European Union farm ministers have agreed to further reform their common agricultural policy by removing some of the remaining intervention mechanisms and restrictions on farming, shifting more money into rural development and increasing milk production quotas before they are fully abolished in 2015.

The reforms reflect a "health check" of the EU's common agriculture policy (CAP) 2003 reform, launched by the European Commission last May to decouple the last subsidies tied to production. Breaking the link between production and subsidies enables European farmers to respond to market demands, i.e. to produce what the market requests instead of producing what government dictates. However, EU Member States retain the option to make specific payments for suckler cow herds and goat and sheep.

"The Health Check is all about equipping our farmers for the challenges they face in the upcoming years, such as climate change, and freeing them to follow market signals," said Mariann Fischer Boel, EU Commissioner for Agriculture and Rural Development.

Farmers receiving more than 5,000 euros in direct aid will have their payments progressively reduced by 5 percent (on top of the existing 5 percent cut) and the money will be diverted to projects promoting rural development, notably to address new challenges such as climate change, renewable energy, water management and biodiversity. An additional 4 percent cut will be made on payments above 300,000 euros a year.

More flexibility is also given to EU Member States to address specific issues in their respective countries: 10 percent of direct payments can be diverted to help farmers in disadvantaged regions or to support risk management measures, such as insurance schemes for natural disasters and mutual funds for animal disease.

Milk quotas will increase by one percent every year until they are fully abolished in 2015 to ensure that increase in production and price reduction will take place gradually, managing a "soft landing" to the sector.

The agreement also formally abolishes arable set-aside, which since 1992 required some farmland to be kept out of production. This will allow for greater food production in response to increased demand and will help combat price increases.

The 2003 reform of the CAP, which initiated the decoupling of farm support in the EU, has ensured - in line with WTO "green box" requirements - that payments to farmers are no longer trade-distorting. Over the last years, the CAP reform process has continued, dealing notably with so-called "Mediterranean products" (cotton, tobacco and olive oil), sugar, fruit, vegetables and wine. The latest reform will allow European agriculture to respond better to the new challenges and opportunities it faces.