International Commerce and the Common Agricultural Policy – Econometric analysis of agricultural exportations

Autores y e-mail de la persona de contacto: MARIA CLARA DIAS PINTO RIBEIRO email: mclara@iscap.ipp.pt ou diamar.clara@gmail.com Phone number: +351 961850022 FRANCISCO VITORINO DA SILVA MARTINS MARIA LEONOR SALVADOR CUNHA VARETA MARIA LUÍSA VERDELHO ALVES Departamento: Economia/ISCAP/IPP Universidad: Instituto Superior de Contabilidade e Administração, Rua Jaime Lopes Amorim 4465-004 S. Mamede de Infesta PORTUGAL and Faculdade de Economia (FEP)/Universidade do Porto Faculdade de Economia da Universidade do Porto, Rua Dr. Roberto Frias, 4200-464 Porto PORTUGAL Área Temática: Análisis económica espacial, método de análisis regional y econometría espacial Abstract

This work’s goal is to analyse the Common Agricultural Policy (CAP) and its influence on

Portuguese exportations regarding agricultural goods for the European Union.

The implementation of CAP in Portugal forced the regulation of this activity sector by the rules

and disciplines in there established and its evolution was and is conditioned by the evolution of

CAP itself. Firstly we will comprehensively analyse CAP’s evolution, bringing the taken

decisions into context, in the scope of the integration process itself and of the extensions of the

European Union in the ambit of international commerce.

The econometric advanced model aims to capture the effect of the economic-legal context’s

modifications, namely of the politics and measure implemented by the EU regarding the CAP, in

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the evolution of Portuguese exportations of agricultural goods for the EU, in the period between

1975 and 2012.

The investigation results highlight a meaningful relation between the exportations’ evolution,

during the period in analysis, and the economic variables considered in the study. For instance,

we can confirm the positive influence of the rise of those goods’ demand by the community

market, and of the Portuguese Gross Domestic Product (GDP); and the negative influence of

the rise of the real effective exchange rates in Portugal and the rise of production costs.

The introduction of dummy variables in the estimated models also allows to confirm the positive

effect of the application of CAP in Portugal, from 1986, in the exportations of agricultural goods

to the EU, although it does not reveal statistically significant or conclusive results regarding the

alterations of its normative board, that for five decades altered the rules and the instruments of

application of CAP.

Palabras Clave (Keywords): Rural Economy, Agricultural Exportations, European Union, Econometric Modelling Clasificación JEL: JEL: R12, F42, F43, C51

1. Introduction

Decision making regarding agricultural policies, which has materialized in a normative

board, common to the EU’s member states, has since long extended beyond the sphere

of competence of each member state to the sphere of competence of the Union. For over

50 year, CAP has suffered several reforms, related to both its goals and the measures to

implement in order to achieve those same goals. These reforms mirror the need for the

revision of the previously mentioned policies, given the results, but also the necessity

for a permanent adaptation to the new circumstances, which result from the successive

broadening of the Union and the deepening of the European integration process and, not

less importantly, from the effect the external community has in its political and

commercial relations.

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Portugal, as a member of the EU and international partner in the global market, has

suffered the impact of implementing an agricultural policy whose rules, having been

sketched for a broad Europe, have drastically revolutionized the national agricultural

sector, changing its characteristic array. Acknowledging the importance and

inevitability of CAP on the Portuguese agriculture – for the three decades that separate

us from Portugal’s adhering to the then European Economic Community (EEC) – , we

aim to understand if implementing this policy has significantly influenced international

trade of Portuguese agricultural products, specifically its export to the community

market. This analysis is more relevant given the economic crisis scenario that Portugal

is going through, as the exports sector is a measure of strategic and political orientation

capable of contributing to the development of business activity and of helping to

rebalance the trade balance.

This quantitative research aims to determine what the effect of changes in the legal and

economic context is, namely the policies and measures implemented by the EU

regarding the CAP, in the evolution of Portuguese exports of agricultural goods to the

community market, for a period of thirty-eight years. An explicative model has been

developed on the evolution of the Portuguese agricultural products’ exports, from 1975

to 2012, which intends to confirm or infirm the existence of a correlation between the

application of CAP since 1986 and the evolution of exports.

2. The Portuguese Agriculture within CAP

With CAP’s implementation in 1986, after Portugal’s adhesion to the EEC, the

Portuguese agriculture started regulating itself by the rules and discipline there

established, thus conditioning its evolution to CAP’s own evolution.

The Portuguese agriculture’s specificity at the date of the adhesion, compared to the

global agriculture of the remaining member States, forced the establishment of a

transitory program that allowed its gradual adaptation to CAP. The treaty of adhesion to

the EEC, signed in June 19851, established a transitory period of 10 years, aiming for

the adjustments that CAP demanded regarding market organisation and price and sector

1 Signed on 11th June 1985, it was published in the JO of the European Communities L302, Special Edition of 15th November 1985, together with the other Acts regarding the adhesion of the Kingdom of Spain and the Portuguese Republic to the European Communities.

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policies’ harmonization. According to the article 234º of the Act related to the adhesion

conditions, it was settled that the application of the communitarian regulation to

agricultural products would be done according to a classical transition or a step by step

transition, according to the bigger or lesser vulnerability of the sectors to the

competition intensification that was predicted.

The classical transition, whose duration was predicted as a period of seven years,

included some products in which the adaptation of the markets’ and community prices

(close to the national prices) would not predictably bring trouble. It was operated

through eliminating tariff and non-tariff barriers to commerce between Portugal and the

ten member states, in the implementation of the common customs tariff on the

extracommunity trades, as well as on the application of preferrential regimens in the

EEC, and in the application of compensatory amounts of adhesion; the transition

thorugh phases was applied to products in which the CAP’s adaptation presupposed

substancial changes in the market organizations or in which the price difference

between Portugal and the Community was significant. To these, which corresponded to

about 85% of the value of Portuguese agricultural production, was stipulated a

progressive adaptation in two 5-year stages (DG AGRI, 2003; Marques, 2004).

Portugal was supported by structural measures (namely the Specific Program of

Agricultural Development in Portugal – PEDAP), still in the pre-adhesion regimen

scope, to which followed the application of the structural community policy.

With the establishment of the single European market and with CAP’s reform in 1992,

Portugal ended up finishing the process of price harmonization way earlier than initially

predicted and fully adopting the Common Agricultural Policy.

Although CAP’s initial goals were still standing at the time of adhesion, there was

already a reorientation of those goals going on as to contain production. The already

modern European agricultures, confronted with agricultural surplus, needed to drain the

stored products, to whose absorption Portugal, as other countries with not enough

production, was important. This was responsible for increased hardship in reconciling

what was desirable to the development of a structurally debilitated agriculture with

serious difficulties in competing in the community agricultural market and what was the

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new path that the common agricultural policy was beginning. Portugal needed policies

that promoted its productivity and development, and became part of a Europe that from

1992 started to implement productivity control measures, counteracting the logic that

had been traced when Portugal had entered (Marques, 2004; Silva, 2000).

The new policy that stood by the farmer’s revenue through a direct help mechanism

over the population had the negative effect of provoking a break in the sector’s

technological investment and in production that, regarding Portugal, was still

insufficient. Thus Portugal has seen its economic dependence rise regarding food,

worsening the trade balance and external debt (Marques, 2004; Silva, 2000).

Additionally, CAP has always privileged certain products over others, making market

support unequal. Costa (2003) mentions that Portuguese farmers got on average five

times less than European farms, despite the fact that the revenue that they make matches

on average a third of theirs. To this scenario adds that two thirds of helps are channelled

to only 4% of Portuguese farmers. Silva (2000) strengthens this unbalance idea in the

agricultural funds distribution, stating that distribution is made according to Central

Europe countries’ best interests, whose dominant cultures collect about 2/3 of the

budget. This situation clearly benefits richer countries and penalizes the peripheral south

countries and its specific productions, namely familiar farming.

Despite this scenario, the Audit Office report (2001) concluded that between 1990 and

1996 there were average competitive gains from the Portuguese agriculture which were

4.1 times higher than those of the EC, as a consequence of the comparative advantages

gains reached as a result of structural improvements in that period. According to the

auditing report, those gains “more than compensated the earth’s economic productivity

losses suffered by the Portuguese agriculture (…), consequence, on a large scale, of the

productive and technological options that were adopted after CAP’s reform (Audit

Office report – Tribunal de Contas, 2001, p.18).

However, to Marques (2004) this policy’s costs resulted in an artificial adjustment in

Portugal, according to the agricultural policy measures, namely the supports for

security, which did not contribute at all to the Portuguese agriculture competitiveness in

the European market not to stimulate innovation. Silva (2000) also shares the idea that

despite the initial advantages to the Portuguese agriculture, which came from the

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entrance to the EEC, its situation suffered a relative regression and became increasingly

dependent of the outside world.

During a deep financial and economic crisis as the one Portugal has been crossing since

2008, exports are crucial to rebalance the Portuguese trade balance. In this sense,

“taking into account the high level of industrialization of consumer goods and the

acknowledged distribution concentration”, the national strategy should be the “bet in the

rise in agrifood companies’ capacity and the opening of external markets”, that will

bring “very positive effects to the Portuguese agriculture which, not being able to be a

net and competitive exporter of raw materials can, however, be a preferential source of

the food industry, namely the first transformation qualifying supply and creating new

investment and modernization opportunities” (MAMAOT, 2013a, p.8).

3. Study of the Agricultural Goods’ Portuguese Exports to the European Union

(1975-2012): Estimates of the Export Function

The Portuguese exports presented very turbulent behaviour throughout the last decades,

from the institutionalization of democracy, to the adhesion to the EEC, to the successive

broadening of the Union and to the deepening of the European integration process, to

the adoption of the single currency and, more recently, to the crisis emerging since

2008. All these facts will make up the background for the fall in agrifoods exports after

the golden period of Portugal’s adhesion to the European Free Trade Agreement

(EFTA)2 and the notorious recent rise of this tier (CGD, 2012).

We will try to capture the changes in Portuguese agricultural goods’ exports, in the

period between 1975 and 2012, resulting from the modifications of the economic and

legal background with an impact in the explaining of the Portuguese agricultural

market. After this more descriptive analysis, we will aim to explain the behaviour of the

Portuguese agricultural exports to the EU, the analysis of export functions that try to

capture the effects of changes in the economic and legal background itself as informed

by CAP in the period after 1975. In this sense, and with the aim of confirming or

infirming the existence of a correlation between CAP’s implementation in 1986 and

more marking reforms that it was a target of, and the evolution of exports to the EU in

2 It is a Free Trade Association, whose Convention was signed in Stockholm in 1959, of which Portugal was a part of until adhering to EEC. Nowadays, Norway, Switzerland, Iceland and Liechtenstein are a part of this economic block.

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the period mentioned, will be considered in the study the years of 1986, 1992, 2004 and

2007.

The estimation of export function has typically two approaches. One considers the

hypothesis of a “small” country, whose dimension implies that the external demand is

infinitely elastic to the price and thus is very sensitive to price variations. This approach

assumes, to explain the exports’ behaviour, the estimation of the supply function, which

is explained by variables as the input costs, the real exchange rate, the use of the

productive capacity and the potential product. A second approach is based on the

premise that the exporting country possesses an important share of the world supply or

that the exported goods are specific or differentiated, being the price elasticity of the

external demand finite. In this case, the export function is given by the demand function

and elects as explicative variables the world income and relative price3.

In the Portuguese case, as it clearly is a small, open economy, the first formulation to

the study of exports seems to be the most adequate. Therefore, a descriptive analysis of

the evolution of Portuguese agricultural exports will be made, highlighting its behaviour

by sub periods. Then, the modelling of the export functions will be explained, as well as

the definition of the variables to be used in the model, the estimation process and the

adopted sample. Lastly, the estimation results will be discussed.

3.1. Methodology and Descriptive Analysis

The evolution of Portuguese agricultural products exports has been growing throughout

the analysis period; the European Union-28 stands out as its preferential destiny, when

compared to the markets located in other countries, as we can understand from the

Figures 1 and 2.

3 For a more extensive revision of the literature, see Schettini & others (2012, pp.169-171)

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FIGURE 1 – Portuguese agricultural exports to the EU and world (1975-2012)

Besides that tendency, Figure 2 illustrates the effect of Portugal adhering to the EEC in

the relevance that it has attributed to the community market, despite the somewhat

erratic behaviour, as the preferential destiny of the Portuguese agricultural goods. The

strong increase in the relative weight of the EU market in the international total only

presented a tendency to decrease again after the beginning of the economic and

financial world crisis, which has affected Europe with reflexes from 2006 and that was

still going in 2012.

EU World

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FIGURE 2 – Portuguese agricultural exports’ weight to the EU in the world total (1975-2012)

Source: Self-made (CEPII, Chelem database)

Five periods were then considered: 1975-1985; 1986-1991; 1992-2003; 2004-2006; and

2007-2012. The segmentation between the periods matches moments in which marking

circumstances occurred regarding the legal/economic background, which is considered

to have had a meaningful impact on the exports’ evolution to the EU-28.

The period 1975-1985 matches the period before Portugal’s adhesion to the EEC; the

year 1986 marks the beginning of CAP’s implementation in Portugal; the year 1992 was

the year of CAP’s first big reform, representing a turn in the agricultural policies’

orientation; 2004 was the year of EU’s broadening towards Central and Eastern

Europe’s countries, with the entering of ten new member states, overlapping also with a

CAP’s reform more oriented towards the international market; in 2007, the economic

and financial world crisis began, anticipating the economic crisis in Europe.

By analysing the Portuguese agricultural exports to the EU-28 for the mentioned

periods, and once the found values are deflated (deflated data by the GDP deflator), we

can see that there is a contraction after Portugal’s adhesion to the EEC, until 2003. After

this date there is a recovery, more pronounced from 2007 to 2012 (as described in Table

1).

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TABLE 1 – Average and median of Portuguese agricultural exports by periods (mUSD, deflated)

Years Periods Number of Years

Average Median

1975-1985 1 11 120,459 140,522

1986-1991 2 6 63,371 63,554

1992-2003 3 12 58,841 59,494

2004-2006 4 3 87,949 86,394

2007-2012 5 6 134,338 133,891

Totais 38 91,611 69,790

Source: Self-made (CEPII, Chelem database)

Testing the equality of these descriptive measures (average and median) between

periods, we can note that the periods in which there is statistical evidence of its

alteration are the years of 1986, 2004 and 2007, as one can see from analysing Tables 2

and 3.

The year of 1992 does not present itself as being statistically significant.

TABLE 2 – Test for the equality of the average values by periods4

2.1. Periods: 1975-1985 versus 1986-2012

D86 Number of Years Average 0 11 120,459 1 27 79,859

Totals 38 91,611

Test Value Probability

Anova F-Test 9,225 0,004

4 The statistical significance can be directly observed in the column ‘Value’.

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2.2.Periods: 1975-2003 versus 2004-2012 D04 Number of Years Average

0 29 83,150 1 9 118,875

Totals 38 91,611

Test Value Probability Anova F-Test 5,802 0,021

2.3.Periods: 1975-2006 versus 2007-2012

D07 Number of Years Average 0 32 83,600 1 6 134,338

Totals 38 91,611

Test Value Probability Anova F-Test 9,337 0,004

Source: Self-made (CEPII, Chelem database, World Bank; output Eviews)

The results indicate a statistically meaningful change of the average for the Portuguese

agricultural exports (deflated) to the EU-28 between the periods: before and after 1986,

before and after 2004 and before and after 2007.

Likewise, if we elect the median (a more robust measure than the mean, as it is not as

sensitive to the data), the conclusions are identical, as we can verify by analysing the

table that follows.

TABLE 3 – Equality test for the medians by period

3.1.Periods: 1975-1985 versus 1986-2012

D86 Number of Years Median 0 11 140,522 1 27 65,020

Totals 38 69,790

Tests Value Probability Willcoxon/Mann-Whitney 2,350 0,019

Chi-squared 3,199 0,074

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3.2.Periods: 1975-2003 versus 2004-2012

D04 Number of Years Median

0 29 61,948 1 9 118,157

Totals 38 69,790

Tests Value Probability

Willcoxon/Mann-Whitney 2,575 0,010 Chi-squared 11,793 0,001

3.3.Periods: 1975-2007 versus 2007-2012

D07 Number of Years Median

0 32 65,560 1 6 133,891

Totals 38 69,790

Tests Value Probability

Willcoxon/Mann-Whitney 2,542 0,011 Chi-squared 7,125 0,008

Source: Self-made (CEPII, Chelem database, World Bank; output Eviews)

3.2. The exports functions

The study of Portuguese agricultural exports’ behaviour will be made resorting to

exports functions.

In the modelling process, alternate models are tested, go through tunings and eventually

substituted by others, until a model that fulfils the intended goals is found. The

modelling of the exports functions in the case of Portuguese exports of agricultural

goods to the EU-28 was a result of the consideration, theoretically, of the following

hypothesis of explicative variables: the external demand of these good’s area, as it

reflects the insertion of the Portuguese economy in the Union; the exchange rate; the

input costs; and dummy or binary variables to try and capture the effects of legal and

economic changes of this sector.

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In this research, we went from a general model that included the entirety of the

considered variables, which underwent successive improvements and adjustments,

evolving to three explicative models that, as a whole, contemplate the tested variables,

and that are presented as follows.

3.3. The models, the variables’ definitions and the sample

In the first model we aimed to model the dependent variable, namely Portugal’s

agricultural exports to the EU-28, using three independent or explicative variables: the

demand for agricultural goods by the EU, the leverage effect of the period previous to

the one in analysis’ exports and the exchange rates.

The collected data on Portuguese exports to the EU-28, annual data on an aggregate

basis, took into account 12 sub-categories, following the Chelem nomenclature: cereal;

other agricultural products; inedible agricultural products; cereal-based products; dairy

products and derivatives; meat and fish; canned goods and vegetable preparations;

sugar; chocolate and confectionary products; foods for animals; alcoholic and non-

alcoholic beverages and manufactured tobacco. The demand for agricultural goods by

the EU was captured through the gathering of data for the world exports to the EU-28.

TABLE 4 - Model 1

Variables Description Units Source

XPUETT Portugal’s agricultural exports to the EU-28

Thousands of USD

CEPII, Chelem database

XMUTT Total agricultural products’ imports by the EU-28

Thousands of USD

CEPII, Chelem database

XPUTT-1 Portugal’s agricultural exports to the EU-28, on the previous period

Thousands of USD

CEPII, Chelem database

PTXCAMBIO Real effective exchange rates for Portugal

Index basis 2005 (2005=100)

World DataBank (World Development Indicators)

represents, as usual, the disturbance terms or random errors.

The variables were logarithmized, allowing for the direct analysis of the short-

term elasticities. The lagged variable of the Portuguese agricultural exports, included in

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the model, enables the understanding of the long-term elasticities. Two types of dummy

or binary variables were also assumed:

Variables that reflect the “before” and “after” periods, which aim to capture

changes in agricultural exports associated to economic and legislative alterations

in certain periods (for example, D86 assumes the value “0” from 1975 to 1985

and “1” from 1986 to 2012). In this model only the years of 1986 and 2007

presented relevant coefficients.

Annual dummy variables which had as a goal the improvement of the models’

adjustment, assuming the value “1” only in the year to which they report (for

example, DY08 assumes the value “1” in the year of 2008, and “0” in all the

other years). In this model the years of 1981, 1996 and 2008 were included

because they presented results which were very different from what was

expected.

The basis sample consists of temporal series of the period 1975-2012, that is, 38 years.

In this model a period is “lost” as the lagged variable is included, meaning that

effectively the series is comprised of 37 years (1976-2012).

In the second model, a new explicative variable was introduced, relative to the

Portuguese GFP to refer to productive capacity.

TABLE 5 - Model 2

Variables Description Units Source

XPUETT Portugal’s agricultural exports to the EU-28

Thousands of USD CEPII, Chelem database

XMUTT Total agricultural products’ imports by the EU-28

Thousands of USD

CEPII, Chelem database

PTXCAMBIO Real effective exchange rates for Portugal

Index basis 2005 (2005=100)

World DataBank (World Development Indicators)

PIBP_2005 Portuguese GDP Thousands of USD, in basis prices from 2005

World DataBank (World Development Indicators)

represents the disturbance terms or random errors.

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The variables were logarithmized and two types of dummys were included, as it was the

case for the previous model. In this model, we included yet another annual dummy

variable, to improve its adjustment, which reports to the year of 1975 and that in the

previous model was not included in the number of observations as a consequence of the

inclusion of the lagged variable. The sample is made of temporal series from the period

of 1975-2012, 38 effective years.

In Figure 3 the Portuguese exports to the EU-28’s evolution is represented, as is the

evolution of the explicative variables in the models 1 and 2: European imports,

Portugal’s exchange rate index and Portuguese GDP.

FIGURE 3 – Evolution of the variables included in the models 1 and 2

Source: Self-made (CEPII, Chelem database, World Bank)

The recent dynamism of the Portuguese agricultural products’ exports is noteworthy,

going against the depressive conjuncture that the GDP’s evolution shows, as we had

previously noted in the descriptive analysis made in the beginning of this chapter (2.1).

On the other hand this tendency follows the demand for agricultural goods by the EU’s

tendency to grow.

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The third model introduces explicative variables related to production costs, more

specifically the agricultural wage costs, and the price index of the means of production

and investment in agriculture.

The dummy variables that in the previous models aimed to capture the effect of changes

in the economic and legal background informed by CAP in the period post-1975 were

not included, as we aimed instead to explain the behaviour of agricultural goods’

exports to the EU-28 from production inputs.

TABLE 6 - Model 3

Variables Description Units Source

XPUETT Portugal’s agricultural exports to the EU-28

Thousands of USD

CEPII, Chelem database

XMUTT Agricultural products’ total imports by the EU-28

Thousands of USD

CEPII, Chelem database

SAL Wage costs = Wages (Agriculture, Forestry and Fishing)/Number of employees (primary sector)

Thousands of USD

Pordata, INE (National Accounting, basis 2006)

Pordata, INE (Employment Inquiry)

IPIA_IC Price index of Means of Production in Agriculture – goods and services of current consumption in Agriculture

Index basis 1990=100

INE (Manufacturer Agricultural Products Price Indexes).

The indexes were recalculated by the author for the basis 1990

IPIA_IIC Price index of Means of Production in Agriculture – Investment Goods

Index basis 1990=100

INE (Manufacturer Agricultural Products Price Indexes).

The indexes were recalculated by the author for the basis 1990

PIB deflator

Index basis 2005=100

World DataBank (World Development Indicators)

represents the disturbance terms or random errors.

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The variables were logarithmized and only one dummy variable was included, DY08, to

improve the model’s adjustment.

In this model, the analysis period was 1991-2011, matching the years for which there

were agricultural inputs data, in a total of 21 years.

FIGURE 4 – Evolution of the explicative variables included in model 3

The analysis of Figure 4 allows for an understanding of the clear growing evolution of

wage costs after 2003, after an erratic behaviour.

The other costs present an interesting behaviour: the costs linked to current

consumption, including seeds and plants, energy and lubricants, fertilizers and

correctives, foods for animals, other veterinary goods and services and expenses, have a

very close evolution to that of the wage costs, while the investment costs – machines

and other equipment goods and tractors, have been growing throughout the entirety of

the period in analysis (1991-2011).

3.4.The estimation process

The estimation process used the method of least squares (Ordinary Least Squares

estimators – OLS) for the estimation of the multiple linear regression models’

parameters. As they are models of temporal series, the assumption of the presupposition

that the components of the random error are random variables non-correlated does not

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come across as true, creating a problem of autocorrelation. Therefore, the three

proposed models have been subject to the autocorrelation correction (heteroskedasticity

and autocorrelation consistent - HAC) and those are the results that will be discussed.

Eviews (version 5) was used for the econometric treatment of the data.

3.5. The estimation results

For Model 1, , the estimation results (output

Eviews) are the following:

TABLE 7 - Model 1: estimation results

Dependent Variable: LOG(XPUETT)

Method: Least Squares

Sample (adjusted): 1976 2012

Included observations: 37 after adjustments

HAC standard errors & covariance (Bartlett kernel, Newey-West fixed

bandwidth = 4.0000)

Variable Coefficient Std. Error t-Statistic Prob.

C -8.099237 1.017137 -7.962778 0.0000

LOG(XMUETT) 1.144518 0.126843 9.023133 0.0000

LOG(PTXCAMBIO) -0.222276 0.081402 -2.730613 0.0108

LNXPUETT(-1) 0.301760 0.075896 3.975962 0.0004

DY81 -0.201317 0.025698 -7.834081 0.0000

DY96 -0.156583 0.024296 -6.444709 0.0000

DY08 -0.033878 0.024500 -1.382761 0.1777

D86 0.057998 0.032841 1.766004 0.0883

D07 -0.096693 0.048891 -1.977746 0.0579

R-squared 0.996666 Mean dependent var 7.002430

Adjusted R-squared 0.995713 S.D. dependent var 0.906863

S.E. of regression 0.059374 Akaike info criterion -2.602146

Sum squared resid 0.098708 Schwarz criterion -2.210301

Log likelihood 57.13971 Hannan-Quinn criter. -2.464003

F-statistic 1046.291 Durbin-Watson stat 1.355040

Prob(F-statistic) 0.000000

Source: Eviews output

The explicative variables’ (XMUETT e PTXCAMBIO) coefficients present the

expected signs. As the EU-28’s demand for agriculture products increases in 1%, the

Portuguese agricultural exports increase in 1.14%. Likewise, as there is a valorisation of

the Portuguese coin in 1%, the Portuguese exports decrease in 0.22%. It is to be noticed

that, from 2002, Portugal, by adhering to the single currency, saw the impact of the

exchange rate in relation to the Euro Zone participant countries abrogated.

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Considering the estimation of the coefficient of (XPUETT-1), it is possible to

recalculate the elasticities for the long term. Thus the long term elasticity associated to

the EU-28’s demand for agricultural goods is 1.43% = 1.14/(1-0.302), against the 1.14%

for the short-term; the long-term exchange rate’s elasticity is -0.32% = -0.22/(1-0.302).

The dummy variables D86 e D07 present opposite sign coefficients. Regarding D86, the

data suggest an increase in exports of 5.8% after 1986, which is explained by the

Portuguese integration into the EEC. Regarding D07, the coefficient estimation points

to a decrease of 9.7% of the Portuguese agricultural exports after 2007, which can be

associated to the eruption of the European crisis. However, this conclusion is

invalidated by the model 2, with an estimate of negative sign.

For Model 2 , , the estimation results are as

follows:

TABLE 8 - Model 2: estimation results

Dependent Variable: LOG(XPUETT) Method: Least Squares Sample: 1975 2012 Included observations: 38 HAC standard errors & covariance (Bartlett kernel, Newey-West fixed bandwidth = 4.0000)

Variable Coefficient Std. Error t-Statistic Prob.

C -15.84214 0.446454 -35.48433 0.0000 LOG(XMUETT) 1.222977 0.041563 29.42499 0.0000

LOG(PTXCAMBIO) -0.301043 0.070064 -4.296675 0.0002 LOG(PIBP_2005) 0.777070 0.068719 11.30791 0.0000

D86 0.026539 0.021191 1.252396 0.2208 D07 0.049246 0.032466 1.516856 0.1405

DY75 0.284725 0.025876 11.00337 0.0000 DY81 -0.109158 0.010433 -10.46328 0.0000 DY96 -0.095426 0.013198 -7.230525 0.0000 DY08 -0.075812 0.013707 -5.530931 0.0000

R-squared 0.998423 Mean dependent var 6.959715 Adjusted R-squared 0.997916 S.D. dependent var 0.932474 S.E. of regression 0.042568 Akaike info criterion -3.254503 Sum squared resid 0.050737 Schwarz criterion -2.823559 Log likelihood 71.83555 Hannan-Quinn criter. -3.101176 F-statistic 1969.628 Durbin-Watson stat 1.701525 Prob(F-statistic) 0.000000

Source: Eviews output

The results allow us to verify that the explicative variables’ coefficients (XMUETT,

PTXCAMBIO e PIBP_2005) have the expected signs.

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As the EU-28’s demand for agricultural products increases in 1%, Portuguese

agricultural exports increase in 1.22%. Likewise, as there is a valorisation of the

Portuguese coin in 1%, the Portuguese exports decrease in 0.30%. The estimate found

for the elasticity associated to the GDP, of 0.78%, suggests that agricultural exports

depend on the entirety of the national economy’s dynamic.

The dummy D86’s sign is still positive, as in Model 1, although the variable goes from

non-significant to 10% in this model. The dummy D07’s sign is now positive, contrarily

to what happened in Model 1. These changes in sign appear to be related to the

introduction of the variable in the GDP.

For Model 3, , the estimation

results are the following:

TABLE 9 - Model 3: estimation results

Dependent Variable: LOG(XPUETT)

Method: Least Squares

Sample (adjusted): 1991 2011

Included observations: 21 after adjustments

HAC standard errors & covariance (Bartlett kernel, Newey-West fixed bandwidth = 3.0000)

Variable Coefficient Std. Error t-Statistic Prob.

C -7.112135 1.151008 -6.179048 0.0000

LOG(XMUETT) 1.337589 0.106590 12.54894 0.0000

LOG(SAL) -0.226659 0.131465 -1.724105 0.1040

LOG((IPIA_IC+IPIA_IIC)/2)/((PIBD_IND)) -2.437091 1.034131 -2.356655 0.0315

DY08 -0.063518 0.029595 -2.146216 0.0475

R-squared 0.987077 Mean dependent var 7.572976

Adjusted R-squared 0.983846 S.D. dependent var 0.526547

S.E. of regression 0.066924 Akaike info criterion -2.366262

Sum squared resid 0.071661 Schwarz criterion -2.117566

Log likelihood 29.84575 Hannan-Quinn criter. -2.312288

F-statistic 305.5138 Durbin-Watson stat 0.965461

Prob(F-statistic) 0.000000

Source: Eviews output With this model, the variables related to the input costs are introduced. The explicative

variables’ coefficients (EU-28’s demand for agricultural products, labour costs and

other costs) have the expected signs.

21

As the EU-28’s demand for agricultural products increases in 1%, the Portuguese

agricultural exports increase in 1.34%.

If the wage costs increase in 1%, agricultural exports decrease 0.23%. If other costs

(associated to current consumption and investment) suffer an increase of 1%,

agricultural exports retract in 2.44%.

This model points to the control of other costs (current consumption and investment) as

the most efficient way to foment the Portuguese agricultural exports.

The dummy DY08’s sign is negative, indicating that year implied a decrease in exports

of 0.06%, an expectable result given the economic crisis situation in 2008.

4. Conclusions

The contextualization of the Portuguese agriculture within CAP has set the background

for the study of Portuguese agricultural goods’ exports to the EU, in the period between

1975 and 2012, aiming to establish estimates of the export function.

The goal of the study was to determine what the effect of changes in the economic and

legal background is, namely policies and measures implemented by the EU within CAP,

in the evolution of the Portuguese exports of agricultural goods to the community

market.

The modelling process allowed to establish three explicative models for the behaviour

of the agricultural goods’ exports to the EU-28, that suggest the existence of a relevant

relationship between the evolution of exports, in the period in analysis, and the

economic variables considered in the study. An increase in the demand for agricultural

goods in the EU, as well as an increase in the Portuguese GDP, has a positive and

relevant effecting in the exports of agricultural goods to the EU-28. The increase in the

Portuguese real effective exchange rates and in the production costs revealed a

significant decreasing effect in those goods’ exports.

As for the legal background effect, result of the implementation of CAP in Portugal in

1986, and the changes of the normative surroundings that altered the rules and

application instruments of that policy, considered in the modelling process under the

22

shape of dummy variables, the results point towards a significant effect regarding the

year of 1986.

Regarding this year, which overlapped with Portugal’s entry in the EEC, the models

indicate a positive effect on the agricultural goods’ exports, although one of the final

models, which included the variable, has revealed a unilaterally non-significant

coefficient at 10%.

Statistically, the results do not allow the conclusion that CAP’s reforms help to explain

the Portuguese exports of agricultural goods’ evolution with destiny to the community

market throughout the period in analysis, contrarily to what was expected.

The year of 2007, which matched the emerging crisis in Europe, besides overlapping as

well with the beginning of yet another CAP reform, was the exception, although the

results found were not conclusive, as its effect, albeit significant, points in the opposite

direction compared to the two models that included the variable.

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