June 24, 2013 / 10:37 PM / 4 years ago

EU to cut payments to large farms in subsidy shake-up

* Largest farms set to be biggest losers in CAP reform

* Negotiators agree to limit losses to 30 percent

* Officials say progress made towards reform deal

* Many details still to resolve, deal seen Wednesday

By Nigel Hunt and Charlie Dunmore

LUXEMBOURG, June 25 (Reuters) - European Union negotiators agreed on Monday that large farms could lose up to 30 percent of their current EU subsidy payments in future - but no more than that - as part of reforms to the bloc's 50 billion euro-a-year farm policy.

Representatives from EU governments, the European Parliament and the European Commission reached provisional agreement on various elements of the complex reform during the first day of talks in Luxembourg, EU officials said.

A final agreement is expected after a final round of negotiations in Brussels on Wednesday.

One of the reform's main objectives is to replace the current link between farm payments and historical production levels in many parts of Europe, in favour of subsidies based on the size of agricultural holdings.

The present system disproportionately benefits those who in the years 2000-2002 had the largest output, for example industrial-scale grain producers in France's Paris basin.

The change could have seen Europe's largest farms lose up to 40 percent of their current subsidies, but negotiators agreed to put an upper limit on such losses at no more than 30 percent, according to an EU official who spoke on condition of anonymity.

The changes are designed to make the 50-year-old common agricultural policy (CAP) fairer, to help justify the huge sums paid to farmers each year.

But critics have warned that cutting subsidies to Europe's largest and most efficient farms could harm the bloc's food security.

STEADY PROGRESS

EU officials involved in the talks said good progress had been made towards a deal, particularly in the area of direct subsidies, which will continue to consume three-quarters of the total farm budget from 2014-2020.

All three institutions have agreed that 30 percent of future direct subsidies should be conditional on farmers taking steps to improve their environmental performance.

That will include leaving 5 percent of their land fallow as a haven for wildlife - a share that could increase to 7 percent from 2017 based on proposals from the Commission.

Farm groups have warned that forcing farmers to leave large swathes of land out of cultivation could hit European food production.

A provisional agreement was also reached to prevent certain landowners such as airports, golf courses and campsites from claiming EU farm subsidies as they can at present.

But officials said some tricky issues remained. Among them a disagreement over the deadline for abolishing EU sugar production quotas, blamed for pushing up domestic prices and limiting European sugar exports due to global trade rules.

The Commission proposed an end to quotas in 2015, while governments would prefer 2017 and the parliament 2020. EU officials involved in the talks say a phase-out in 2017 is the most likely outcome, but a final decision will not be taken before Wednesday.

Governments also oppose an upper limit on annual payments to individual farms of 300,000 euros, which is supported by the Commission and parliament.

To offset the impact of shifting subsidies away from some producers, negotiators have agreed to let governments continue linking up to 13 percent of total subsidies to output, which some opponents say goes against the spirit of recent reforms.

But some members of parliament want to allow such "coupled" subsidies to be paid to tobacco farmers - a move vehemently opposed by the Commission.

Agriculture will consume nearly 40 percent of the bloc's 960 billion euro ($1.3 trillion) budget for 2014-2020 - the period covered by the reform - ensuring it remains the biggest single item of EU expenditure.

Europe's biggest agricultural producer, France, will continue to scoop the largest share of CAP funds at around 8 billion euros a year, followed by Spain and Germany each with about 6 billion annually.

If the negotiators strike a deal on Wednesday as expected, it must be rubber-stamped by the full parliament and EU governments before entering force on Jan. 1 next year. ($1 = 0.7612 euros) (Reporting by Charlie Dunmore; Editing by Leslie Gevirtz)

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