The European Commission on Wednesday approved a plan to overhaul the costly 40-year-old system of EU farm subsidies that France, the leading beneficiary of the aid, has vowed to fight.
Proposed changes to the Common Agricultural Policy (CAP), whose approval will require a long and complicated process, will cut the long-standing link between the amount farmers produce and the subsidies they receive.
The planned overhaul comes as the EU prepares to take in new member countries from eastern Europe, several of which are major farming nations, and has put France and Germany on a collision course over the proposals.
In unveiling the plan, European Agriculture Commissioner Franz Fischler said: "While guaranteeing farmers a stable income, the new system will free them from the straitjacket of having to gear their production towards subsidies.
"We cannot expect our rural areas to prosper, our environment to be protected or farm animals to be well looked-after, and our farmers to survive without paying for it," he said.
The CAP has an annual budget of 40 billion euros (US$39.4 billion) which accounts for half of total EU spending.
Germany, the biggest contributor to the EU budget, wants the CAP's major beneficiaries, like France, to front the cost of paying farm subsidies to those countries joining the EU in 2004.
Britain, the Netherlands and Sweden have lined up behind Germany in backing changes to the subsidies, while France is counting on support from Spain, Portugal, Italy, Greece and Ireland to fight the plan in the coming months.
The proposals, to be submitted to EU agricultural ministers on Monday, is certain to provoke strong debate in the next few months, especially in the lead-up to the German federal elections.
As the reform plan was presented, several hundred Spanish farmworkers held a protest march in Brussels against the proposals, declaring they "seriously attacked Spanish famers' interests."
EU farmers organisations, the Committee of Professional Agriculural Organization and the General Committee for EU Agricultural Cooperation also condemned the plans which they said would threaten the enlargement of the EU.
Reflecting the global interest in the plan, Australian Prime Minister John Howard, in Brussels for talks on trade issues with European Commission President Romano Prodi, said it should help Australian farmers by removing distortions from the market.
The EU supplies 24 percent of Australian imports and receives 12 percent of its exports, with agricultural produce being one of the main trade goods.
"If it results in a reduction in surpluses and as a result we face less or fewer subsidised exports from the European Union in the third markets, that will help Australia," he said.
French and Belgian farmers spoke out against the reform plans.
Under the plan, EU farmers would still receive direct subsidies large enough to make any other sector green with envy. But the money would no longer be tied to how much beef, grain or oil-seed rape they produce. Instead market forces would guide farmers in what they grow, with the subsidies being linked to environmental and animal-welfare standards.
"In future, farmers will not be paid for over-production but for responding to what people want: safe food, quality production, animal welfare and a healthy environment," Fischler said.