches, excludingnectarines).

- 30 -

the producer under the common market organization. The "target" price issupported by an "intervention"1 price at which intervention agencies areobliged to buy products offered to them. Agricultural products covered underthe system are durum wheat, common wheat, barley, rye, maize, rice, sugar,milk and milk products, olive oil, colza and sunflower seed, tobacco, AnnexII fruits and vegetables, beef, veal and pig meat.

7.5 Portugal's agricultural sector is affected by the above system intwo respects: (a) additional products may be covered by the EEC guaranteenet; (b) EEC guaranteed prices may be higher/lower than the Portugueseguaranteed prices. With respect to (a), the products which appear to benefitare the "Annex II" fruits and vegetables and pigmeat (the existing Portugueseprice system is summarized in Attachment 1). With respect to (b), we findthat whilst EEC target prices have been fairly close to Portuguese producerprices in the past, they are currently somewhat higher for most commodities.For some commodities (durum wheat, olive oil, wine) they are substantiallyhigher. In no case are EEC prices lower than Portuguese prices with regardto commodities covered under the guaranteed price regimes. StatisticalAppendix Table V presents comparative data for major Portuguese agriculturalproducts. It should be noted that if Portugal joins the EEC, all producerprices covered by this "common price" net will have to be raised to EEClevels.

7.6 External protection is afforded to certain EEC products by imposinga minimum "reference" price at which a product may be imported from a non-member country. The products concerned are, other (than those covered byAnnex II), fruits and vegetables, flowers, rice and other (than "table")wines, eggs and poultry meat.

7.7 "Reference" prices may for certain purposes be also considered as"minimum prices; and therefore, the products are considered "regulated" inthe EEC context. However, in actual practice variations in the prices ofthese products between the various EEC countries can be substantial. Theabsence of a concrete "common price" mechanism will basically mean that forthese commodities, Portuguese producer prices will probably not require sig-nificant adjustments (legally, none at all under current EEC regulations).

7.8 Additional Product Aids are granted to certain commodities underCAP. The mechanism grants farmers "production aid" in order to keep marketprices low (whilst correspondingly maintaining farm incomes). The productscovered are durum wheat, olive oil, certain oleaginovs products and tobacco.The product aid for olive oil, a product which is of major concern toPortugal, was 422 u.a./ton in 1976/77 or 29 percent of the target marketprice for the commodity.

7.9 Flat-rate Aid per hectare applies to cotton-seed, flax and hemp,hops, silkworms, seed and dehydrated fodder. Except possibly for hops, theproducts concerned are presently of marginal interest to Portugal.

- 31 -

Implications of EEC Price Levels for Portuguese Production

7.10 The potentially higher prices which would be available to Portuguesefarmers in the EEC has significant implications for production since it wouldvary substantially the prevalent price relationships. A first approximationof the changed incentive structure can be obtained from examination of the"nominal protection co-efficients" in the EEC context. These are summarizedfor certain major products in Table VII.1 below. They indicate (by their"nominal protection" coefficient<l) that the Portuguese producer prices forthese commodities are presently below those of the EEC.

Table VII.1: PORTUGUESE NOMINAL PROTECTION COEFFICIENTS FOR MAJORAGRICULTURAL PRODUCTS

OliveWheat Corn Rice Beef Milk Oil

1973 0.96 0.80 0.86 0.65 0.81 0.831974 0.99 1.00 1.04 0.53 0.98 0.901975 0.94 1.13 1.06 0.63 0.671976 0.93 0.91 0.88 0.64 0.99 0.681977 0.89 0.78 0.85 0.57

Source: Mission Estimates

7.11 A more realistic idea of the new incentive structures likely toface Portuguese agriculture can be obtained from the estimation of "effec-tive protection co-efficients" (EPCs) comparing value-added expressed indomestic market prices to value-added expressed in EEC prices. These werederived from "crop budgets" available for a sample of Portuguese farms (des-cribed in Chapter V). The results are summarized in Table VII.2 below.They indicate 1/ that corn, rice and olive oil producers in Portugal canadapt fairly easily to the new input/output price relationships (in mostcases their profitability is likely to be slightly enhanced). For wheat andmilk production, it appears that some structural changes will be necessary--since the more inefficient wheat and milk producers will be unable to survivein the EEC context. Data limitations do not enable computation of EPCsfor beef, but the previous analysis of beef profitability in this report(Chapter V) suggests that "grain-fed" beef production in Portugal is unlikelyto be efficient in the EEC context.

1/ On the assumption that the farm models under consideration are fairlyrepresentative of Portuguese agriculture.

- 32 -

Table VII.2: PORTUGUESE EFFECTIVE PROTECTION COEFFICIENTSFOR MAJOR AGRICULTURAL PRODUCTS

(EEC Context)

1973/74 1974/75

WheatMost Efficient Farm 1.02 0.79Least Efficient Farm 2.07 8.06

CornMost Efficient Farm 0.80 0.96Least Efficient Farm 0.85 1.10

RiceMost Efficient Farm 0.76 1.09Least Efficient Farm 0.86 1.29

Olive OilMost Efficient Farm 0.81 0.75Least Efficient Farm 0.94 0.90

MilkMost Efficient Farm 0.47Least Efficient Farm 1.57

Source: Mission Estimates

The Application of Community Preference

7.12 The application of the "Community Preference" (the variable chargeknown as "the levy" which brings the value of the produce bought from cheapernon-EEC sources up to the level of the EEC's "common prices") will have impli-cations for consumer prices, the budget (if consumer subsidies are allowed foran "adjustment" time period) and the balance of payments. Ideally theseeffects should be analyzed in a general equilibrium framework (and as statedin Chapter V this is being attempted with the Portuguese "agriculture model").However, "partial equilibrium" analysis was conducted for some commodities andthe results are summarized below.

7.13 Wheat. Changing to the EEC system of consumer and producer pricesand eliminating all subsidies would lead to a small welfare gain (US$9 mil-lion, constant 1976 prices) for producers and a substantial loss (US$67 mil-lion, constant 1976 prices) for consumers. The net effect on Portugal'sbalance of payments will be positive (reduction of the wheat import bill byUS$20 million constant 1976 prices) because the increase per unit costs ofimports will be more than offset by the drop in wheat consumption (becauseof the higher consumer price). On the other hand, if consumer prices areprotected, the wheat subsidy bill will increase to US$67 million (constant

- ii. -

1976 prices) and wheat imports costs will rise by US$14 million, constant 1976prices (to US$57 million). These estimates are summarized in Table VII.3 be-low.

Table VII.3: WHEAT PRICE/SUBSIDY POLICY ALTERNATIVESTmillion US dollars, 1976 prices)

Present Change Change Pro-Portuguese to Fr7y Change/1 ducer Price 2Situation Trade- to EEC- only to EEC-

Net Social Loss -1 (+1) (+6) -6Welfare Gain to Producer 25 -25 +9 -Welfare Gain to Consumer 12 -12 -67 61Increase in Government Rev. -38 +38 +42 -67Foreign Exchange Expenditureon Imports 43 45 23 57

/1 Change from existing Portuguese position./2 Change from hypothetical 'EEC position' to restoration of existing con-

sumer prices.

Source: Statistical Appendix Table XXVI and XXVII

7.14 Rice production and consumption is similarly affected (though themagnitudes are much smaller). Producers gain by a move to the EEC, consumerslose, and the balance of payments positions is improved due to the drop inrice consumption. However, consumer prices can be maintained over a "transi-tional" period with only minor increases in their overall levels. The policyalternatives are summarized in Table VII.4 below.

Table VII.4: RICE PRICE/SUBSIDY POLICY ALTERNATIVES(million US dollars, 1976 prices)

Present Change Change Pro-Portuguese to Fr7y Change/1 ducer Price 2Situation Trade- to EEC - only to EEC-

Net Social Loss -1 (+1) (+1) -1Welfare Gain to Producer -6 6 5 -Welfare Gain to Consumer 13 -13 -11 11Increase in Government Rev. -8 8 6 12Foreign Exchange Expenditureon Imports 22 11 12 20

/1 Change from existing Portuguese position./2 Change from hypothetical 'EEC position' to restoration of existing con-

sumer prices.Source: Statistical Appendix Table XXVI and XXVII

- 34 -

7.15 Milk consumption would be drastically affected if consumer prices

were raised to EEC levels (which means really to present Portuguese producer

prices). Since currently Portugal imports the bulk of its liquid milk from

the EEC, a policy of maintaining consumer prices for a transitional period

would leave the present day situation virtually unchanged.

Table VII.5: MILK PRICE/SUBSIDY POLICY ALTERNATIVES(million US dollars, 1976 prices)

Present Change Change Pro-Portuguese to Fr?? Change/ 1 ducer Prices/2Situation Trade- to EEC - only to EEC-

Net Social Loss -6 (+6) (+6) -6

Welfare Gain to Producer -1 -1 -1 -

Welfare Gain to Consumer 46 -46 -46 46

Increase in Government Rev. -53 +53 +53 -52

Foreign Exchange Expenditureon Imports 3 (45) (45) 2

/1 Change from existing Portuguese position./2 Change from hypothetical 'EEC position' to restoration of existing con-

sumer prices.

Source: Statistical Appendix Tables XXVIII and XXIX

7.16 Beef producers gain marginally from changing to the EEC in terms

of producer prices. Consumer's lose substantially--even more than they are

currently doing in the present situation. If efforts are made to maintain

current Portuguese consumer prices for beef, the cost to the budget would

be US$181 million (constant 1976 prices) and Government expenditures on

imports would rise to US$317 million (constant 1976 prices). A summary of

the possible policy alternatives is presented in Table VII.6 below. More

detailed calculations are available in Statistical Appendix Tables XXVIII and

XXIX.

- 35 -

Table VII.6: BEEF PRICE/SUBSIDY POLICY ALTERNATIVES(million US dollars, 1976 prices)

Present Change Change Pro-Portuguese to Fr 7e Change/1 ducer Price 2Situation Trade- to EEC-- only to EEC-

Net Social Loss -12 (+12) (-68) (-68)Welfare Gain to Producer +122 -122 +18 -Welfare Gain to Consumer -60 +60 -113 113Increase in Government Rev. -74 +74 -163 181Foreign Exchange Expenditureon Imports 173 120 169 317

/1 Change from existing Portuguese position.75 Change from hypothetical 'EEC position' to restoration of existing con-

sumer prices.

Source: Statistical Appendix Tables XXVIII and XXIX

7.17 Budgetary Implications of Maintaining Consumer Prices at presentday levels under EEC conditions for wheat, rice, milk, and beef products areestimated at US$312 million (constant 1976 prices). If vegetable oil subsi-dies are continued, the total cost would increase to US$350 million (constant1976 prices).

Possible EAGGF Operations

7.18 If Portugal joins the Common Market, the European Agricultural Guid-ance and Guarantee Fund is likely to make substantial funds available forPortuguese agriculture from its "guidance" (structural development) section. 1/This section presents only some estimates of the possible operations of theEAGGF's "guarantee" section, i.e. the net benefits and costs to Portugalemanating from receipts from price intervention and the levies to be paid byPortugal with regard to the agricultural sector. These are likely to be asfollows:

1/ In addition to normal funds available for promoting structural change,the EEC has embarked upon a substantial program for development ofagriculture of the "Mediterrean EEC" countries. The "Mediterrean pack-age" currently amounts to $1.85 billion to be spent over five years fordevelopment of agriculture in these areas.

- 36 -

Table VII.7: CERTAIN ASPECTS OF POSSIBLE EAGGF's OPERATIONSIN PORTUGAL

(in Million European Units of Account)

1977

i. Total Receipts under Guarantee Section(olive oil, wine, tobacco, tomatoes,other fruits and vegetables) 120

ii. Total Transfers to EAGGF -95(agricultural levies and sugar contri-butions) (-75)

(1 percent of Agricultural GDP) (-20)

Net Benefits 25

Source: "Commission Analyses Supplementing Its Views onEnlargement, Com (78), April 1978 and Portugueseestimates.

- 37 -

CHAPTER VIII

CONCLUSIONS

8.1 The preceding analysis of price and subsidy policies applicable tocommodities affected by the operations of the Fundo de Abastecimento indicatethat the bulk of the benefits (about 70 percent of the Fund's current expendi-tures of between US$250-300 million) accrue to Portuguese farmers. Portugueselivestock producers who grain-feed their cattle (using imported maize andsorghum) benefit most from existing policies--receiving about 65 percent oftotal benefits accruing to producers. Other (relatively smaller) beneficia-ries are wheat and milk producers. All farmers benefit from the fertilizersubsidies. The remaining benefits accrue to consumers (about 20 percent);mainly consumers of vegetable oils, milk, wheat and rice (in descending orderof importance). The social (efficiency) losses to the economy are relativelysmall (8-10%).

8.2 The examination of the international competitiveness of Portugal'sproduction of certain agricultural products (based on analysis of "representa-tive" farm models) indicates that Portugal does have a comparative advantagein the production of rice, milk and olive-oil in almost all categories offarms. It also appears that the more efficient wheat and corn farms inPortugal are internationally competitive but that resources used in marginalfarms for the production of these crops could perhaps be used more efficientlyelsewhere. Grain-fed livestock production was "absolutely inefficient" (i.e.,having negative value-added) for the farm models examined.

8.3 Portugal's potential entry into the EEC poses important questionswith regard to the competitiveness of Portuguese agriculture and the "phasingout" of existing subsidies. Our analysis indicates that except for grain-fedbeef and marginal wheat and milk farms, Portuguese farmers (producing thecommodities under review) should be able to adapt fairly easily to the EECagricultural environment and withstand the elimination of producers subsidies(because of the higher prices guaranteed to EEC farmers). Portuguese con-sumers (particularly those belonging to the lower income groups) will, how-ever, find it difficult to absorb these higher "EEC" prices. A suitabletransition period involving consumer subsidies about 40 percent higher thanthe entire amount currently being disbursed (i.e., about US$350 millionannually, constant (1976 prices) will probably be needed until Portuguesefamily-incomes grow sufficiently to absorb the higher price levels for agri-cultural products in the European Commodity.

- 38 - Attachment r

page 1 of 5

FORTUGAL: PRICE SYSTEM APPLICABLE TO AGRICULTURAL SECTOR

Sectors- Price Received MavketingCuscoms by Producer Product Consumer

Classification in the Wholesale Retail PriceNumber primary sector

1110.0.0 Wheat Fixed Guaranteed Maximum price-fine milling industry Maximumprice (EPAC) (Portuguese & imported wheat) Pricecompulsory deficit Maximum price - rough milling (PortugueseGuaranteed price Fixed Price - milling wheat)

1110.0.0 Rye Variable priceand also

Guaranteed price Fixed price - animal feed compounds(EPAC)

111.0.0 Barley Variable price(Conon)

1110.0.0 Diatichous Guaranteed price Minimum price - maltBarley

Guaranteed price Fixed price - animal feed compounds(EPAC)

1110.0.0 Oats Variable price

1110.0.0 Rice Intervention Minimum Price - by type Fixed minimum MaximumBase Price margins by Price

absolute value(by type)varying between10% and 13.8%

1110.0.0 Maize Guaranteed price Fixed price - animal feed compounds(EPAC)

1110.0.0 Safflower Guaranteed price Fixed price - breadmaking(IAPO)

1110.0.0 Sunflower Guaranteed price Guaranteed price - Edible (foon) oilq(IAPO) Fixed price - Edible (food) oils

11l0.0.O Hops Contract price Maximum price - beer industrywith Public Sector

1110.0.0 Flax Contract price

1110.0.0 Tomato Contracted price Concentrates industry Fixed margin- Fixed margin-(Tomato Technical 10% max. 157 max. netCouncil) profit margin profit

Maximum total margin

1110.0.0 Potato Intervention Fixed mino Maximumprice margin of Price

70 Eec. Der kt.

1110.0.0 Seed Fixed price Fixed min. MaximumPotato (domestic margin by Price

production) 35.1 Esc. per 50kg.bag forPort. potatoes;50.1 Esc. per 50kg. for importedones

Attachment I-39 - paga 2 of 5

PORTUGAL: PRICE SYSTEM APPLICABLE To AGRICULTURAL SECTCR

Sectors- Price ReceivedCustoms by Producer Products Marketing Consumer

Classification in the Wholesale Retail Price

Number orimary sector

1110.0.0 Fresh Fixed max. Max. margins

fruit margins of 30% (for pears, Maximum25% (for apples and Priceapples and oranges the for pears,oranges the margins are apples,margins are absolute) orangesabsolute)

1110.0.0 Horti- Fixed max. Max. marginscultural Products margins 251 301

1110.0.0 Ordinary Guaranteed priceWines

Forest Products, etc.

Cork Minimum price

Livestock

1110.0.0 Meat

Beef Guaranteed price Not fixed Not fixed MaximumPrice

Pork Possibleconditionalpurchases atfixed price

Chicken Purchases by JNPP Margin Margin fixed Maximumfixed acc. acc. to type Priceto type

Other Meats Prices notregulated

1110.0.0 Eggs Purchases by JNPP Fixed Exed margin Maximummargin- 3.8 Esc. per Price3.2 Eec. per dozendosen

1110.0.0 Milk Fixed price in Pasteurizing and bottlingthe "organized Maximum resale price Fixed margins Maximumcollection" area (except for Price

ordinaryMinima price in treated milk)the "non-organized" area.

Fish and TinnedFish Products

1 301 Fresh fish Fixed Fixed margins Variablemargins acc. acc. to price max. priceto price per kg. ace. toper kg. formula

3114.2.0 Frozen Fish Max. Price Max. Price MaximumPrice

Minimum margins Maximumfixed acc. to Pricetype

3114.1.1 Tinned Fish Fixed max. Fixed max.

Products margins 107, margins 15%

Minerals

Salt Fixed max. Fixed maxmargins 20% margins 25%

- 40 -

Attachment IPage 3 of 5

PORTUGAL: PRICE SYSTEM APPLICABLE TO AGRICULTLRAL SECTOR

Sectors- Price ReceivedCustoms by Producer Product Marketing Consumer

Classification in the Wholesale Retail PriceNumber primary sector

Heat and TinnedMeat

Meat (see livestock)

3111.2.1 dam Fixed max.margins

3111.2.1 Ham (smoked) Fixed max. Fixed max.margins 10% margins 227

3111.2.1 Sausage(Bologna type) Tinned meat ind. - max. price Fixed max. Fixed max. Maximum

margins 10% margins 187 Price

3111.2.1 Sausages F" ixed max. Fixed max.margins 10% margins 18%by type by type

Milk Products

Milk (see livestock)

3112.9.0 Butter Fixed max. Fixed max. Maximummargin 77 margin 7% Price

3112.9.0 Dutch-type Milk products ind. max. price Fixed max. Fixed max.Cheese margin margin

3112.9.0 Condensed Mtnimum "Milk " " " I margin 15%

3112.9.0 Dried Milk " " " " MinisumMaximum resale price margin 15%

3112.9.0 Foodproducts derivedfrom milk(domesticallyproduced) Milk products ind. Max. price in Minimum

manufacturer's warehouse retailer'smargin (bytype)

3112.9.0 Foodproducts derivedfrom milk (imported) lmportWhole- Fixed max.

-or saler margin

Fixed max.margin (foreach)

Fruit Preserves

3113.1.0 Marmalades 25% totaf max. margin-(packets) on manuf. price - 16%-(bulk) min. fixed margin on

anuf. pricemax. fixed max. fixedmargin 107. margin 207

3113.1.0 Preserves and Fixed Fixed marginsemi-preserves; marginfruits and horti-cultural products

- 41 - Attachment I

page 4 of 5

PORTUGAL: PRICE SYSTEM APPLICABLE TO AGRICULTURAL SECTOR

Sectors- Price ReceivedCustoms by Producer Product Marketing Consumer

Classification in the Wholesale Retail PriceNumber primary sector

3113.9.0 Dried fruit,whole andcrystallized Fixed margin Fixed margin

25% 30%

3113.1.0 Frozen peas Manufacturer - Maximum price Fixed margin Fixed margin MaximumPrice

Edible Oils

3115. Olive oil Margins by Margins fixed by Maximumtypes types Price

3115.3 Edible Oils Edible oils Maximum price Overall margin 9.1 Esc.min. fixed Maximummargin 2.5 Eac. Price

Animal feeds

3112 (see certain Maximumagricultural Priceproducts -maize, (for theoats, barley) consumer)

Other FoodProducts

3117.1.0 Bread (see wheat and rye) MaximumPrice

3115.4.0 Margarine Margarines - Maximum price Fixed min. Maximummargins Price

3117.3.0 Biscuits, Maximumetc. Price

3117.4.0 Farinaceous Milling - Maximum price MaximumProducts Price

3118.2.0 Sugar Refineries - Maximum price Fixed min Maximummargins Price

3121.1.0 Coffee & Import.Supplier 15% max. netsubatitutes -er . profit margin

5.57 .8. max. (roasted)max. .net profltnet .marginprofit .roastec).uargin. 102(roaamd)ground

3121.7.0 Treated Salt

Purified Manufacturer Maximum price Fixed max. ELxed max. Maximummargin margin Price

Refined;table Maximumsalt Price

- 42 - Attachment Ipage 5 of 5

PORTUGAL: PRICE SYSTEM APPLICABLE TO AGRICULTURAL SECTOR

Sectors- Price ReceivedCustoms by Producer Product Marketing Consumer

Classification in the Wholesale Retail PriceNumber primary sector

Beverages

3133.2.0 Beers Brewing - Maximum Price Fixed margins Fixed margins Max. pricefor off-premisesconsump-tion

3134.2.0 Table, mineral, Manufacturer - Maximu= Price I " medicinal waters

3132.1.0 Wines (bottled) Max. grossprofit margins

3132.1.0 Ordinary mature Max. price Max. priceWines

Source: Ministry of Planning

- 43 - Attachment II

RDLE OF AGRICULTURAL PRODUCTS IN PRIVATE Page .of 3

CONSUMPTION AND TOTAL INTERMEDIATE DEMAND

Final Consumption Goods Intermediate

Sectors Weight in Consumer Weight in Private Goods

Price Index Conlum1tion 11 2/ 2 3/3'

1. Agriculture 1/ 2/ 10.2

Wheat 96.1 1.8

Rye 93.2 0.3

Barley (comom) 54.4 0.2

Barley (distichous)

Oats 99.8 0.1

Rice 0.8 0.7 93.1 0.5

Maize 90.6 0.9

Safflower 100.0 0.2

Sunflower

Hope

Plax 100.0 0.009

Tomato 0.2

(concentrate)

Potato 1.7 1.4

Seed Potato 21.3 0.2

Fresh Fruit 3.1 3.1 0.06

Horticultural Products 2.4 16.4 0.3

Conon Wines 11.5 0.3

Vegetables 0.4

2. Forest Products, etc. 0.09 2.2

Cork 100.0 0.5

Resins 97.9 0.3

- 3. Livestock

Mast

Beef 6.0 2.4 99.6 2.5

Pork 1.4 0.9 100.0 2.0

Chicken 2.2 1.5 -

Other 99.6 0.6

Eggs 0.8 0.4 7.4 0.04

Milk 2.0 0.9 38.0 0.4

1/ Weight of products or groups of products in (total) private consumption in 1974-

acc. to INE data (by value; private consumption - 253,387 million contos).

2/ For each good, the part of total supply (production and imports) used in manufacturing, as a

proportion of the (net) supply of that good (production and imports-exports) (1970).

3/ Weight of products considered as intermediate goods in Total Intermediate Demand (131,175 contos) in 197f

- 44 - Attachment IIPage 2 of 3

ROLE OF AGRICULTURAL PRODUCTS IN PRIVATE

CONSUMPTION AND TOTAL INTERMEDIATE DEMAND

Final Consumption Goods Intermediate

Sectors Weight in Consumer Private Goods

Price Index Consumption 2/ % 3/

4. Fish and Tinned Fish 1/ 2/ 3/

Products 1.1

Fresh Fish 3.6 0.9 72.30.8

Frozen Fish 0.4 1.6 -

Codfish 2.1 0.8 100.0

Tinned Fish Products 0.2 0.7

5. Non-metal Minerals 0.02 0.7

Salt 51.9 0.00

6. Meat and Tinned 1.3

Meat Products

Ham 0.2

Ham (smoked) 0.7

Bologna-typesausage

0.3

Sausages

7. Milk Products 0.1

Butter 0.3 0.1 4.8 0.006

Cheese 0.8

Condensed milk 0.02

Dried milk 0.2 0.2 34.5

Dietetic products frommilk (domestic prod.) 0.6 0.1

Dietetic products from

milk (imported) 0.04

8. Fruit Preserves 0.07

Quince jelly (Marmalades) 0.09 0.04

Preserves and semi- 2.5

preserved of fruit andhorticultural products

Dried Fruit, whole/pitted 0.3

crystallized

Frozen Peas

1/ See page 1.

2/ '

- 45 - Attachment IIPage 3 of 3

ROLE OF AGRICULTURAL PRODUCTS IN PRIVATE

CONSUMPTION AND TOTAL INTERMEDIATE DEMAND

Final Consumption Goods IntermediateSectors Weight in Consumer Private Goods

Price Index Consumption 2 / 3/3/

9. Edible Oils 1/ 2/ 0.5

Olive oil 2.5 1.0 18.0 0.1

Edible Oils 1.3 1.1 39.5 0.2

10. Animal Feeds 100.0 2.0

11. Other Food Products 4.2

Flour (wheat and maize) 0.1 2.4

Bread 2.6 3.2

Biscuits 0.3 0.5

Farinaceous products 0.3 0.3 4.9 0.02

Sugar 0.8 0.7 36.3 0.03

Margarine 0.4 0.3 19.4 0.05

Coffee and substitutes 0.4 1.1 100.0 0.3(roasted)

Treated Salt 0.4 40.0 0.02

12. Beverages 1.2 0.1

1.0 Alcoholic0.2 Non-Alcoholic

Beer

Table, mineral andmedicinal waters

Wines in bottle

Ordinary mature wines

13. Tobacco 0.5 0.001

1/ See page 1.

3/ " ,.

Attachment III-46- Page 1 of 3

PARTIAL EQUILIBRIUM EVALUATION OF PRICE DISTORTIONS

1. The basic analytic structure of the partial equilibrium evaluation

of price distortions is described in detail in the World Bank's Policy Paper

on Agricultural Prices and Subsidies. In brief, however, the prescriptions

for an approximate measurement of the allocative inefficiencies and the

welfare transfers are remarkable simple. The following formulas apply

to the small country case and allow for different domestic prices to

producers and consumers. For the large country case, world prices would

be sustituted by marginal revenues:

(A) Net social loss in production (NSL )

1/2 (Qw-Q) (Pw-P ) = 1/2 t2n V

(B) Net social loss in consumption (NSL C)

= 1/2 (C -C) (P -P ) = 1/2 t2n Ww c w cldW

(C) Welfare gain of producers = C

Q ( p -pw) - NSLp

(D) Welfare gain of consumers = G-

C (P -P ) - NSL

(E) Change in foreign exchange earnings

-w (Qw- Q + C - Cw)

Attachment IIIPage 2 of 3

- 47 -

(F) Change in government revenue =

- (NSL + NSL) -G G - - (A) - (B) - (C) - (D) - (z)p c p c

where:

Qw = production at world prices

Q = production at domestic prices

Pw = border prices

Pp price faced by domestic producers

PC = price faced by domestic consumers

t - proportion of tariff in domestic price

=s elasticity of domestic supply

Tid - elasticity of domestic demand

V = value of production at domestic prices

W - value of consumption at domestic prices

Cw - consumption at world prices

C - consumption at domestic prices

2. To obtain an intuitive explanation of the above formulae, not that

assuming that prices equal average costs (either because of long run technical

efficiency, input-output technology or as an approximation) the average increaseP +P

in cost of production following a tariff is ( 2 p ) (Q - Qw). The foreign

exchange because of the same production increase, however, is only Pw (Q - Qw)

The net efficiency-cost is then the difference between the two terms which

equals NSL . On the consumption side, we can make an analogous computationp

by noting that the average fall in consumption value as a consequence of thepw + P

tariff is 2 (Cw - C) while the foreign exchange savings amounts to only

Pw (Cw - C). Again subtracting one term from the other we obtain the net

efficiency loss in consumption NSLC. As for welfare charges, producers gain

Attachment IIIPage 3 of 3

- 48 -

is given by additional foreign exchange earnings P w(Q - Qw) plus increases

in revenue Q(Pp - Pw) minus the average increase in cost ( 2 ) (Q _ Q;

or Q(Pp - P) - NSL . An analogous reasoning holds for consumers.

- 49 - Attachment IV

Terms of Reference for a Price and Subsidy Study of Greek Agriculture

I. Objectives and Characteristics of the Study

1. The study has the objectivesof (i) analyzing the present system of

market interventions in Greek agriculture, and (ii) examining the prospects

for changes. The price systems considered as alternatives to present

arrangements are free trade and the EEC system.

2. The study will involve four parts. The first will concern a

qualitative study of the actual regime of taxes and subsidies with particular

emphasis on institutional management, the mechanics of administration of

the policy instruments, the internal consistency and compatibility of

the instruments with government targets. The second will concern

measurement of the distortions and systematic comparison of the domestic

price system with the international alternatives through use of Domestic

Resource Cost, Net Rate of Protection and Effective Rate of Protection

criteria.

3. The third part of the study will attempt to estimate the costs of

the distortions and the effects of alternative schemes of government inter-

vention on government revenue, prices, consumer welfare and producer profits.

The methods used will mainly be based on partial equilibrium models requiring

only estimates of own elasticities of demand and supply for each subsector

directly affected by the distortion.

4. The fourth part of the study will concern in more detail the market

for loanable funds in agriculture and the interest rate structure. The

problems analyzed will be both the economic and social consequences of sub-

sidizing and rationing and the institutional problems affecting resource

mobilization and loan administration and regulating the flow of funds to thtt

sector. The econowic and institutional sides of the market are, of cour:;c,

- 50 -

importantly related in the determination of rationing rules and the

structure of rates created by the apparent subsidy. Institutional variables

are also major determinants of the volume and structure of financial asset

holdings by the household and corporate sectorsand their willingness

to invest in agriculture.

5. The study will make an effort to present an integrated view of

market intervention policies encompassing product and factor markets

including, among the latter, capital markets. Thus, the structure of interest

rates will:also be analyzed with reference to the alternative price systems

confronting today's Greek agriculture, the related rates of return on

financial and physical assets and the structure of incentives to invest in

different agriculture subsectors.

II. Detailed Outline

1. Qualitative Study and Measurements of the Actual Regime of Taxes

and Subsidies

1.1 Study of the institutional elements of the price regime

1.1.1 Type of economy: Decision making system, marketing institutions,financial institutions

1.1.2 Planning mechanism: Degree of decentralization, probability of

self-conflicting and over-lapping policies

1.1.3 Pattern of development: Growth targets, implementing agencies, "price

like" macroeconomic variables (wage rates, interest rates, exchange

rates, inflation rates)

1.2 Description of the instruments of market intervention and other sources

of distortions

1.2.1 Production taxes, subsidies and quotas by crop and region

1.2.2 Consumption taxes, subsidies and quotas by commodity and region

1.2.3 Input subsidies (including interest rates) by crop, input and region

1.2.4 Choice of a system of reference prices:

Border Prices: (a) trdided goods, and (b) tradables under free trade

- 51 -

EEC Prices: (a) traded goods and (b) tradables under the assumption

that the country joins the Common Market

Prices for Non-Tradables: (a) production costs, (b) border prices of

close substitutes, and (c) competitive domestic prices

2. Measures of market distortions and gains from free trade

2..1 Domestic resource cost (DRC) criterion

2.3 Nominal rates of protection

2.3 Effective rates of protection

2.4 Shadow exchange rates and conversion factors

3.1. Evaluation of current (or proposed) pricing policies

34;.1 Analysis of the objectives of individual policies:

(a) fiscal objectives

(b) commercial objectives

(c) income distribution

(d) foreign exchange management

(e) economic growth

3.1.2 History of the individual policies

(a) conditions that caused the distortion to come about

(b) pressure groups sponsoring its adoption

(c) the original set of "professed" objectives

3.1.3 Distribution of the tax receipts (or subsidy payments) across regions,crops, socio-economic groups, etc.

3.1.4 Summary of the policy program, its modes of action (e.g. tariff, taxor subsidy), its qualitative relation to a selected group of nationalgoals

3.2 Economic consequences of pricing policies (including effects on re-.

source allocation and utilization)

3.2.1 Study of supply conditions for selected crops

- review of past studies

- analysis of farm budgets

- 52 -

- econometric estimates of supply elasticities

- estimates of production shortfalls (increases) due to pricing policies

3.2.2 Study of domestic demand for selected agricultural products

- review of past studies

- analysis of household budgets

- econometric estimates of demand elasticities

- estiaates of consumption shortfalls (increases) due to pricing policies

3.2.3 Study of foreign demand (supply) for selected agricultural commodities

-.review of past studies

- analysis of trade flows

- econometric estimates of foreign demand (supply) elasticities

- estimates of exports (imports) shortfalls (increases)

3.2.4 Estimates of benefits and costs of pricing policies

- efficiency losses (gains) in production

- losses (gains) in consumers' surplus

- losses (gains) in government receipts including financial costs

- losses (gains) in the terms of trade

- distribution of gains and losses among different classes of producersand consumers

- losses (gains) in foreign exchange receipts

4. Costs and benefits of interest rate policies

4.1 Study of the supply of loanable funds in agriculture

- private and institntional sources of supply

- structure and characteristics of the holdings of financial assets byagricultural households and the corporate sector

- analysis of the saving behavior of the agricultural sector

- econwottrLic esctimate cof thEo clac;tlcitics of suliply with respect tothe inteic-Ac ratc an'd otIher "price-like' variables

- 53 -

4.2 Study of the demand for loanable funds in agriculture

- structure of the demand for financial capital: (a) fixed investment,(b) circulating capital

- determinants of private and corporate itvestment ipi agriculture(profit, prices, risk aversion, uncertainty, cost of borrowing, etc.)

- determinants of demand for circulating capital

- econometric estimate of the elasticities of demand with respect tothe interest rate and other '"price-like" variables

Estimate of costs and benefits of interest rate policies

- estimate of real interest rates:

(a) indices of prices paid by the farmers

(b) indices of prices received by the farmers

(c) alternative measurements of real interest rates

- efficiency costs in total supply of loanable funds

- efficiency costs in total demand for loanable funds

- distribution of costs among different types of agricultural producersand among suppliers and consumers of financial funds

- financial costs of subsidy schemes

- administrative costs of subsidy schemes

- overall effects of interest rate policy on ABG.'s financial structure,liquidity and profitability

4.4 Conclusions for a more rational interest rate policy

- recommendations for deposit interest rates

- recommendations for lending rates

- >4 -

STATISTICAL APPENDIX

Table of Contents

1. Exchange RatesII. Production of Food (1963-74)

III. Total Domestic Demand for Food, 1963-74IV. Average Price Paid to Farmers for Major

Commodities 1970-75V. Comparative Average Prices for Major Cereals (1973-79)

VI. Retail Prices and Indices in Lisbon forSelected Food (1972-76)

VII. Comparative Consumer Prices for CertainAgricultural Products (1974-76)

VIII. Price Structure for Wheat, 1971-78IX. Price Structure for Wheat, 1971-78X. Price Structure for Maize, 1965-76

Xl. Price Structure for Milk, 1965-76XII. Price Structure for Beef, 1969-76

XIII. Wheat Subsidies, Current SituationXIV. Cereal Subsidies (Excluding Wheat), Current SituationXV. Milk Subsidies, Current Situation

XVI. Wheat Producer and Consumer Subsidy Equivalentsand Values (Current Situation)

XVII. Rice Producer and Consumer Subsidy Equivalentsand Values (Current Situation)

XVIII. Milk (DE VACA) Producer and Consumer SubsidyEquivalents and Values (Current Situation)

XIX. Beef Producer and Consumer Subsidy Equivalentsand Values (Current Situation)

XX. Wheat Producer and Consumer Subsidy Equivalentsand Values (EEC Sensitivity)

XXI. Rice Producer and Consumer Subsidy Equivalentsand Values (EEC Sensitivity)

XXII. Milk Producer and Consumer Subsidy Equivalentsand Values (EEC Sensitivity)

XXIII. Beef Producer and Consumer Subsidy Equivalentsand Values (EEC Sensitivity)

XXIV. Real and Monetary Effects of Adjustment ofPortuguese Producer and Consumer Prices of Wheatand Rice to Free Trade Levels (1976 data)

XXV. Real and Monetary Effects of Adjustment ofPortuguese Producer and Consumer Prices of Milkand Beef to Free Trade Levels (1976 data)

XXVI. Real and Monetary Effects of Adjustment ofPortuguese Producer and Consumer Prices of Wheatand Rice to EEC Levels (1976 data)

- 55 -

STATISTICAL APPENDIX

Table of Contents (continued)

XXVII. Real and Monetary Effects of Adjustment ofPortuguese 'EEC Level' Consumer Prices ofWheat and Rice to Present Portuguese Consumer Prices

XXVIII. Real and Monetary Effects of Adjustment ofPortuguese Producer and Consumer Prices of Milkand Beef to EEC Levels

XXVIX. Real and Monetary Effects of Adjustment ofPortuguese 'EEC Level' Consumer Prices of Milkand Beef to Present Portuguese Consumer Prices

- 56 - Appendix Table I

EXCHANGE RATES

Official Exchange Rates

1971 US$1 = Esc. 28.751972 = Esc. 27.251973 = Esc. 24.521974 = Esc. 25.411975 = Esc. 25.541976 = Esc. 30.021977 = Esc. 38.281978 = Esc. 45.00

"Green Rates" 1/

1970/71 IUCA = US$ 1.000001971/72 = US$ 1.011791972/73 = US$ 1.283801973/74 = US$ 1.260791974/75 = US$ 1.318551975/76 = US$ 1.25562

Estimated "Green Rates" for Portuguese Escudo

1970/71 IUCA = Esc. 28.75 (GOP assumption)1971/72 = Esc. 27.571972/73 = Esc. 27.661973/74 = EeC. 32.041974/75 - Esc. 33.681975/76 = Esc. 37.691976/77 - Esc. 42.50 (IBRD assumption)1977/78 = Esc. 52.00 "

1978/79 = Esc. 65.00 ff

1/ EEC agricultural unit of account (UCA)

Production of Food, 1963.78(n r5lii=,,t W1ne nd eer.)

Growth itata (SP.M.)1963 1964 1965 1966 1967 1968 1969 70 1971 1972 1973 1974 1963-65 tD 1972-74

Wheat 592.0 471.9 612.3 312.0 637.2 747.5 451.9 539.8 793.7 612.3 584.0 533.6 0.4ILca 166.3 181.4 138.3 154.0 146.0 149.0 175.8 194.9 161.6 163.9 167.6 129.5 -o.6Corn 523.4 596.5 458.6 564.7 576.8 547.9 55s.6 581.4 526.8 518.5 508.6 485.5 -0.5Rye 216.0 167.4 209.1 144.6 174.8 199.2 167.3 157.0 168.5 164-4.4 133.8 142.8 -3.2Barley 61.2 h5.5 72.0 49.0 73.5 93.6 54.4 54.0 84.5 62.3 56.6 74.5 0.9Beef and Veal 46.8 42.8 58.1 60.5 49.9 57.9 79.2 87.2 74.2 73.0 81.2 84.8 5.5Pork 49.9 50.1 46.9 48.3 52.4 57.7 61.8 56.8 59.1 63.9 69.3 67.3 3.5Hutton and Goat Heat 21.0 24.8 25.7 30.9 29.7 30.2 28.8 27.9 20.5 20.2 23.3 23.6 -0.7Poultry Heat 38.0 39.0 42.6 42.9 43.2 43.6 53.2 58.2 67.2 75.o 83.2 99.6 8.9Edible Offala 24.6 24.9 28.0 30.2 27.7 30.5 35.9 36.9 32.3 32.4 35.8 37.9 3.6Bacon 31.4 28.7 28.5 29.7 32.2 35.5 38.1 34.7 36.2 39.3 42.7 43.2 3.9Hilk 451.0 472.8 505.2 504.5 499.8 546.3 591.6 595.4 556.9 554.6 601.7 613.2 2.4Cheese 20.5 20.7 20.9 21.8 22.3 20.8 22.0 22.9 19.1 21.8 24.6 24.2 1.1Butter 2.4 2.1 2.0 1.5 1.5 2.1 2.2 2.1 1.3 1.4 1.2 1.8 _4.2Lard 9.9 7.8 7.8 8.5 9.2 10.3 11.1 9.8 10.3 1.14 12.5 12.7 4.1eggs 32.1 32.7 33.3 34.0 34.6 35.2 35.9 36.5 37.2 37.9 40.1 42.7 2.3Fruite 2534.3 2744.2 2840.9 1986.5 2199.8 2438.8 1976.6 2112.0 1804.4 1783.7 2203.2 2531.9 -2.4Vegetables 1121.9 1236.3 1765.5 2018.0 2392.3 1743.7 1845.9 1758.9 1593.3 17149.4 1845.3 1676.4 2.8Olive 359.0 742.2 542.5 537.5 270.6 569.7 377.1 515.7 454.0 296.3 405.9 285.5 -5.5Chick-pea 26.4 23.2 15.3 23.3 30.3 26.1 21.5 20.9 15.4 14.4 15.4 14.2 -4.2Dry Bean 60.2 66.3 51.0 57.8 54.6 50.1 5o.6 48.8 55.8 50.7 50.1 39.6 -2.6Potatoes 1.14.8 1143.4 888.0 923.3 1295.7 1083.1 1126.4 1220.0 1123.9 1138.9 1086.2 1114.5 0.6Olive Oil 53.2 99.4 41.3 72.2 38.0 80.6 53.2 72.5 67.3 42.o 53.9 41.9 -3.9Other Vegetable Oil 30.5 19.7 34.1 37.9 54.6 46.8 44.1 27.5 67.8 82.6 91." 65.6 12.3Aargarine 10.8 13.2 15.0 17.4 19.3 21.3 23.3 26.2 23.5 31.6 32.2 33.8 9.6Fish 358.5 416.7 400.0 357.5 380.4 348.6 315.0 345.0 326.6 324.4 350.9 270.8 -2.4Fresh Fish 287.3 347.6 337.0 295.0 303.6 270.9 252.9 286.9 276.5 275.4 307.8 229.6 -2.0Wried Codfish v 53.1 49.6 45.8 47.4 56.o 50.1 39.0 42.1 36.3 31.1 30.7 32.7 -6.2Wine (Million lt.)- 1526.8 1297.9 1359.5 18474.9 892.8 974.0 1169.0 808.1 1132.8 883.5 819.6 1108.6 -4.3Beer (Million It.) 37.3 50.1 50.2 66.0 79.9 85.7 100.0 134.5 138.0 150.4 252.9 285.4 19.6

lbI/ The figures shown lag one year, i.e., 1962-73.

0Sources: Instituto Macional de Eatatiatica, Portugal

Junta hacional do Vinho, Portugal

0&I-.

Total Domestic DemandY For Food 1963-74(In 'OO0 MT Ercept Wine & Beer)

1963 1964 1965 1966 ~~~~~~~~~~~~~~~~~~~~~~~~~~Growth Rate (A p.a.)1963 19641 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 C 1963-65 to 1972-74

Wheat 729.9 749.3 818.9 751.0 810.1 844.3 834.3 841.3 769.8 895.4 796.0 847.2 1.1Rice 181.5 183.0 14 7.7 191.7 179.5 190.2 197. 179.9 161.1 194.0 180.8 218.0 1.6Corn 529.4 628.3 590.5 728.2 765.1 884.5 923.0 984.2 1121.7 1351.8 1233.2 1437.7 9.7Rye 188.7 157.2 233.2 152.8 176.2 178.1 187.5 157.4 206.4 176.6 161.0 178.6 -1.3Barley 63.0 52.3 76.7 57.2 81.3 96.2 65.2 124.0 192.5 193.4 76.3 97.5 7.5Beef and Veal 59.9 55.5 71.0 74.9 78.6 81.1 93.5 96.7 101.9 108.5 104.8 123.9 6.8Pork 50.7 53.6 51.7 48.7 59.5 60.9 61.9 61.1 69.2 76.3 74.6 78.8 4.4Yutton and Goat Meat 20.9 24.8 25.7 30.9 29.7 30.2 28.8 27.9 20.6 20.2 23.3 24.2 -0.6Poultry Meat 38.0 39.0 42.5 42.9 43.2 43.5 53.0 58.0 67.0 74.7 82.9 99.5 8.9Edible Offals 24.6 24.9 28.0 30.2 27.7 30.5 35.9 36.9 32.3 32.4 35.8 37.9 3-5Bacon 31.4 29.0 29.5 29.7 32.2 35.5 38.1 34.7 36.2 39.3 42.7 43.2 3.8Milk 449.7 480.0 512.4 515.4 526.2 571.1 618.0 621.2 581.1 583.0 652.5 672.4 3.2 coCheese 20.6 21.3 21.6 22.7 24.4 24.3 23.8 24.8 22.2 25.8 26.1 27.7 2.6Butter 4.8 S.0 5.2 5.8 4.7 5.5 4.9 5.9 5.5 3.1 5.5 6.9 0.4 1Lard 10.2 10.1 9.9 9.5 10.4 10.4 10.9 9.5 11.6 11.2 u.5 11.7 1.SEggs 32.1 32.7 33.5 34.0 34.5 35.1 35.8 36.4 37.0 37.7 39.9 42.6 2.3Fruits 2539.7 2757.0 2865.6 20c6.5 2219.2 2450.7 2002.1 2182.8 1849.5 1831.5 2234.4 2583.8 -2.3Vegetables 997.1 1078.8 1367.8 1529.2 1687.4 1243.9 1185.3 1285.6 921.5 1033.3 1198.8 1219.8 0.3Olive 353.9 736.3 536.3 533.5 265.8 564.8 372.0 510.2 450.2 291.3 404.1 284.0 5.5Chick-pea 20.0 15.9 9.3 22.2 24.5 16.9 16.6 18.7 15.0 13.8 17.0 15.3 0.2Dry Bean 57.1 63.5 49.8 63.9 s8.0 54.8 58.9 53.6 60.7 55.7 58.2 43.0 -0.9Potatoes 1151.6 1129.4 918.0 1011.3 1250.2 1088.5 1121.0 1184.8 1143.9 1147.0 1112.0 1135.5 0.7Olive Oil 56.1 66.8 51.7 43.8 28.9 42.4 45.5 56.3 38.9 51.0 55.7 43.9 -1.6Other Vegetable Oil 31.9 18.7 38.1, 41.9 51.1 51.8 43.9 36.6 75.1 90.3 98.5 97.4 13.9Margarine 9.9 12.1 13.7 16.1 17.7 19.5 21.4 23.5 21.9 29.3 31.3 33.4 11.4Fish 271.2 335.6 318.3 293.9 340.7 299.3 279.9 336.7 329.4 273.8 331.1 269.8 -0.6Fresh Fish 206.9 251.7 243.3 231.0 237.6 218.6 202 .4 245.5 252.1 192.0 250.2 198.4 -1.0Dried Codfish 57.5 78.7 67.4 56.5 91.3 66.3 65.2 82.4 68.8 66.4 66.9 54.9 -o.9 1Wine (Killion lt.) 967.6 901.8 917.1 953.2 742.3 797.6 854.6 794.0 963.1 613.2 635.2 756.9 -3.7 0Beer (million lt.) 37.2 46.9 47.5 60.5 74.0 79.1 89.4 120.6 120.4 139.1 222.8 272.6 19.1 Sugar 163.5 170.5 177.8 180.4 182.7 197.6 208.5 212.7 221.4 244.8 242.5 256.7 4.2 X

FI.x

Includes human consumptioin, feed, seed and industrial use. ¢

Sou1rces: Instituto Nacional de Sstatistica, Portugal DJunta Nacional do Vinho, Portugal

Average Prices Paid to Farmers for Major Commodities 1970-75L2'(Esc/kg)

IndexProduct 1963 1968 1970 1971 1972 1973 1974 1975 (1970=100)

Wheat 3.02 3.26 3.26 3.55 3.55 3.55 4.26 4.94 152Rye 2.31 2.61 2.65 2.67 2.68 2.70 3.24 4.11 155Maize 2.15 2.46 2.34 2.77 2.77 2.62 3.88 5.83 249Oats 2.18 1.80 2.25 2.29 2.18 2.33 2.81 3.23 144Barley 2.44 2.13 2.53 2.45 2.43 2.74 3.45 3.70 146Rice/2 2.80 3.55 3.71 3.68 3.62 3.62 5.03 6.17 166Potatoes, 1.15 1.24 1.25 1.61 2.17 2.42 2.98 4.38 350Beans 4.99 7.38 8.05 8.86 9.64 11.43 16.41 25.59 318Broad beans 3.04 3.83 4.56 5.27 5.05 5.97 7.65 7.20 158Chick peas 4.99 4.79 6.63 8.09 11.08 13.76 15.48 17.06 257Olive oil/3 13.10 16.9 17.13 16.90 19.25 24.57 42.57 49.25 288 1Wine/3 2.22 4.00 5.00 5.22 6.20 7.23 5.51 6.39 128Tomatoes/4 n.a. 0.60 .60 .60 .60 .64 1.23 1.34 223Beef 22.2 29.7 31.6 36.6 39.30 46.40 53.00 61.40 194Lamb/5 n.a. n.a. 28.04 34.92 47.18 51.78 60.68 70.92 253Pork/6 n.a. n.a. 29.61 33.;77 40.49 37.66 48.11 52.02 177Poultry/7 n.a. n.a. 18.64 20.57 19.40 20.62 23.81 29.96 155Milk/8 n.a. 2.70 2.70 3.30 3.40 3.40 4.60 6.40 237

/1 Producer prices are average prices weighted according to quality, month, and region unless otherwiseindicated.

/2 Paddy./3 Per liter./4 For industrial use, simple regional average. >/5 Based on prices for Beja district, young lamb./6 Based on prices for Evora district, finished hog of six months./7 Based on prices for Lisbon district, industrial poultry, liveweight./8 Guaranteed price, Class A. H

Source: INE, Estatisticas Agricolas, various issues, Lisbon; Government Legislation; CEEA, GulbenkianFoundation, Lisbon; mission estimates.

May 17, 1977

- 60 - Appendix Table VPage 1lof 2

COMPARATIVE AVERAGE PRICES FOR MAJOR CEREALS

(Esc/kg)

Product Portugal 1973 1974 1975 1976 1977/78 1978/79Product EEC 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79

Wheat

Domestic producer prices 3.55 4.26 4.94 6.00 7.00 7.50Import prices 3.90 5.61 5.05 4.55 4.23EEC target prices 3.68 4.31 5.26 6.46 7.90 10.56

Maize

Domestic producer prices 2.62 3.88 5.36 5.35 7.50Average import prices 3.95 3.26 2.66 4.80EEX target prices 3.29 3.87 4.76 5.86 7.25 9.57

Rye

Domestic producer prices 2.70 3.24 4.11 5.00 6.30Average import prices 2.28 3.87 4.21EEC target prices 3.60 4.21 5.23 6.34 7.76 10.08

Oats

Domestic producer prices 2.33 2.81 3.23 3.90 5.00 5.40Average import pricesEEC target prices

Barley

Domestic producer prices 2.74 3.45 3.70 5.50 6.50 7.00Average import prices 2.85 4.64 5.64EEC target prices 3.37 3.91 4.79 5.86 7.75 9.57

Rice (Paddy)

Domestic producer prices 3.62 5.03 6.17 6.17 7.30 9.60Average import pricesl/ 4.36 8.22 6.96 7.14EEC target prices 4.21 4.83 5.84 6.98 8.58 11.37

1/ Imported milled. A conversion factor of 0.7 has been applied tobring milled prices to paddy equivalent.

Source: Portuguese producer prices from Etatisticas Agricolas;Average Portuguese import prices from EPAC; EEC targetprices from The Agricultural Situation in the Community,using "green rates" for Portuguese escudo stated in table A.1.

- 61 -

Appendix Table V

Page 2 of 2

COMPARATIVE ABERAGE PRICES FOR LIVESTOCK PRODUCTS AND OLIVE OIL

(Esc/Litres/kg)

Portugal 1974 1974 1975 1976 1977Product EEC 1973/74 1974/75 1975/76 1976/77 1977/78

BeefDomestic producer prices 36.0 36.0 52.0 64.0 73.0Import prices 55.2EEC guide prices 55.2 68.2 82.8 101.5 127.8

VealDomestic producer prices 40.0 40.0 65.0 76.0 85.0

Import prices 47.0EEC guide prices 66.5 79.9 97.1 118.2

Milk (+3%FC)Domestic producer prices 3.4 4.6 7.5 12.0Import prices 4.6 6.2 15.3EEC target prices 4.2 4.7 5.9 6.9 9.0

Olive Oil

Domestic producer prices 42.57 49.25 52.75 60.41Import price 51.46 63.32EEC target production prices 49.28 54.49 78.34 88.34(EEC target market price) (34.20) (38.55) (61.39) (69.19)

Source: Portuguese producer prices for Etatisticas Agricolas;EEC target prices from The Agricultural Situation in theCommunity, using "green rates" for Portuguese escudostated in table A.l.

- 62 - Appendix Table VI

Retail Prices and Indices in Lisbon for Selected Foods(October of each year)

(Esc/kg/liter)

Unit 1972 1973 1974 1975 1976

Livestock and FishMutton (leg) kg 47.2 62.4 59.8 88.0 169.8Pork (chops) kg 49.8 64.0 74.0 74.0 195.0Beef (loin) kg 62.0 62.0 100.0 136.0 140.0Poultry (broiler) kg 45.0 54.0 28.0 40.2 45.2Cod kg 41.0 42.0 80.0 90.0 120.0Milk liter 3.7 4.1 6.0 6.0 6.0Butter kg 45.0 45.0 58.0 56.0 56.0Cheese (Serra) kg 105.2 101.1 138.0 166.0 220.0Eggs doz 13.0 18.0 20.9 24.2 27.0

CerealsWheat flour kg 7.6 7.6 8.0 9.0 °9Bread kg 6.2 6.2 12.0 12.0 6.0Rice kg 7.3 7.3 8.2 10.0 15.0

VegetablesDry beans kg 16.5 20.0 29.0 24.8 38.4Chickpeas kg 18.0 20.0 17.5 16.8 25.0Potatoes kg 2.7 3.4 4.2 5.6 7.5Stringbeans kg 8.4 11.5 16.6 17.9 20.3Tomatoes kg 4.9 6.5 7.2 7.2 11.9

FruitsApples kg 11.5 8.6 17.8 17.9 17.4Grapes kg 11.1 11.4 11.1 n.a. n.a.

FatsOlive oil liter 27.5 35.0 53.5 59.0 59.0Cooking oil liter 19.5 19.5 34.5 34.5 34.5

Sugar and CoffeeSugar kg 6.6 6.6 10.8 21.4 18.5Coffee kg 16.0 16.0 24.0 32.0 44.0

Wine liter 6.5 8.5 10.5 13.0 14.0

SOURCE: INE Boletim Mensal de Estatistica for corresponding years

- 63 - Appendix Table VII

COMPARATIVE" CONSUMER PRICESFOR CERTAIN AGRICULTURAL PRODUCTS

(Esc/kg/litre)

1974 1975 1976

Bread

Portugal 12 12 12Most Expensive EEC country (Germany) 19 22 25Least Expensive EEC country (Italy) 17 18 12

Beef

Portugal 100 100 130Most Expensive EEC country (Germany) 250 279 346Least Expensive EEC country (Italy) 133 168 177

Pork

Portugal 107 135 190Most Expensive EEC country (Denmark) 157 190 243Least Expensive EEC country (Italy) 96 109 128

Milk

Portugal 5 6 6Most Expensive EEC country (Germany) 10 11 13Least Expensive EEC country (Holland) 8 10 11

Cheese

Portugal 56 75 75Most Expensive EEC country (Italy) 134 142 155Least Expensive EEC country (Holland) 75 88 105

Butter

Portugal 58 56 56Most Expensive EEC country (Italy) 88 106 112Least Expensive EEC country (Holland) 71 109 100

1/ Portugal and Euro '6'.

- 64 - Appendix Table VIIIPage 1 of 2

Price Structure for Wheat, 1971-78

1971-74?Z/ 1975-7j- 1978

----------------Esc/kg------------

Base Price to Farm 3/ 1.51 4.20 7.50

- Crop subsidy 2.00- Crop reconversion subsidy -- Subsidy on small deliveries - 1.40

Farm Price 3.15 5.60 7.50

- Differential for storage,- etc. (average) 0.09 0.30 0.45- Allowance to INP/EPAC 0.03- Allowance to F.A. 0.20- Subsidy by F.A. (-) - 1.40 1.95

Price to Miller 3.83 4.50 6.00

- Margin to miller 0.39 0.53 1.35- Gross value of by-product 0.49 0.73- Allowance paid to F.A. on

by-product -

Value of 1 Kg of WheatTransformed in Flour 4/ 3.73 4.30 8.31

- Allowance paid to F.A. -

Price of 1 kg of Wheat Soldto Baker 5/ 3.73 4.30 8.31

Bread 7/ Bread 8/ Bread 9/Small Large Small Large Small Large

- Margin to the baker 1.95 1.91 5.95 6.79

Price of 1 Kg of WheatTransformed in Bread 5.68 5.64 10.22 11.09

- 65 - Appendix Table VIIIPage 2 of 2

Footnotes:

/1 All values have been converted to kilograms of wheat equivalent andsubsidies (reductions in costs) are marked as negative values. Allvalues concern first class flour.

/2 All crop years are credited to the second year when the bulk of theharvests are recorded. Most legislation affecting these prices hasappeared in late summer or early fall.

/3 For a specific weight of 79, the most common wheat. Prices are scaledup or down slightly according to the specific weight of the productiondelivered.

/4 First class flour: 1 kg wheat/0.71 kg flcur.

/5 First class bread: big bread: 1 kg flour/1.28 kg breadsmall bread: 1 kg flour/1.20 kg bread.

/6 Price of 1 kg of flour = 5.40; price of 1 kg of wheat transferred inflour = 0.71 x 5.40 = 3.83.

/7 The margin is small bread - 2.60/kg of flour per kg of wheat will be2.60 x 0.71 = 1.85.

large bread - 2.50/kg of flour per kg of wheat will be2.50 x 0.71 = 1.78.

/8 The margin is small bread - 2.74/kg of flour per kg of wheat will be2.74 x 0.71 = 1.95.

large bread - 2.69/kg of flour per kg of wheat will be2.69 x 0.71 = 1.91.

/9 The margin is small bread - 8.34/kg of flour per kg of wheat will be8.34 x 0.71 = 5.92.

large bread - 9.56/kg of flour per kg of wheat will be9.56 x 0.71 = 6.79.

Sources: Legislation, MC and MAP, 1965, 1970, 1973 and 1976; Fundo deAbastecimento; Institute of Cereals; CEEA, Gulbenkian Foundation;mission estimates.

Price Structure for Maize, 1965-1976

Item 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976--------------------------------------- Escudos/kg -----------------------------------------

1. Guaranteed price to farmer ---------------------------- 2.30-2.5/1 --------------------------- 3.40 5.0oL 2 5.o00o2. Average producer price/3 2.63 2.49 2.43 2.46 2.43 2.33 2.77 2.77 2.62 3.88 n.a. n.a.3. Imported grain for sale to

industry set at 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 3.70 4.30 4.30

4. Price to feeder/4 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 3.70 3.70 3.705. Price to flour millers/4 -!-------------------------- 2.35-2.47/5 -------------……-________ 3.70 3.70 3.706. Price to concentrate industry!4 2.15 2.15 2.15 2.15 2.15 2.15 2.30 2.30 2.15 3.70 3.70 3.70

7. Average import price/6 1.88 1.92 1.89 1.90 1.86 2.10 1.98 1.79 2.52 3.90 3.52/7 4.05/7

NPC (2/7) 1.40 1.30 1.29 1.29 1.31 1.11 1.40 1.56 1.04 0.99 1.49/8 1.2318

Cy,/1 Varies between harvests. No guaranteed price was in effect during June-August when a large part of the crop is harvested. a

/2 Includes a subsidy of Esc 1.00/kg, above the guaranteed price of Esc 4.00/kg, to be paid to small and medium producers. Thelegislation does not define the producer size and deems the subsidy will cover most of the Portuguese producers (MinisterialOrder of April 11, 1975).

/3 National average producer price, weighed by season and region.

14 Prices applicable to all corn, whether domestic or imported.

/5 Slight variations due to the type of miller it is destined for.

/6 Average price within a calendar year, c.f., from INE statistics.

/7 Mid-point between highest and lowest price within calendar year. No weighed data available. From IC.

/8 Based on the guaranteed price instead of average price. D

X

Sources: Estatisticas Agricolas (various issues), INE; IC; FA; Government legislation; CEEA; IBRD and mission estimates. H0'

0'

I-"

Price Structre for Milk. 1965-1976 aI

1965/66L2 i967/7017191321 1972/,)3L'J' March i97vL Sept. 197~ nLItm ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~Ccnono in Commo in cinn inLiCe & B A B Sutfle A B ~~~~~~~ ~ ~ ~ ~~~~~~Bottle A StttLE A B A _ A B AA

I. FAW RSI'RCE: 19 2.40 2.00 2.70 2.I.0 3.30 3.00 3.40 3.10 4.10 3.70 5.10 4.00 6.0!1 5.0.- 7.,ofl 6.eoS/

Subsidy fcrogaie collectio(.3 0950 0.50

II. PRICE PAIl BY ROtA PBOCES20 a.40 2.00 2.70 2.40 2.ho 3.32 3.00 3.00 3.40 3.10 3.10 4.10 3.70 5.10 b.0 6.40 5.20 7.O0 6.30Pasteur. C-es Pasteur- C'soa Pasteur- Ccsno Pasteu- C n Pasteur- Oceme Pasteur- Commo Pasteur- Cnc Psteur- Co~easiced iced iced Bued iced in'S teed ied

Ipoeetsubsidy o- .40 0.40 0.40 0.50 0.50 0.50 0.80 0.70 i.20 - 0.50 -1.70 1.A0 1. 70 1.40Subsidy to pasteu..iced nlk (31.20 1.20Subsaidy to fluid sJil C-) 0.50 0.50Rev impr-eenet subsidy (-) 1.10a 1.10Re, subsidy to reduc .... usi (-072 170Prne..eing rusgin (1.30) (1.30) (1.00] (0.60) (0.80) (0.80] (0.60) (0.80) (0.80) (0.60) (0.80) (1.10) (0.70] )2.i0)L'2~ (1.10Y12 )2.50&3 (I.30YŽ 3O:Y0b'i2 (,3.01Ž'L

III. PRICE PAID BY RETAILER 3.70 3.00 3.20 3.70 3.20 3.40 3.70 3.20 3.40 4.40 3.70

Marin 0.40 0.20 0.20 o.40 0.20 0.20 0.40 0.20 0.20 0.50 0.30

ES. BRETIL PRICE. 3.70 3.30 4.1012 3.20173 3.40t13 4.x0u/i3 3.40L1u 3.6/L_3 4.u/1_3 3.40nj13 360/113 4. DIn/l 4 co/lb 6.oOLU. 4.80/15 6.00/15 4.60/15 6. oo/t5 4.60115

aI lp to 1974 oIly pasteurised milk sud " o"sink been fitoed prices. After September 1974, alt types of flid mIlk h.en ficed prices. The syste of price referred applies to regions hebr a structur of orgsInd silk selleotioeminis. Other regions are of -1si icport-c ic milk production. The eel, types of mIlk cousund a- pasteurized sod "eeomilks. The coose-ptien, of 'specisl lik ha been increasig after 1972-73, but esnbls,psataurinedand "common mill, re-ai. the pricoiple type consume d: 80 to 90% of tie tota, consued.

17 Bc subsidie,,Subsidies out included in price: Ca) 0.40 Eec/I of cllB A nod B classes to produore oho detenorelm 3,000 1 per nee per year; Qb) 0,b0 B.c/I of dli A mod B cassto producers Vho Iitiate their mIlk production L. ao' ofthree yearn.

/4 luboidies out included in print:' (a) 0.20 Eec/i of A class to produners loca.ted in rngiuu- 6 )Stieesdu-), 7 (Ribatejo), 8 (E-um); 9 (POrtalsgre(, 10 (Bsino Alentejo), ii (BiAl ne); (b) 0.10 Eec/I nf class A to poduners fhu deltoe-0mor limo 50 1 per day; (c) 0.20 Es-/l or class A to preducero ho deliver more than 150 1 per dsy; )d) 0.10 Eec/i of class A to pruduers e. are equipped ctth refrigeration cyote; e) predusers she uteh to e-tailisb osileotinestables equipped cith .chinoial cooking and refrigerator systIo obtain sobsidies correponding to 20% and 30% of tie respeoti-e cots f) in regIon 1IEteSer-.it) A iass eiLk is paid to the fannr at a Price of 2.90Cxaroi-A.-ut) sod 1.10 Eec/I (Septenier.Pnbroaryj plus a subsidy of 0.15 Eec/i.1 5 S the region IEte.or.el eno las. A cilk is paid to th, farmr st a price of 2.50 EOucI )Idarh-Augnst) mod 3.30 ceo/i (Septecber.February) plus s subsidy of 0.15 Esc/I e footnote 4, (a) threugh f)f for 1972.73.Subsidies lot included in price: Cs] 0.20 iso/i of class. A to producers located in tie regions S Cst-mdura), 2 (Pibatejo],_ 8 (Eor.), 9 )Pcrtalgre(. 10 (Bimo Alentejo), 11 (Aigar-e]; t) 0.30 Eec/I of A class of prdoduer shedeliver mor than 100 I per day; )c) 0.30 Eec/i of A ciss.. tc producers 6 r equipped cIii a refrigerator system; (i] producers h.o isi to estublinh ceentius stables equipped ith achaoicsl miling mod refigratien systemsobtoin ouboidles cOrrespc.diog to 2% mod 30% of their respective onsts.

7Subsi dies rot ioniuded in price: (a] 0.60 Eso/i of A class to produoen oho.r equipped s-ito neohaulal cilkitu aol re,frigeration systems; (i) 0.30 R.IO of A class to producers bo are equipped aith mobmoical ailkig; e)c 1.30Esn/i of A class to produ..ers nho -r equipped citi refrigeration syotes; ()o producer oho eIsblist collective etbes obtain a subsidy of 30% of thI costs; (e) producers sic estlish equip.net for -ebaical. ailkio modrefrigcratio systems mod conperatives silhoS etablieb milk treatoe.nt plalts nec obtain eubsidics of 20% sod 30% of thnir r .se .iv oto.

/B Susoidies no; iucluded in tie price: (a) 0.6o Eso/i ef class A to predocers vie are, equipped ucithn mehsot1 olkiSg acd refrigeration systee; (bC 0.30 Eec/i of class A to producers she su equipped ith refrigeratin system; o])0.30 iso/I uf class A to producers ho are equipped citi -ccisc.ca oiliiig; (d) oc-ll ad vedium faoer she e-tablsh equipe..ot for mehanIcal milking mod refrigeratio can obtain a sbsidy of 30% of its coet; )e asO mod mediumfarmer sic esteblsih c.U.lti-u stsbin.a un obato. a subidy of 10% uf its nost.

/9 free 1963 to 1974, fare gate prices are give-a the averge fr prie.s betwees toy deliverY seaon, Kuh tc Augon (3.8) nod Sepiener to febmruy (9-2), as follos:

1967170 ~~~~~~~ t~971/72 1972/73 M.._accch 1974 Sept-sber 1974

Class A Cia.se Clais. A lsen S fiass A Cls luO Clans B minu A Cl"as 0

Ouaratecd 3-8 9-5 3-8 9-2 3-8 9-2 3.8 9-2 3-i, 9-2 3.8 9-2 3-i 9-2 341 9-2 3-8 9.2 3.9 9.2fare prier 2.60 2.80 2.30 2.50 3.20 3.J10 2.50 3.10 3.20 3.60 2.50 3.30 4.0o 4.20 3.60 3.80 4.90 5.30 3.91 4.10 -

4n 1o The guarateeS fare Bate price is net ef voflection costs, paid for by tic producer, acouting to Eec 0.90/i of oily~ deliverd to piciupstatio. j.5The, gtarmotd fern gate peton is net of collection onets, paid for by tie producer, anouting to Eec 1.30/1 of nilk dnl11e-d to piciup station.

F2It includes both proe.ssing mmd retailing sagia../13 Ihe ficed retail prIce ca be in,creasd by Eec 0.20/1 for donr to dou- eieIs

7 The time retnl:I prIce can be increased by El, 0.30/i in poten-i-ed mild or E.c 0.10/i fur cueco cdlk.71 h In r etdu-il pelve can be increnoed by Esc 0.30/1 for duor to dour delinerie..

Sources: Junto nu~ic...I doc Prnd.tns Pecuarico; oN,dn Sr Abaste-leeto; Gcvrrtnnt lolsnlu initry nf Sonn-vy e -vte rir; OtEA, GuIbeunian Fo-datm-; cission estimates.

Price Structure for Beef. 1969-1976/1

1969-71 1972-74 Oct. 1974-1975 Jan. 1976 Apr. 1976

Y A Y A Y A Y A Y A

---.-- ---------------------- Esc/kg ----- …___-_____________-__

Guaranteed base price to production_/2

35.00 30.00 40.00 36.00 65.00 52.00 76.00 64.00 85.00 73.00

Conservation subsidy for first calving/3 (500) (500) (500)

Conservation subsidy for second calving!4 (750) (750) (750)

Subsidy for slaughter of young males 3.0014 3.oo06 3.00/7

Subsidy for first phase "calf-rearing"/8 2.50 2.50 2.50

Subsidy for second phase 'calf-rearing''/9 1.25 1.25 1.25

Subsidy for "finishingL/10 2.85 2.85

Average price to producer/L1 41.75 35.00 49.60 36.00 74.60 52.00 76.00 64.00 85.00 73.00

General subisdy to wholesaler in slaughterhouse 5 .5012 5.50L12 5.50/12 5.50212 20.00 15.00 29.00 24.00

General subsidy to wholesaler in slaughterhouse 4.50/13 4.50i13 4.50o113 4.50/13 4.00Ž14 4.00/14

Slaughter fee/15 1.55 1.55 1.55 1.55 1.55 1.55 2.90 2.90 2.90 2.90

Average price ex-slaughterhouse 37.80 31.05 45.65 32.05 76.15 53.55 54.90 51.90 54.90 51.90

Purchase price by retailer/16 54.90 51.90 54,90 51.90

Average price of imported beef (adult, c & f)/17 - 19.51 - 30.35 - 37.00 - 27.87

/1 All prices and subsidies have been converted to equivalent kilogram carcass weight, as shown in footnotes. Y refers to young and A to adult animals:

both are in first class meat, and most females are slaughtered as adults while most males, young. 0'

/2 Guaranteed prices are set by law.

/3 Conservation subsidy in Escudos per head for first calving of dairy (exotic) and local breeds. I

/4 Conservation subsidy in Escudos per head for second calving of dairy (exotic) breeds.

/5 For males slaughtered at more than 150 kg/carcass weight./6 For males slaughtered at more than 180 kg/carcass weight.

/7 Beginning in 1973 females are included in the subsidy, if slaughtered after first calving, before the permanent teeth appear and at 180 kg/carcass

weight or over.

/8 Subsidy on male and female calves fattened between' 3 weeks to 3½ months and live-weights at beginning of 45 kgs, and at end of 90 kgs for females or

110 kgs for mnles:/9 Subsidy on male and female calves fattened between 3½ months to 6 months and live-weights between 90 - 150 kgs for females and 110 - 190 kgs for males.

/10 Subsidy for final stage of fattening young animals of more than 380 kgs live-weight, or adults of more than 500 kgs live-weight, gained. Based on an

animal slaughtered at 200 kg/carcass weight and having gained 190 kgs of live-weight (190 - 380 kgs). This is applicable to farmers fattening 100 or (

more heads annually, although groups can pool deliveries.

/11 Up to January 1976 prices are calculated. thereafter t 2 I-'.

T1>2 Paid for glaughters effected In Lisbon, Oporto and Funchal slaughterhouses plus all industrial slaughterhouses.

/13 It applies to areas other than those mentioned in footnote 12.

114 Subsidy assumed to be paid by FA./15 Slaughter fee is fixed by law./16 Fixed by decree./17 Averages based on the same period as the prices of domestic production.

Sources: Junta Nacional dos Produtos Pecuarios; Fundo de Abastecimento; Government legislation; Ministry of Economy executive orders; CEEA, Gulbenkian

Foundation; mission estimates.

- 69 - Appendix Table XIII

WHEAT SUBSIDIES

CURRENT SITUATION

1975 1978

Subsidies on Consumption mil esc 453 468of Domestic Wheat

Deliveries '000 tons 324 240Farm price esc/kg 5.60 7.50Millers price esc/kg 4.50 6.00Subsidy by FA esc/kg 1.40 1.95

Subsidies on Imports mil esc 430 945

Quantity of imports used '000 tons 380 700Average import price US$/ton 198 130Cost of import (EPAC) esc/kg 1.20Selling price esc/kg 4.50 6.00Subsidy by FA esc/kg 1.13 1.35

Floor Subsidies (FA) mil esc 303 222

Seed Subsidy (FA) mil esc 102

TOTAL WHEAT SUBSIDIES (FA) mil esc 1,186 1,737

to of " " (US$ mil) ( 46) ( 39)

Source: Fundo de Abastecimento, EPAC for wheat subsidy and import data.

- 70 - Appendix Table XIV

CEREAL SUBSIDIES (EXCLUDING WHEAT)CURRENT SITUATION

1975 1978Maize subsidy mil esc 623 1,482(i) Subsidy on imports mil esc 606 1,457

(Total imports) '000 tons (1,287)(Import value) mil US$ (199)(EPAC unit cost) esc/kg(EPAC selling price) esc/kg

(ii) Subsidy on hybrid cornseed 17 25

Rice subsidy mil esc 163 590(i) Subsidy on imports mil esc 159 461

(Total imports) '000 tons (97)(Import value) mil US$ (39)(EPAC unit cost) esc/kg(EPAC selling price) esc/kg

(ii) Subsidy on NorthPortugal products mil esc 4 65

(iii) Rice consumption subsidy mil esc(Unit sibsidy FA) mil esc 54

(iv) Rice transportationsubsidy esc/kg 10

Sorghum subsidy mil esc 93 337Subsidy on imports mil esc 93 337(Total imports) '000 tons (141)(Import value) mil US$ (17)(EPAC unit cost) esc/kg(EPAC selling price) mil esc

Rye Subsidy mil esc 352 39Subsidy on imports mil esc 352 39(Total imports) '000 tons(Import value) mil US$(EPAC unit cost) esc/kg(EPAC selling price) mil esc

Price Interventions forDomestic Cereal Prod. 1/ mil esc 120

TOTAL CEREALS (excl. wheat) mil esc 1,231 2.56(US$ million) (48) (57)

TOTAL CEREALS mil esc 2,417 4,305(US$ million) (95) (96)

1/ Excluding Wheat.

Source: Fundo de Abastecimento and EPAC (for import data)

- 71 - Appenai.. -able XV

MILK SUBSIDIES

CURRENT SITUATION

(in million escudos)

1977 1978

Milk Subsidy -1783 -2111

(i) Price Subsidy on domestic milk -1204 -1700(ii) Subsidy to producers (mainland) 308 -179

(iii) Subsidy to producers (Madeisa) -24 -

(iv) Subsidy for milk equipment -63 -70(v) Transport subsidy for deficit areas -16 -6

(vi) Subsidy on Powdered milk from Azores -130 -11379(vii) Subsidy on imported liquid milk

Cheese Subsidy - -307

Total Subsidy Million escudos -1783 -2418it it (US$ million) (46) (54)

Profits on Imported Cheese 34 _-

Profits on Imported Powdered Milk 35 117

Profits on Imported Butter 26 72

Total Profit on Imports million escudos 95 189"1 " ." " (US$ million) (3) (4)

- 72 - Appendix Table XVI

WHEAT PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS AND VALUES

CURRENT SITUATION

Unit 1973 1974 1975 1976

------------------------Producers------------------------

(1) Level of production '000 tons 517 534 601 686

(2) Producer price esc/kg 3.51 4.51 5.60 5.60

(3) Producer value (1)x(2) mil esc 1815 2408 3366 3842

(4) Border price esc/kg 3.90 5.61 5.05 4.55

(5) Implicit subsidy (tax) esc/kg (0.39) (1.10) 0.55 1.05

(2)-(4)

(6) Subsidy (tax) equiva- mil esc (202) (587) 331 720

lents: (M)x(5)

(7) Proportional subsidy % (11) (24) 10 19(tax): (6)t(3)

-----------------------Consumers-------------------------

(1) Level of consumption 1/ '000 tons 677 856 906 972

(2) Border price esc/kg 3.90 5.61 5.05 4.55

(3) Millers' purchase esc/kg 3.34 3.51 4.20 4.20

price 2/

(4) Implicit subsidy (tax): esc/kg 0.56 2.10 0.85 0.35

(2)-(3)

(5) Subsidy (tax) equiva- mil esc 379 1798 770 340

lents: (4)x(1)

(6) Proportional subsidy (tax) % 14 37 17 8

-------------------Government Account 3/---

(1) Level of production '000 tons 517 534 601 686

(2) Producer price esc/kg 3.51 3.51 5.60 5.60

(3) Mlillers' purchaseprice 2/ esc/kg 3.34 3.51 4.20 4.20

(4) Import amount '000 tons 160 322 305 286

(5) Border price esc/kg 3.90 5.61 5.05 4.55

(6) Net subsidy (tax) mil esc 177 1211 1101 1060(Net subsidy (tax)) (US$ mil) (7) (48) (43) (35)

1/ Domestic production plus imports.

2/ Excluding margin to EPAC amounting to 0.32 esc/kg (1974), 0.30 esc/kg (1975, 1976)

and 0.45 esc/kg (1977, 1978).

3/ Subsidy is government expenditures; tax is government revenue.

Appendix Table XVII

RICE PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS AND VALUES

CURRENT SITUATION

Unit 1973 1974 1975 1976

----------- Producers------------------------

(1) Level of production 1/ '000 tons 168 130 133 97

(2) Producar price esc/kg 5.17 8.61 8.81 8.80

(3) Producer value (1)x(2) rLill esc 868 1119 1172 854

(4) Lorder price esc/l;g 6.23 9.16 9.94 10.20

(5) ILmplicit subsidy (tax) esc/kg (1.06) (0.55) (1.13) (1.40)(2)-(4)

(6) Subsidy (tax) equiva- mil esc (178) (72) (150) (136)lents: (1));(5)

(7) i:roI)crticnal subsidy (21) (6) (13) (16)(tax): (6)t(3)

-Consumers…----------------------…-

(1) Level of consumption 2/ '000 tons 163 135 176 183

(2) i'order price esc/kg 6.23 9.16 9.94 -10.20

(3) "illcrs' purcha.se esc/l:g 5.30 6.20 8.00 8.00price 3/

(4) Implicit subsidy (tax): esc/kg 0.93 2.96 1.94 2.20(2)-(3)

(5) Subsidy (tax) equiva- mil esc 152 400 341 403leats: (4)x(1)

(6) Proportional subsidy (tax) % 15 32 20 22

-------------------Government Account 3/---

(1) Level of production '000 tons 168 130 133 97

(2) Producer price esc/kg 5.17 8.61 8.81 8.80

(3) Nillers' purchase 5.30 6.20 8.00 8.00price 4/ esc/kg

(4) T::5uort a-:ount '000 tons - 5 43 86

(5) Border price esc/kg 6.23 9.16 9.94 10.20

(6) lNet subsidy (tax) mil esc (26) 328 191 267!.ct suLbsidy (tex) (US$ mi) (1) (13) (8) (9)

1/ Milled Rice2/ Domestic production plus imports.3/ Excluding handling margin to EPAC.4/ Subsidy is government expenditure.

4 - Appendix Table XVIII

MILK (DE VACA) PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS AND VALUES

CURRENT SITUATION

Unit 1976

Producers

(1) Level of production '000 h.l. 528(2) Producer price esc/litre 11.5(3) Producer value (l)x(2) mil esc 6072(4) Border price esc/litre 11.6(5) Implicit subsidy (tax) esc/kg 0.1(6) Producer subsidy (l)x(5) mil esc (53)(7) Direct Producer subsidy mil esc 87(8) Total Subsidy (tax) mil esc 34

equivalents(9) Proportional subsidy % -

(tax): (8),-(3)- Consumers --

(1) Level of consumption 2/ tooo h.l. 534(2) Border price esc/litre 11.6(3) 'Wholesalers' purchase esc/litre 8.7

price 3/(4) Implicit subsidy (tax): esc/litre 2.9

(2)-(3)(5) Subsidy (tax) equivalents: mil esc 1548

(4)x(l)(6) Proportional subsidy (tax) % (52)

-----Government Account 3J -------

(1) Level of production '000 h.l. 528(2) Producer price esc/litre 11.9(3) 'Wholesalers' purchase esc/litre 8.7

price 4/(4) Import amount '000 h.l. 6(5) Border price esc/litre 11.6(6) Net subsidy (tax) mil esc 1688

(Net subsidy (tax)) (US$ mil) (56)

1/ Sterilized M/Gordo.2/ Domestic production plus imports.3 Excluding margin to JNPP.4/ Subsidy is government expenditure.

- 75 - Appendi- --Iule XIX

BEEF PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS AND VALUES

CURRENT SITUATION

Unit 1973 1974 1975 1976

------------------------Producers----------------------

(1) Level of Production '000 tons 81.20 84.30 97.70 77.83(2) Producer Price plus esc/kg 47.90 54.60 63.00 81.00

Slaughter fee(3) Value at Slaughter House mil esc 3,889 4,603 6,155 6,304

(l)x(2)(4) Value in Border Prices esc/kg 28.86 37.00 27.87 45.00(5) Subsidy: (2)-(4) esc/kg 19.04 17.60 35.13 36.00(6) Producer Subsidy: (l)x(5) mil esc 1,546 1,484 3,432 2,802(7) Direct Producer Subsidy 1/ mil esc 75 100 96 101(8) Indirect Producer mil esc n.a. n.a. 700 950

Subsidy (Maize & Sorghum)(9) Total Subsidy Equivalents: mil esc 1,621 1,584 4,528 3,853

(6)+(7)(10)Proportional Subsidy: % 42 34 67 61

(8),.(3)

------------------------Consumers-----------

(1) Level of Imports 3/ '000 tons 101.20 120.30 121.60 125.00

(2) Ex-slaughter HousePrice 4/ esc/kg 42.90 49.60 58.00 58.00

(3) Value of Beef, Ex-slaughter House (l)x(2) mil esc 4,341 5,967 7,053 7,250

(4) Border Price esc/kg 28.86 37.00 27.87 45.00(5) Implicit tax 5/ (4)-(2) esc/kg (14.04) (12.06) (30.13) (13.00)(6) Tax Equivalents (l)x(5) mil esc (1,421) (1,451) (3,665) (1,625)(7) Proportion Subsidy: % 33 24 52 22

(6),(3)--------------Government Account------------

(1) Producer Subsidy mil esc 1,621 1,584 4,528 3,853(2) Consumer Tax mil esc (1,421) (1,451) (3,665) (1,625)(3) Total Subsidy (Tax)6/ mil esc 200 133 863 2,228

Total Subsidy (Tax) (US$ mil) (8) (5) (34) (74)

1/ Direct producer subsidy payments for herds improvement.2/ Indirect producer Subsidy - subsidy on imported maize and sorghum for feed stock.3/ Domestic production plus imports.4/ Adjusted producer prices by subsidy payment to wholesalers.5/ Numbers in parenthesis represent negative, i.e. taxes.6/ Producer subsidy and consumer tax are simply added to derive net

effect on the government account.

- 76 - Appendix Table XX

WHEAT PROIDUCER AND CON4SUITER SUBSIDY EQUIVALENTS AND VALUES

EEC SENSITIVITY

Unit 1973 1974 1975 1976

-----……--------------Producers------------------------

(1) Level of production '000 tons 517 534 601 686

(2) Producer price esc/kg 3.68 4.31 5.26 6.46

(3) Producer value (I)x(2) mil esc 1903 2302 3161 4432

(4) Border price esc/kg 3.68 4.31 5.26 6.46

(5) Implicit subsidy (tax) esclkg - - - -(2)-(4)

(6) Subsidy (tax) equiva- mil esclents: (1)x(5)

(7) Proportional subsidy A(tax): (6)f (3)

-----------------------Consumers------------

(1) Level of consumption 1/ '000 tons 677 856 906 972

(2) Border price esc/kg 3.68 4.31 5.26 6.46

(3) >'illcrz ' purchase esc/l.g 3.34 3.51 4.20 4.20price 2i

(4) Implicit subsidy (tax): esc/kg 0.34 0.80 1.06 2.26(2)-(3)

(5) Subsidy (tax) equiva- mil esc 230 685 960 2197lents: (4)x(1)

(6) Proportional subsidy (tax) % 9 19 20 35

-------------------Government Account 3/-----------------

(1) Level of production '000 tons 517 534 601 686

(2) Producer price esc/kg 3.68 4.31 5.26 6.46

(3) Millers' purcha-e 3.34 3.51 4.20 4.20price 2/ esc/kg

(4) Import amount '000 tons 160 322 305 286

(5) Border price esc/kg 3.68 4.31 5.26 6.46

(6) Net subsidy (tax) mil esc 230 685 960 2197(Net subsidy (tax)) (US$ mil) (9) (27) (38) (73)

1/ Domestic production plus imports.2/ Excludin- margin to EPAC nirounting to 0.32 esc/kg (1974), 0.30 esc/kg (1975, 1976)

and 0.45 esc/ig (1977, 1978).3/ Subsidy is government expenditures.

77 - Appendix Table XXI

RICE PRODUCER AND COIWSUMER SUBSIDY EQUIVALENTS AND VALUES

EEC Sensitivity

Unit 1973 1974 1975 1976

------------------------Producers------------------------

(1) Level of production '000 tons 168 130 133 97

(2) Producer price 1/ esc/kg 6.01 6.90 8.34 9.97

(3) Producer value (I)x(2) mil esc 1010 897 1109 967

(4) Border price esc/kg 6.01 6.90 8.34 9.97

(5) Implicit subsidy (tax) esc/kg - - - -

(2)-(4)

(6) Subsidy (tax) equiva- mil esclents: (1)x(5)

(7) Proportional subsidy %(tax): (6)f(3)

-----------------------Consumers-------------------------

(1) Level of consumption2/ '000 tons 163 135 176 183

(2) Border price esc/kg 6.01 6.90 8.34 9.97

(3) Millers' purch_se esc/lkg 5.30 6.20 8.00 8.00price 3/

(4) Implicit subsidy (tax): esc/kg 0.71 0.70 0.34 1.97(2)-(3)

(5) Subsidy (tax) equiva- mil esc 116 95 60 360lents: (4)x(l)

(6) Proportional subsidy (tax) % 12 10 4 20

-------------------Government Account 3/-----------------

(1) Level of production '000 tons 168 130 133 97

(2) Producer price escJkg 6.01 6.90 8.34 9.97

(3) Millers' purchaseprice 4/ esc/kg 5.30 6.20 8.00 8.00

(4) Import amount '000 tons - 5 43 86

(5) Border price esc/kg 6.01 6.90 8.34 9.97

(6) Net subsidy (tax) mil esc 116 95 60 360(Net subsidy (tax)) (US$ mil) (5) (4) (2) (12)

1/ Milled Rice2/ Domestic production plus imports.3/ Excluding margin to EPAC.4/ Subsidy is government expenditure.

- 78 - Appendix Table XXI1

MILK PRODUCER AND CONSUMER SUBSIDY EQUIVALENTS AND VALUES

EEC Sensitivity

Unit 1976

------ Producers---------------------

(1) Level of production t00O h.l. 528(2) Producer price 1/ esc/litre 11.6(3) Producer value (l)x(2) mll esc 6125(4) Border price esc/litre 11.6(5) Implicit subsidy (tax) esc/kg -(6) Producer subsidy (1)x(5) mil esc

(7) Direct Producer subsidy oil esc(8) Total Subsidy (tax) mil esc

ecuivalents(9) Proportional subsidy %

(tax): (8).(3)-----------------------Consumers---------------------

(1) Level of consumption 2/ '000 h.l. 534(2) Border price esc/litre 11.6(3) 'Wholesalers' purchase esc/litre 8.7

price 3/ -

(4) Implicit subsidy (tax): esc/litre 2.9(2)-(3)

(5) Subsidy (tax) equivalents: mil esc 1548(4)x(l)

(6) Proportional subsidy (tax) Z (25)--------------- Government Account-------------------

(1) L.evel of production '000 h.l. 528(2) Producer price esc/litre 11.9

(3) Millers' purchase esc/litre 8.7price 4/

(4) Import anount '000 h.l. 6(5) Border price esc/litre 11.6(6) N'et subsidy (tax) mil esc 1548

(Net subsidy (tax)) (US$ mil) (52)

1/ Sterilized M/Gordo.2/ Domestic production plus imports.3/ Excluding mar-in to JNPP.4/ Subsidy is goverrmeit expenditure.

_ 79 - Appendix Table xXIiI

BEEF PRODUCER AND CONSUEIER SUBSIDY EQUIVALENTS AND VALUES

EEC Sensitivity

Unit 1973 1974 1975 1976

…---------------------…Producers----------------------

(1) Level of Production '000 tons 81.20 84.30 97.70 77.83(2) Producer Price plus esc/kg 55.24 68.20 82.80 101.50

Slaughter fee(3) Value at Slaughter House mil esc 4,485 5,749 8,090 7,900

(l)x(2)(4) Value in Border Prices esc/kg 55.24 68.20 82.80 101.50(5) Subsidy: (2)-(4) esc/kg - - - _

(6) Producer Subsidy: (1)x(5) mil esc(7) Direct Producer Subsidy 1/ 'mil esc(8) Indirect Producer mil esc

Subsidy (Maize & Sorghum)(9) Total Subsidy Equivalents: mil esc

(6)+(7)(lO)Proportional Subsidy: %

(8)'-(3)

------------------------Consumers----------------------

(1) Level of Imports / '000 tons 101.20 120.30 121.60 125.00(2) Ex-slaughter House

Price 4/ esc/kg 42.90 49.60 58.00 58.00(3) Value of Beef, Ex-

slaughter House (1)x(2) mil esc 4,341 5,967 7,053 7,250(4) Border Price esc/kg 55.24 68.20 82.80 101.50(5) Implicit tax 5/ (4)-(2) esc/kg 12.34 18.60 24.80 43.50(6) Tax Equivalents (l)x(5) mil esc 1,248 2,238 3,016 5,438(7) Proportion Subsidy: % 29 38 43 75

(6)-.(3)--------------Government Account-----------------------

(1) Producer Subsidy mil esc - - - -

(2) Consumer Tax mil esc 1,248 2,238 3,016 5,438(3) Total Subsidy (Tax)6/ mil esc 1,248 2,238 3,016 5,438

Total Subsidy (Tax) (US$ mil) (51) (88) (118) (181)

1/ Direct producer subsidy payments for herds improvement.2/ Indirect producer Subsidy - subsidy on imported maize for feed-stock.3/ Domestic production plus imports.4/ Adjusted producer prices by subsidy payment to wholesalers.5/ Numbers in parenthesis represent negative, i.e. taxes.6/ Producer subsidy and consumer tax are simply added to derive net

effect on the government account.

Appendix Table XXIV- go -

REAL ANTD MONETARY EFFECTS OF ADJUSTMENT OF PORTUGUESE PRODUCERAND CONSUMER PRICES OF WHEAT AND RICE TO FREE TRADE LEVELS

(1976 data)*

Unit Wheat Rice

Production 000 m.t. 686 123

Consumption 000 m.t. 972 187

Exports (Imports) 000 m.t. -286 -64

Producers price US$ m.t 187 293

"Consumers" pricel/ US$ m.t. 140 266

International price US$ m.t. 152 340

Price elasticity of supply 0.2 0.3

Price elasticity of demand -0.3 -0.5

Estimated change in production 000 m.t. -34 +6

Estimated change in consumption 000 m.t. -25 -26

Reduction in imports 000.m.t. -59 -32

Net social loss in production mil US$ 0.1 0.1(NSL )2/

Net social loss in consumption mil US$ 0.8 1.0(NSLc)2/

N4et social loss (NSL)2/ mil US$ 0.9 1.1

W4elfare gain of producers 3/ mil US$ -25 6

W4elfare gain of consumers 3/ mil US$ -12 -13

Increase in government revenue 3/ mil US$ +38 +9

Cost of Imports 3/ mil US$ 35 +11

Change in foreign exchange earnings 3/ mil US$ +9 +11

i' Rice Production and Consumption data is average for 1976-77 becauseof unusually depressed 1976 production.

I/ Processors price.2/ As a result of the previous price levels.'/ After changing to the new (international) price levels.

Note: Methodology used is described in Attachment III to this workingdocument.

- 81 - Appendix Table XXV

REAL AND MONETARY EFFECTS OF ADJUSTMENT OF PORTUGUESE PRODUCERAND CONSUMER PRICES OF MILK AND BEEF TO FREE TRADE LEVELS

(1976 data)*

Unit Beef Milk

Production 000 m.t. 78 528

Consumption 000 m.t. 125 534

Exports (Imports) 000 m.t. -45 -6

Producers price 1/ US$ m.t 3150 389

"Consumers" price US$ m.t. 1930 290

International price US$ m.t. 1500 386

Price elasticity of supply 0.2 0.2

Price elasticity o' demand -0.1 -0.7

Estimated change in production 000 m.t. -8 +1

Estimated change in consumption 000 m.t. +27 -124

Increase in imports (+) 000 m.t. +35 -125

Net social loss in production mil US$ 6.6(NSL )2/

Net social loss in constumption mil US$ 5.8 5.9(NSL )2/

Net social loss (NSL)2/ mil US$ 12.4 5.9

Welfare gain of producers 3/ mil US$ -122 -1

Welfare gain of consumers 3/ mil US$ 60 -46

Increase in government revenue 3/ mil US$ 74 53

Cost of Imports 3/ mil US$ 120 (43)

Change in foreign exchange earnings 3/ mil US$ -53 +48

1/ After taking into account direct and indirect producer subsidies.2/ As a result of the previous price levels.3/ After changing to the new (international) price levels.

Note: Mcthodolog,,y used is described in Attachment III to this workingdocumii,t.

- 82 - Appendix Table XXVI

REAL AND MONETARY EFFECTS OF ADJUSTMENT OF PORTUCUESE PRODUCERAND COiSUNER PRICES OF WHIEAT AND RICE TO EEC LEVELS

(1976 data)*

Unit Wheat Rice

Production 000 m.t. 686 123

Consumption 000 m.t. 972 187

Exports (Imports) 000 m.t. -286 -64

Producers price US$ m.t 187 293

"Consumers" pric1 US$ n.t. 140 266

EEC: price US$ m.t. 215 332

Price elasticity of supply 0.2 0.3

Price elasticity of demand -0.3 -0.5

Estimated change in production 000 m.t. +21 5

Estimated change in consumption 000 m.t. -156 -23

Reduction in imports 000 m.t. -109 -28

Net social loss in production mil US$ 0.3 0.1(NSL )2/

p

Net social loss in consumption mil US 5.9 0.8(NSL )2/

Net social loss (NSL)2/ mil US$ 6.2 0.9

Welfare gain of producers 3/ mil US$ 19 5

Welfare gain of consumers 3/ mil US$ -67 -11

Increase in government revenue 3/ mil US$ +42 5

Cost of Imports 3/ mil US$ 23 12

Change in foreign exchange earnings 3/ mil US$ +29 +10

* Rice Production and Consumption data is average for 1976-77 becauseof unusually depressed 1976 production.

It Processors price._/ As a result of the previous price levels.3/ After changing to the EEC price levels.

Note: Methodology used is described in Attachment III to this workingdocument.

- 83 - Appendix Table XXVII

REAL AND MONETARY EFFECTS OF ADJUSTMENT OF PORTUGUESE 'EEC LEVEL'CONSUMER PRICES OF WHEAT AND RICE TO PRESENT PORTUGUESE CONSUMER PRICES

(1976 data)*

Unit Wheat Rice

Production 000 m.t. 707 128

Consumption 000 m.t. 816 164

Exports (Imports) 000 m.t. -109 -36

EEC price US$ m.t 215 332

Producer (EEC) price US$ m.t. 215 332

Restoration of previous consumer price US$ m.t. 140 266

Price elasticity of supply 0.2 0.3

Price elasticity of demand -0.3 -0.5

Estimated change in production 000 m.t. - -

Estimated change in consumption 000 m.t. 156 23

Increase in imports 000 m.t. 156 23

Net social loss in production mil US$ - -(NSL ) l/

Net social loss in consumption mil US$ 5.9 0.8(NSLc ) 1/

Net social loss (NSL) 1/ mil US$ 5.9 0.8

Welfare gain of producers 1/ mil US$ - -

Welfare gain of consumers 1/ mil US$ 61 11

Increase in government revenue 1/ mil US$ -67 12

Cost of Imports 1/ mil US$ -57 20

Change in foreign exchange earnings 1/ mil US$ -34 8

* Rice Production and Consumption data is average for 1976-77 becauseof unusually depressed 1976 production.

1/ After chaning back to existing Portuguese consumer prices.

Note: Methodology used is described in Attachment III to this workingdocuimenit.

- 84 - Appendix Table XXVIII

REAL AND) MONETARY EFFECTS OF ADJUSTMENT OF PORTUGUESE PRODUCERAND CONSUMER PRICES OF MILK AND BEEF TO EEC LEVELS

(1976 data)*

Unit Milk Beef

Production 000 m.t. 528 78

Consumption 000 m.t. 534 125

E.ports (Inports) 000 m.t. -6 -45

Producers price 11 US$ m.t 389 3150

"Consumers" price us$ r.t. 290 1930

EEC price uSs u. 385 3380

Price elasticity of supply 0.2 0.2

Price elasticity of dcmand -0.7 -1.0

Estiicatad change in production 000 .t. 1 1

Estimated change in consumption 000 m.t. -124 -94

Increase in imports 000 I.t. -125 -95

Net social loss in production mil US$ - -

(NSL) 2/

Net social loss in consumption mil US$ 5.9 68.2

(NSL C) 3/

Net social less (N'SL) 3/ mil US$ 5.9 68.2

WeLfarc Sain of producers 3/ mil US$ -1 18

Welfare gsin of consumers 3/ mil US$ -46 -113

Increose iCr governmeont revenue 3/ mil US$ 53 163

Cost of zmports 3/ mil US$ (45) (169)

Ch:;nge i: foreign exchange enrninrs 3/ mil US$ +48 289

I/ After taking into account direct and indirect producer subsidies.

2/ As a result of previous price levels.3/ After changing to the new (EEC) price level.

NOTE: Methodology used is described in Attachment III to this Wlorking

Document.

- 85 - Appendix Table XXVIXREAL AND MONETARY EFFECTS OF ADJUSTMENT OF PORTUGUESE 'EEC LEVEL'

CONSUMER PRICES OF MILK AND BEEF TO PRESENT PORTUGUESE CONSUMER PRICES

(1976 data)*

Unit Milk Beef

Production 000 m.t. 529 79

Consumption 000 m.t. 410 30

Exports (Imports) 000 m.t. 119 49

EEC price US$ m.t 386 3380

Producer (EEC) price US$ m.t. 386 3380

Restoration of previous consumer price US$ m.t. 290 1930

Price elasticity of supply 0.2 0.2

Price elasticity of demand -0.7 -1.0

Estimated change in production 000 m.t. - -

Esti1.ated change in consumption 000 m.t. 124 94

Increase in imports 000 m.t. 124 94

Net social loss in production mil US$ - -(NSL ) 1/

Net social loss in consumption mil US$ 5.9 68.2(NSL c) 1/

Net social loss (NSL) 1/ mil us$ 5.9 68.2

Welfare gain of producers 1/ mll US$ -_

Welfare gain of consumers 1/ mil US$ -46 113

Increase in governmcnt revenue 1/ mil US$ 53 181

Cost of Iports 1/ mil US$ 2 317

* Rico Prod;uction ..-d Consu^mption data is average for 1976-77 becauseof unusually depressed 1976 production.

1/ After chaning back to existing Portuguese consumer prices.

Note: FTcthodology tslCd Is dcscribcd in Attaclhment III to this workingdoc u:';.ll .1