Brussels: European Union (EU) governments agreed late on Thursday India time to overhaul the way the trade bloc distributes tens of billions of euros in subsidies to farmers.

The measures, which cover the period from now to 2013, are aimed at revamping a decades-old system in which farmers automatically earned money for farm products whether there was market demand or not. That system has been attacked at the World Trade Organization for making Europe less likely to import more competitive farm products from outside the bloc.

Resisting reforms: Tobacco growers protesting against planned subsidy cuts in Brussels on Wednesday. Sebastien Pirlet / Reuters

“I regret what has been conceded in order to secure a deal which will lead to some new distortions in the short term," said the British environment secretary, Hilary Benn. “We want to see further changes for the benefit of farmers, consumers and the environment and will continue to press for this."

The Common Agricultural Policy absorbs more than 40% of the annual EU budget of more than €100 billion although the bloc's 13 million farmers represent only about 3%of its population.

Britain has led arguments that freer trade is the best way to tackle food crises linked to sharply increased prices over the past year.

France, which gets the biggest slice of EU farm subsidies, worth about €9 billion a year, has opposed a radical restructuring of the system, saying rising food prices underscore the need for a robust programme of regional support for farmers.

Such polarized views meant change was bound to be incremental. Even so, EU officials said the measures would free farmers to produce more food based on market demand and redirect money to more relevant uses like preserving the countryside and protecting the environment.

The reforms are “all about equipping our farmers for the challenges they face in the upcoming years, such as climate change, and freeing them to follow market signals," said Mariann Fischer Boel, the EU commissioner for agriculture and rural development. “I'm pleased we managed to find a compromise."

The measures also are positive for European trade relations, although the system still could affect prices and the way farmers produce, said Indhira Santos, a research fellow specializing in European agriculture at the Bruegel research organization.

“On paper these reforms make the European system more compatible with global trade rules," Santos said. “In practice—although these changes might mean the payments are marginally less distorting—there's really little difference because most of the money still goes to the same people."

But Jack Thurston, the co-founder of, which campaigns for budgetary transparency in European farm spending, said the significance of the reforms would be only very slight for trade relations because most of the international friction about farming in Europe concerned tariffs, rather than quotas or spending.

Among the measures agreed to early Thursday morning was to increase annual milk production quotas each year ahead of a planned abolition of the quota system in 2015.

In addition, EU governments agreed formally to abolish the so-called set-aside, which required some farmland to be kept out of production over the past two decades. EU officials say many farmers already are using all of their farmland, after an earlier agreement to lift the rules temporarily. Abolishing the set-aside entirely should foster greater food production and combat price rises, EU officials say.

The measures also reduce direct payments to medium-sized farmers and to big landowners. That money is to be shifted into other forms of rural spending, such as measures to protect the environment or revitalize the countryside.

But the measures did not go as far as EU officials had hoped. Fischer Boel, the EU agriculture commissioner, had sought a further 8% of all direct payments above €5,000 be shifted to rural projects, but governments limited that increase to 5%. Fischer Boel also had sought to reduce direct payments to the biggest subsidy recipients by up to 9%. But governments scrapped that plan, agreeing instead to reductions of 4% for payments above €300,000 a year.

Thurston, of, said large landholders had managed to maintain their benefits. “The changes will not get the Queen, the Duke of Westminster, or Prince Albert of Monaco off of the front pages of newspapers for being the major beneficiaries of these payments," he said.

With milk prices declining in recent months after sharp rises earlier in the year, some dairy farmers turned up pressure on their governments to go slow on quota reforms, warning that sharper drops in milk prices could hurt their livelihoods. Germany, along with Austria and others, said that moving to jettison quotas too quickly could jeopardize the future of farmers in their mountainous regions.

As a special concession, those farmers will be allowed to use some money earmarked for other sectors. EU officials also will review the plans to scrap the milk quotas in 2010 and 2012 to ensure there would be no serious, long-term damage to the sector.

Italy, by contrast, won a special right to increase production more than other countries in light of its tendency to mismanage production and regularly produce more than the rules had permitted.

Generally, however, the move to end quotas on milk by 2015 would lead farmers to increase the size of their dairy herds in the most productive pastureland in Europe, leading to reduced prices for consumers in the near to medium term, experts said.

France was allowed to continue receiving subsidies that are based on farming sheep and goats. France also lobbied for, and got, a guarantee that the European Commission would have to buy its wheat at a guaranteed price of €101.31 per tonne if prices sink beneath that level, up to 3 million tonnes a year.

An even bigger debate on agricultural spending could lie ahead as part of negotiations on the trade bloc’s total budget after 2013.

Those talks have not started yet, although countries such as France are expected to argue for the need to preserve strong agricultural supports at a time of volatile food prices. However, pressures could grow to cut the EU farm budget if the financial and economic turmoil deepens and puts even greater strain on EU government budgets.

©2008/International Herald Tribune