Small, rural farms given boost as EU cuts subsidies for large landowners

Brussels took steps yesterday to adjust its much-criticised £32bn-a-year farming policy to a threatening new world of food shortages and soaring food prices. The proposals – too radical for some European governments; too timid for others – are likely to generate heated argument in the second half of this year.

Wealthy, large landowners, including the Queen, would have part of their EU subsidies removed and invested in environmentally friendly rural developments and traditional, small farms. Compulsory "set-aside" payments to farmers to leave one-tenth of their land fallow would be scrapped, boosting the European harvest of cereals, whose world price has almost trebled in the past year. Limits on milk production (quotas) which have been in place for 25 years would be relaxed and then abolished, reducing – eventually – the upward pressure on dairy prices.

The proposals are, in theory, just a "health check" on the much-contested Common Agricultural Policy (CAP), which is not scheduled for a root and branch reform until 2013. However, the European Union's cautious, initial schedule has been swamped by events. Soaring global prices for basic foodstuffs threaten widespread famine and have already caused riots in the developing world. In the EU, rising shop prices for food are putting pressure on household budgets and the popularity of governments.