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EU may hand out farm cash for dairy, rural internet

(adds Commissioner quotes paras 7-8)

BRUSSELS, Jan 19 (Reuters) - Europe’s farm chief will propose spending part of the unused EU agriculture budget to help countries finance rural development projects, including support for dairy industries and improved internet access.

Speaking to bloc farm ministers, EU Agriculture Commissioner Mariann Fischer Boel said up to 1.5 billion euros ($2 billion) could be handed out for certain schemes this year since policy reforms due to finance them would not kick in until 2010.

“The idea is that this money could be used in 2009, earmarked for rural projects, broadband and now including milk, to bridge the gap until the ‘health check’ comes into force,” one EU official present at the regular minister’s meeting said.

In 2008, EU farm ministers agreed a reform to revamp rural development spending, public safety-net buying of cereals and other commodities, and also set out several key changes for the dairy sector -- including an increase in milk production quotas.

Of most political significance in what is called the “health check” of the Common Agricultural Policy was a deal to trim handouts to large farms by siphoning cash into countryside projects, a scheme that will raise rural spending up to 2012.

EU governments may spend the extra cash that they generate in this way on a number of specific programme areas, such as renewable energy and water management. As part of the final deal negotiated, the dairy sector is also eligible for that cash.

“In some regions of the European Union, the dairy sector is really under pressure. My main concern is ... the small and vulnerable dairy producers,” Fischer Boel told a news conference after Monday’s meeting in Brussels.

“My fear is that if they are pushed out of the market by low prices, they will probably not survive -- and sell their animals. And that’s the end for production. We should give them a chance to stay in business,” she said. Under the final ‘health check’ deal, however, that extra cash will not be available for rural development projects until 2010. With EU dairy farmers struggling with weak market prices and poor export opportunities, Fischer Boel has said she would rather take action to help them sooner rather than later.

EU finance ministers, as well as the European Parliament, will now have to discuss Fischer Boel’s idea, which EU officials said might be drafted as a legal proposal as early as next week. EU farm spending eats up some 44 billion euros a year, slightly more than 40 percent of the bloc’s entire annual budget.

Last week, she announced that EU export subsidies would be reactivated for a series of dairy products to help struggling exporters compete on the depressed world market.

Those subsidies were suspended in 2007, when EU dairy prices were significantly higher. Public safety-net buying of butter and skimmed milk powder will also be extended to higher volumes.

(Reporting by Jeremy Smith; editing by James Jukwey)

((jm.smith@thomsonreuters.com; +32 2 287 6834; Reuters Messaging: jm.smith.reuters.com@reuters.net))

($1=.7516 Euro) Keywords: EU DAIRY/FUNDING

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