EU claims historic reform of European agriculture, but struggling Third World farmers say dumping will go on

A hard-fought deal to reform the Common Agricultural Policy (CAP) was hailed yesterday as a breakthrough in Brussels but dismissed by development campaigners as a disaster for Third World farmers.

After a 16-hour, all-night negotiation, EU agriculture ministers emerged with a package designed to help to liberalise trade and end a notorious system that has produced mountains of unwanted food.

Franz Fischler, the EU's agriculture commissioner, said that the reforms mean "the beginning of a new era" and waved goodbye to a system that "significantly distorts international trade and harms developing countries". Georgios Drys, Agriculture Minister of Greece, which holds the EU presidency, described the deal as an "historic decision".

But the Catholic aid agency Cafod said the "final proposals are lame efforts that will do little to end the damage EU subsidies do by undermining Third World farmers". Phil Bloomer, head of advocacy at Oxfam, said: "These proposals confirm our worst fears, there is nothing to celebrate. European agriculture will still be subsidised to the tune of £30bn, creating vast surpluses that will be dumped on poor countries."

The agreement was clinched after concessions bought off opposition from France, which receives nearly a quarter of the EU's annual €43bn (£29.5bn) spending on agriculture.

Negotiations were suspended last week by Jacques Chirac, the French President, who threatened to veto a deal if outvoted on the basis of a breach of fundamental national interests. The package went through yesterday with only Portugal voting against because it opposed the Azores' milk quota.

Although Mr Fischler watered down his plans in key areas, he won his battle to establish the principle that subsidies should no longer be linked to production. The European Commission wants to end incentives for farmers to produce unwanted food, which is often exported with the help of more EU cash. Instead, subsidies for most products will be covered by a "single farm payment" that will be based on the value of previous output and will be cut if farmers fail to meet environmental, food safety and animal welfare standards.

France won a partial exemption from the measures for the cereal sector, clinching the right to keep up to 25 per cent of arable payments linked to production per hectare. There were also complex exemptions for beef and a delay of five years for the dairy sector. France can postpone introducing any reform of direct payments until 2007.

But other countries including Britain are likely to adopt the single farm payment, which is much easier to administer, as soon as possible.

The Commission plans to provide additional cash, amounting to €1.2bn a year by 2007, to enhance rural development schemes and allow farmers to diversify into such schemes as guesthouses or those that promote sustainable agriculture.

Organic farmers, and those offering high-quality produce with special guarantees to consumers, will be eligible for grants of up to €3,000 a year for five years.

Opponents of reform also fought hard against moves to expose farmers to market forces by cutting market intervention to prop up prices. France resisted attempts to reduce price support for cereals. But the price floor for butter will be cut by 25 per cent over four years while that for skimmed milk powder will fall 15 per cent over three years.

The French Agriculture Ministry said that the reform kept "the essential principles of the CAP" and "aims to manage the effects of globalisation on agricultural trade".

But its farmers seemed less convinced. Jean-Michel Lemetayer, head of the French farmers' union FNSEA, accused the EU of "abandoning assurance of farmers' incomes". Germany's DBV farm union said the deal would cost farmers between €1.2bn and €2bn.

The development lobby said that the reforms had not cut the total subsidy, merely tinkered with the way it was distributed. Oxfam said the EU's sugar output was not included in yesterday's deal and remained a blight on the prospects of Third World farmers.

Whether the changes have global importance will not be clear until the autumn when the EU, Japan and the United States take part in the world trade round.

Supachai Panitchpakdi, the World Trade Organisation's director general, said: "I see that this would have a positive effect on movement in areas, if not all areas of agriculture."

But Mr Fischler said America had "resurrected a lot of their trade-distorting policies of the past", and increased subsidies to farmers. "We are not going to have a unilateral dismantling," he said. "We have done our homework, now others have to do theirs.''