Flour Milling in Portugal
July 01, 1996
by Teresa Acklin
At the International Milling Association May conference in Sintra, Portugal, Rui Castro Fontes, president of the Portuguese Milling Association and conference host, described the history and current status of his country's milling industry
Portugal is a country of 10 million inhabitants and has been a member of the European Economic Community since 1986. Because of the country's political isolation, which only ended in 1974, we have much to learn from other countries in Europe and from further afield.
The spread of the Austro-Hungarian system in the final years of the 19th century saw the appearance of mills of considerable size in Portugal and across Europe. In those days, large-scale mills in Portugal were located close to grain markets and had considerable processing capacity.
At the beginning of the present century, Portugal imported most of the wheat it consumed, as its own production could not meet domestic requirements. The mills thus operated according to two main factors: the costs of transporting raw materials and the proximity to zones of high population density and therefore flour consumption. This strategy was to prove a lasting one, and even today is fundamental to the normal operation of major companies.
Until the end of the First World War, the milling industry was extremely powerful and constantly sought to impose the prices and policies which most suited it. It should therefore come as no surprise that it was involved in constant battles with the successive governments which followed the installation of the Republic in 1910.
As an essential product, bread was also a politically sensitive issue, and the milling industry fought incessantly against government attempts to restrict the price of flour. This situation gave rise to major instability in the milling industry in Portugal and in turn caused unrest in the bakery sector.
On May 28, 1926, the so-called National Revolution took place, with the rise to power of Antonio Oliveira Salazar, who was to govern Portugal for the next 40 years and more. Salazar drew his inspiration from the Italian system under (Benito) Mussolini and chose the milling industry for his first experiment in corporatism. There were 240 mills in Portugal at that time, with a capacity three and a half times greater than domestic consumption requirements.
In 1934, Oliveira Salazar created the National Milling Industry Federation, which was totally controlled by the Portuguese state with the voluntary depletion of milling capacity as its principal objective. As part of the Federation's strategy, the construction of new mills and expansion of the capacity of existing mills were prohibited. Of the original 240 mills, 77 later remained. They were permitted to operate for eight hours every day.
The Federation was in those days responsible for supplying the mills with wheat, which was allocated to each mill in stipulated proportions. By the same policy, each mill was restricted to a certain level of flour production, while clients were only allowed to buy certain amounts of flour from a given mill upon prior payment in cash.
The corporatist system also set the price of wheat, flour, bran and bread, with the power of the mills restricted to the negotiation of annual processing charges. This policy remained practically unchanged until the Revolution of April 25, 1974.
The Revolution marked the beginning of the deregulation of the milling sector, which had at the time 62 mills in operation. The Federation was abolished and replaced by a number of free associations, whereby mills grouped together for reasons of geographic location or operational strategy.
Not until 1990 did we succeed in bringing together the majority of flour mills — in terms of production capacity — in a single association: the present Portuguese Milling Association. The Association includes among its members the three semolina plants currently existing in Portugal as well as their pasta factories.
The wheat market nevertheless continued to be state-controlled. The food manufacturing industry was supplied with cereal by a state-run company operating on a monopoly basis, though the market for home-produced wheat was deregulated in 1986.
Meanwhile, all wheat imported from the United States, Canada and Saudi Arabia remained under state control until 1989 — although in practice the sector was only able to import wheat directly as of Jan. 1, 1991, when the second phase of Portugal's induction into the European Community began. Since that date, almost all imported wheat is produced within the European Community.
The flour market has also been totally deregulated, although for several years after deregulation prices continued to be supervised for reasons of inflation control. Today, prices are no longer subject to control. But the process was far from easy.
With an excess of processing capacity and unaccustomed as the sector was to operating on the free market, prices began to fall drastically. Some mills — those who were more secure financially and who were more competitive in their business approach — began to modernize and expand their processing capacity.
The combination of the above factors has signified the closure of many firms in recent years, who have either gone bankrupt or have been absorbed by other firms. It is mainly for this reason that only 33 mills currently exist in Portugal.
With the agricultural system established for the cereals sector after the Revolution and, more recently, the Common Agricultural Policy and its set-aside structure, the national cereals sector has shrunk substantially in terms of output, in spite of the E.U. development subsidies it has received.
Portugal at a glance
Demography: Population 10.5 million (July 1995); growth rate 0.36% (1995 estimate); 54% urban.
Geography: Land area, 91,640 square km; maritime climate.
Economy: Long-term goal is modernization of markets, industry, infrastructure and work force to catch up with productivity and income levels in other E.U. countries. Per capita gross national product in 1994 was U.S.$10,190, about 55% of the E.U. average, and G.N.P. growth rate was 1.4% the same year. Agriculture employs about 11.2% of the labor force and accounts for 5% of G.N.P.
Government: Republic. Capital is Lisbon.
Official agricultural agencies: Ministry of Agriculture and Fisheries.
Agriculture: The sector is characterized by a large number of small farms, averaging 7 hectares, often scattered among several parcels. Fewer than 50% are considered economically viable. Overall, the land base is small, and poor soils are widespread.
Primary agricultural products: Wine grapes, maize, tomatoes, potatoes.
Source: The World Factbook; U.S. Department of Agriculture
At present, national wheat production accounts for around 13% of consumption by the domestic milling sector.
Unfortunately, forecasts point to a further reduction in this percentage, especially after the E.U. subsidies to the cereals sector are discontinued following the 2002/2003 season.
If wheat consumption in Portugal is already practically dependent on imports from E.C. countries, with the heavier burden of transport costs this entails, what will the situation be like after 2003?
More worrying still is the total absence, as we have already seen this year, of wheat stocks in the Portuguese market intervention mechanism — stocks primarily needed not for regulating market prices but for ensuring supplies to the milling industry.
The situation of the milling sector in Portugal cannot be compared with that of any other country in the European Union. Not only are we a country on the periphery of Europe, we are also one in which the production of wheat for breadmaking is practically non-existent in relation to national requirements.
As for milling, we should remember that the largest mills in Portugal have a production capacity of only 400 to 500 tonnes (per day), compared with 1,000 or 1,500 in some other countries. Our six largest mills meet around 50% of the country's needs, which shows how small the Portuguese market is in relation to its European partners.
Combine the above reason with the financial fragility of the sector and we can see that it is completely out of the question for the milling sector to take responsibility for ensuring that the country has emergency stocks. The problem was made perfectly evident early in the year, when as a result of storms, sea ports were closed for five days, which immediately caused serious difficulties to the normal operations of many mills, especially in the north of the country.
As a member of the European Union, Portugal must in the near future bear the same responsibilities as other member states. But it should also reap the same benefits. Unlike other industries, the milling sector in Portugal has traditionally been family-based and did not receive similar national and E.C. modernization and restructuring assistance when Portugal joined the European Community.
The sector has nevertheless fought — and shall continue to fight for as long as possible — for the existence of a preferably Portuguese-owned milling industry. Only in this way, and in consideration of the particularities of each country, can we feel satisfied with our membership in the European Union with its free market and open frontiers.
I shall close on this note, with the desire that the milling sectors of Portugal and the world over should come to be considered as vitally important for the production of flour, that noble product used in the creation of a foodstuff fundamental to humanity: bread.