Portugal: Poised for Prosperity

By Maria do Monte Gomes

In recent years, Portugal’s net importer status for agricultural products has made it an important market for U.S. agricultural exports, especially for bulk commodities. But a more affluent consumer, strapped for time but not cash, is changing the focus of the country’s imports.

The time is ripe for U.S. high-value exporters to gain a loyal consumer following in Portugal. And here’s why--

A funny thing happened to the Portuguese between European Union (EU) membership in 1986 and the introduction of the euro (Jan. 1, 1999). While Portugal got its financial act together, its citizens became the primary beneficiaries of an astute economic game plan.

The leaders of Portugal, one of 11 member states qualified to use the single currency under the EU’s strict criteria, have balanced the checkbook, checked inflation and fostered a thriving economic expansion. Further evidence of a healthy economy: Unemployment declined to 5.9 percent in the first quarter of 1998 and per capita income--at $12,400--now exceeds 70 percent of the EU average, up from 53 percent in 1985. Consumer confidence--and spending--is up.

Other positive economic indicators have contributed to the good times: External demand for Portuguese exports is high. Completion of major public infrastructure projects and the expansionary impact of the 1998 Lisbon World Exposition have furthered real growth--to a comfortable 4 percent last year.

Agriculture Lags Other Industries

As the industrial and service sectors of the economy chalk up remarkable growth, the agriculture sector is just holding its own, falling short of providing enough food for Portugal’s 10 million people.

Despite massive investments pouring in from the EU, Portuguese agriculture remains hobbled by two structural deficiencies: Limited arable land with inadequate irrigation systems and subsidy-dependency in grains, oilseeds and cattle.

On the plus side, wine, dairy, tomatoes for processing and sugar beets are very competitive. Improved marketing practices should enable other fresh horticultural and fruit products to become competitive as well.

Living Standards, Demand Up

Portugal’s growing market dynamism, increasing consumer demand and the aggressive stance of Portuguese agricultural traders in procuring new markets for their products are sweet music to U.S. exporters who can offer high-quality products to discriminating consumers. The rapid growth in its tourism and food processing sectors also augurs well for U.S. products. The economic and demographic changes feeding this market are readily apparent:

• More women are working outside the home (45 percent of the work force in 1997).
• Consumers with more spending power are demanding more variety and customer-friendly changes in traditional retail sales.
• As consumer tastes become more sophisticated, the market is leaning toward more novel, specialty foods.
• Shoppers look for high-quality products and want to see them in attractive packaging.
• The Portuguese consumer is becoming more health conscious, and interest in natural, wholesome foods is high. Products with lower sugar and salt, cholesterol- and fat-free content, and fewer calories are gaining in popularity. They’re looking for more fresh fruit, seafood and meat, good vegetables and delicatessen foods.
• Take-out, mostly from fast-food chains, has led to more dependency on imports.

High-Value Products on Upswing

In 1997, the United States exported $275 million worth of agricultural products to Portugal, about a 5.6-percent slice of Portugal’s import pie, down from $320 million in 1996. Though the expensive dollar didn’t help, the decrease was due largely to shrinking sales of bulk commodities, which in the past made up over half of U.S. exports.

The coming demand in this market will be for high-value products. However, with the relative strength of the dollar, the Portuguese may look to other cheaper sources unless effective promotions touting the high quality of the U.S. product attract the buyer’s euro.

Retail Market Competitive

Nearby EU countries provide stiff competition for the United States. So stiff, it’s even called into question the survival of the Portuguese food processing industry.

To stay viable, suppliers must use heavy advertising to keep their products on consumers’ radar screens. Food distributors often offer food discounts, prizes and other promotional programs. These distributors voice two U.S. shortcomings in this competitive atmosphere: disinterest in supporting promotions and pricing inconsistencies.

They point out that competitors are always well represented at Portuguese agricultural fairs and food-related shows. Other nations advertise in Portugal’s food magazines and on television, and join with hotels in weekly menu promotions, complete with food products, cooks, exhibits and decorations.

Competition also heats up among Portuguese and foreign firms over extremely expensive hypermarket shelf space. Suppliers are fighting to maintain and expand exposure of their products as the number of hypermarkets increases. The struggle is getting even more intense as larger stores continue to carry more private label products, constricting shelf space even more for branded products.

Local manufacturers are feeling the squeeze on profit margins as big retailers prefer to cut costs by buying from neighboring countries. France and Spain dominate consumer-ready frozen and non-frozen food products. The EU, South America, the Middle East and China also compete with dried fruits, tree nuts, pulses and prepared product markets.

But the rewards can be ample for those willing to provide quality products and promotional follow-up.

It’s important to get to know the market. While many of the issues exporters face are similar to those iother EU countries, there is at least one notable idiosyncracy. Portuguese buyers’ preference for taking delivery of their products on short notice from nearby countries. This is intended as a hedge against high stocks and costly storage charges.

Distribution Systems Plentiful

With a land area about the size of Indiana, Portugal maintains quite a varied distribution network. The food distribution structure includes wholesalers, retailers (hypermarkets, supermarkets, cooperatives, mom-and-pop stores, convenience stores), institutions and associations.

Portuguese retailers generally make their purchases through a broker from the manufacturer or directly from a distributor, cash-and-carry store, traditional wholesaler or from retailer associations and cooperatives.

The associations and cooperatives, made up mostly of small store owners, help members increase purchasing power, compete with larger stores and access training and trade seminars.

But the role of import agents and traditional brokers is declining, now that retailers are becoming more adept at direct importing.

Hypermarkets and supermarkets, usually joint ventures between the Portuguese and French, control 56 percent of retail food sales. They wield a great influence on the food marketplace, and since they are partial to imports over national production, are important to U.S. exporters.

But the Portuguese government is putting the brakes on the growth of hypermarkets in an effort to protect smaller retailers. With their tremendous buying power, the hypermarkets can be more competitive in pricing and could easily squeeze smaller businesses out of the marketplace.

But whether the exporter sells directly to a retailer or to a distributor, the importer is very important to U.S. product sales in this extremely competitive marketplace. The importer is familiar with market conditions and consumer demand for particular imported products and is willing to work with exporters to make the most of market opportunities.

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The author is an agricultural marketing assistant with the Lisbon, Portugal, Office of Agricultural Affairs. Tel. (351-1) 770-2358; Fax: (351-1) 726-9721; E-mail: aglisbon@esoterica.pt

Hot Sellers for 1997

Overall sales of consumer-ready products in Portugal increased big time in 1997. Check out these gains:

Best bets for U.S. producers: Breakfast cereals, fresh juices, soft drinks and beer, bourbon, ice cream and frozen yogurt, seafood, tree nuts, sauces, peanuts and peanut butter, canned corn and fruits, fresh fruits, pet foods and health and dietetic foods.

Last modified: Thursday, October 14, 2004 PM