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By Jeremy Smith

BRUSSELS, Nov 20 (Reuters) - The European Union's farm chief set the ball rolling for major reform of its lavish agriculture subsidy system on Tuesday, taking aim at large farms and asking whether "old-style" support schemes still have any relevance.

EU Agriculture Commissioner Mariann Fischer Boel cast her long-awaited reform of the Common Agriculture Policy (CAP) as a "health check", but it clearly was a call for some radical surgery on a programme that devours 40 percent of the EU budget.

"The Commission does not see the CAP health check as a new reform," she said, adding it was "more than fine-tuning".

"Today only fires the starting gun for the health check. There are questions in the communication -- I don't have all the answers in my handbag," she added.

Her plan, which could enter into force by the end of 2008, contains suggestions for limiting the EU's safety-net public storage system for cereals, apart from wheat, and making EU countries spend more of their farm cash on countryside projects.

Cereals intervention, or public storage of grain, is one of the cornerstones of the CAP, a policy with its roots in 1950s western Europe whose societies were damaged by years of war and where food supplies could not be guaranteed.

"The intervention system in general is outdated. But it could be in our interests to maintain a system for bread wheat," Fischer Boel told a news conference.

"There might be some anxiety for supply of wheat as a basic commodity for bread."

PSEUDO-FARMERS

In a move likely to irk Britain, Germany and the Czech Republic with big land holders, her plan also suggests reducing handouts to larger farms, with bigger percentage cuts for higher overall subsidies in a tiered system of income thresholds.

It also hints that the EU executive will look at ways to prevent large farms being split up to avoid those subsidy cuts, perhaps differentiating between multiple-owner farms that employ a large workforce and single-owner farms with few workers.

"Historically, the UK has been very opposed to this kind of idea and I think we will remain opposed. And you can't stop farmers from getting around this kind of measure," one UK diplomat told reporters.

The reform plan, which will now be discussed by agriculture ministers and national farm organisations over the next six months, also suggests raising the minimum area of land needed to qualify for subsidies -- now fixed at just 0.3 hectares.

"Today we spend more money handling the application than the actual payment itself," Fischer Boel told a news conference.

"If you are a real farmer, that's fine. But if you have a goat in your backyard, you are not a real farmer. Let's get rid of some of the pseudo-farmers," she said.

For many observers, the mere talk of health checks echoes language used by Fischer Boel's predecessor Franz Fischler when he launched ideas for a so-called mid-term review in July 2002.

That turned into a push for a full-scale policy overhaul, to the deep annoyance of France, by far the largest beneficiary of EU farm cash, with CAP funding amounting to around 44 billion euros ($64.41 billion) a year.

STREAMLINE FARM PAYMENTS

France may well get irritated again, however, since for many "old-style" CAP support instruments, such as production quotas and intervention buying to take surpluses off the market at a fixed price, the writing may be on the wall. Fischer Boel has often questioned publicly whether they are still relevant.

France's powerful farm union FNSEA was fairly sceptical in its initial reaction to the health check paper.

"We have another view on what should be done," it said.

"The CAP should mainly be an economic policy. To bet everything on rural development is not a solution to allow the European farm sector to take up the challenges it will have to face within the European Union or in the rest of the world." (additional reporting by Sybille de la Hamaide in Paris, editing by Michael Roddy)

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