IRELAND'S LARGEST farm operators could see their EU direct subsidies capped at an unspecified level if the European Commission adopts a draft paper on farm reform seen by The Irish Times.

The report, which will be discussed by the commissioners later today, does not specify the level at which the direct payments – worth €1.8 billion to Irish farmers this year – should be capped.

The paper, drawn up by the commission’s agriculture section, says any negative impacts of a subsidy cap on large farms could be offset by taking into account the number of workers employed there.

Stressing the need for direct payments to go to “active farmers”, it says direct subsidies should give farmers a basic income support.

However, as stated by the commissioner for agriculture and rural development, Dacian Ciolos, when he visited here last week, direct payments should also carry mandatory requirements on environmental protection.

The paper stresses the need for a “more equitable distribution” of funds, indicating the current system where farmers in eastern Europe who recently joined the union receive less from Cap than older members should be changed.

Payments vary from €500 per hectare in Greece to less than €100 per hectare in Latvia. But the paper does seem to rule out a flat payment per hectare to farmers across the union, a suggestion totally opposed by Ireland.

The paper says imposing a flat rate subsidy across the EU would fail to reflect the “very different economic and natural conditions” that exist in Europe.

One possible solution contained in the document is a suggestion to guarantee farmers in all countries a minimum percentage of the current average subsidy rate of about €250 per hectare.

Critically, the paper was drawn up assuming the Cap budget would remain stable at €55 billion to €60 billion a year despite opposition from some EU countries that believe it should not consume up to 40 per cent of the total budget, which has yet to be decided.

The paper also says existing market management measures such as export refunds should be kept as a “safety net” and the use of schemes like intervention could be extended. It adds that new tools would be needed to combat market volatility, such as insurance and mutual funds.

This would be welcomed by Irish food companies, which receive up to €100 million annually from EU agriculture funds, mainly in market supports such as export refunds.