I tend to do a bit of off the beaten track walking when in Portugal with a mate who has been spending his winters in the Algarve for 20+ years and also does does free walking tours from the hotel. His walks take in a lot of the less touristic routes and are centred around a nature theme and its on one of these walks between Vilamoura and Loule that i first came across the caterpillars, (rubber trees and free orange groves also).
Here is some useful info on the Caterpillar from a Portugal paper.
Processionary Caterpillars - The Facts
Processionary Caterpillars live in Pine trees in southern Europe and North Africa, processionary caterpillar so we get them here in Portugal.
In early spring they can be very dangerous to Pets and Humans alike. Here is some facts about them and what to do if you come across any.
Where and When will you see them?
The Pine Processionary Caterpillar/Moth (Thaumetopoea pityocampa) lives in pine trees and if you have pets or small children and pine trees then you need to know about them. In Português they are known as Lagarta do Pinheiro or Lagartas Processionárias, this could be useful if you need medical help.
In late winter and early spring they come down from their nests in the pine trees and form conspicuous snakelike lines as they travel along the ground searching for soft soil which they can burrow into.
They are found in an around pine forest so in the coastal areas of Leiria district and in the interior mountain areas you need to take care. If you normally walk or take your dogs into the pine forests then you should find somewhere different in early springtime. They are synonymous with pine trees but Hey Portugal has had reports of sightings some distance from the forest in urban areas.
They are an unremarkable moth with cream/brown wings, but when they are at the caterpillar stage they are very dangerous. They are very social caterpillars and live in large family communities, they eat pine needles at night and sleep in nests by day. A tree with 5-6 nests can be stripped of it pine needles.
The nests appear during the winter as white tent like structures, they can house up to 300 caterpillars. Normally around the end of February and early March they start to leave the nest. This time can be as wide as January or April depending on the temperatures.
When the caterpillars leave their nest they are at the dangerous stage and it is also when most people and pets come into contact with them. The colony follows a leader, nose to tail, in a long procession. These processions can vary greatly in length, depending on how many have survived the winter, around 60 is normal. They are searching for soft soil to burrow into so they can start their pupating stage and emerge as moths. They do not usually travel more than 30 meters. .
The dangers explained
The best advice is to avoid contact with these innocent looking creatures at all costs.
The caterpillars are covered in tiny barbed “urticating” hairs, which is their defence mechanism. These hairs are continually being shed so they can be left on branches, or along the ground on the procession route.
When humans and pets come into contact with these hairs, they cause reactions ranging from mild inflammation and irritation to severe anaphylactic shock. The worst problems occur if you make contact with the caterpillar directly and ingest the hairs, as a dog or cat might. Once on your skin a rash forms which can be incredibly itchy. Medical advice should be sought if the rash is severe. It can be very painful, itchy and can last up to 3 weeks.
It is not only people walking in the forest that can 'meet' these irritating pests, but also golfers, anglers and footballers; in fact anyone using any object that could come into contact with a procession. This also includes inquisitive small children! Golfers should check local rules about cleaning and replacing balls, disposable wet-wipes can be useful but should be placed in a plastic bag and sealed until it can be disposed of safely.
Inquisitive dogs may get too close to a procession and pick up the hairs on their paws, these irritate and so they lick them. Once the hairs are on the lips/tongue itching, swelling and possibly vomiting could occur. You might see white spots in the mouth and on the tongue along with excessive drooling and chomping. In some cases partial amputation of the tongue is the only course of action. Seek veterinary advise as soon as possible if you suspect your pet has come into contact with these caterpillars.