THE European Union has agreed large farms will lose up to 30 percent of current subsidy payments in a major step toward consensus on reforms to the 50-billion-euro-a-year (US$66 billion) farm policy, but tough issues such as sugar quotas remain.

Representatives from EU governments, the European Parliament and the European Commission agreed provisionally on elements of the complex reform to the common agricultural policy (CAP) during the first day of talks in Luxembourg, which ended early yesterday.

Negotiators aim to strike a final deal at a second round of talks in Brussels today.

"On a lot of the big issues we have an agreement in principle, but I think it is very important to stress that this deal is not done," said Irish farm minister Simon Coveney, who represented EU governments in the talks.

One of the main objectives is to shift to subsidies that are based on the size of agricultural holdings, replacing the current link between farm payments and historical production levels in many parts of Europe.

The present system disproportionately benefits those who have the largest output in 2000-2002, such as industrial-scale grain producers in France.

Europe's largest farms could have lost up to 40 percent of their current subsidies in the reforms, but negotiators agreed to give governments an option to set an upper limit at 30 percent.

"I think it's a fair deal. This is about redistributing in a fair way that doesn't have a significant shock effect on agriculture, in particular the productive side of agriculture," Coveney said.

But critics warned that cutting subsidies to Europe's largest and most efficient farms could harm the bloc's food security.

EU officials involved in the talks said good progress had been made toward a deal, particularly in direct subsidies, which will continue to consume three-quarters of the total farm budget from 2014-2020.

Agreement was reached that 30 percent of future direct subsidies should be conditional on farmers taking steps to improve their environmental performance.

That will include leaving 5 percent of their arable land fallow as a haven for wildlife - a share that could potentially increase to 7 percent from 2017.

Farm groups have warned that forcing farmers to leave large swathes of land out of cultivation could hit European food production.

A provisional deal was also reached to prevent certain landowners such as airports, golf courses and campsites from claiming EU farm subsidies as they can at present.