Portuguese entrance into the European Community: Implications for dryland agriculture in the Alentejo region

Carlos Alberto F Marques, Purdue University

Abstract

Portuguese entrance into the European Community (EC) requires full harmonization of Portugal's agricultural policies with the Common Agricultural Policy (CAP) by 1998. Pre-entrance (1986) Portuguese prices were well above CAP levels, especially for wheat and coarse grains. Difficulties in financing CAP expenditures and the EC's willingness to negotiate reductions in domestic protection in the Uruguay Round, are expected to accelerate the rate of decline in EC prices. This will require substantial decreases in Portuguese prices. The Alentejo region produces 70 percent of Portuguese wheat and coarse grains. Expected declines in grain prices will significantly reduce the profitability of dryland Alentejo agriculture. This study examines the economic implications for Alentejo producers, especially: (1) adjustments in resource allocations and returns; (2) new production technologies; and (3) shifts in the output mix. Alentejo production is estimated via a regional sector model which links sequential discrete stochastic programming models for three representative farms. Stochastic input-output coefficients model forage and pasture yield variability. Producers base their crop and livestock production decisions on yield probability distributions. Livestock feed mix problems for each yield outcome capture interactions between crop and livestock systems. A MOTAD framework captures income risk from cash crop yield variability and from cost adjustments with purchase feeds. A unique methodological contribution of this thesis is the introduction of intermediate processes and their risk implications in a standard sector model. Projected output price scenarios range from a continuation of moderate declines in EC real prices to trade liberalization. Without technical change, many Alentejo farms fail to earn adequate income levels. Cereal and oilseed production is concentrated on the better quality land and more forage and pasture is produced on poor land. The output mix shifts to more livestock and less cash crops. These adjustments do not avoid large income declines, however. Returns to fixed factors (land, labor and machinery) decline between 58 to 93 percent under alternative price scenarios. Technical change is needed to increase productivity. New technologies (ley-farming) rotations based on legumes and improved livestock production) reduce the declines in producer returns to between 15 and 61 percent. Returns to poor land, labor and tractor power increase with large increases in livestock production with the introduction of ley-farming rotations. New technologies are associated with lower income variability than traditional technologies. Hence, risk avoidance behavior should not constrain their adoption. Any income declines are due to decreases in returns on good quality land with the lower cereal and oilseed prices. Despite expected price declines modest technical improvements in oilseed cereal rotations and increases in livestock based on ley-farming rotations should keep the majority of Alentejo farms in operation.

Degree

Ph.D.

Advisors

Abbott, Purdue University.

Subject Area

Agricultural economics

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