By Tim Hirsch BBC environment correspondent, Luxembourg

Poor countries say EU subsidies put them at a disadvantage

Intensive negotiations in the coming days will determine whether the EU is prepared to embrace radical reforms of the system criticised for subsidising food production at the expense of the developing world and the environment.

On the table is a proposal from the European Commission, the EU executive, to abolish the mind-numbingly complex system of payments linking subsidies with the number of animals reared and the amount of land planted with crops.

In their place, farmers would get a single payment, reduced over time, which would no longer be tied to the amount of food they produce.

Food dumping

The idea of this "decoupling" is to encourage farmers to make decisions according to what the market demands, instead of over-producing just to qualify for subsidies.

The question is whether this time Europe can really agree on a clean break with the past, or whether it ends up tinkering with a discredited system

One factor driving reform as a matter of urgency is the imminence of key world trade talks in Mexico this September.

Freeing up trade in agricultural goods is at the centre of these negotiations, and the price-distorting in subsidies in Europe cause major problems in relations with developing countries.

Poorer countries complain that their farmers, who don't get any subsidies, are unable to compete with cheap European food dumped on their markets, and are also put at a disadvantage when trying to export into Europe.

So failure to sort out the CAP now will put the EU in an extremely uncomfortable bargaining position as it argues for the removal of trade barriers in other areas.

UK perspective

But the reform proposal as it stands has been fiercely opposed by a group of countries led by France, where a powerful farm lobby is resisting significant change.

The existing subsidy system does not make UK farming profitable

The Environment Secretary Margaret Beckett, negotiating for the UK, has made it clear she believes radical reform is essential, and she has the backing of environmental groups and, interestingly, the National Farmers' Union.

While British farmers are divided on the issue, the NFU believes there is no point trying to defend the existing subsidy system which in any case is failing to make farming profitable for many of its members.

Disasters such as BSE and the foot-and-mouth epidemic have given the UK industry a very different outlook from other European farming organisations, making it much more sensitive to public criticism of the existing system.

Nightmare fudge

The nightmare scenario, however, is a fudged compromise which could emerge in this week's talks, leaving some production subsidies in place while still creating the new farm payments.

It will be a classic EU battle likely to involve all-night negotiating sessions

If this happens, farmers could face an even more complex system, the EU would still be in trouble with the rest of the world, and environmental groups would accuse ministers of missing the opportunity for genuine reform.

It will be a classic EU battle likely to involve all-night negotiating sessions.