Hi Dave, yes you definitely need a licence. They're quite cheap and you can buy them for three years, works out cheaper, if you go there every year. People say you can get the licences from the multibanco cash machines but you need to have a Portuguese bank account for that. that means the only other way to get one on the Algarve is in person, with cash and you need your passport. I usually get mine here
DRAPA (the Portuguese equivalent of DEFRA)
At: Avenida 16 de Junho, Olhão
Tel: 289 723 724
Olhão is about 8km east of Faro, it's a fantastic place to go, it's the centre of the Algarve fishing industry, they have a covered market selling fish brought straight in off boats as they come in. You can sit there with a beer and watch all the loads coming in.
However I have heard that you can also get a licence from the DRAPA office in Faro
DRAPA, Edificio Sede, Patacão, Faro, 8005-511 Faro, Portugal
The licence only costs €4 for a month.
Hope that helps.