The European Union's common agricultural policy (CAP) accounts for about a third of the EU budget, with some €54 billion ($64 billion) in farming subsidies going to the bloc's 27 member states each year. Such a significant line item is guaranteed to be a source of much disagreement.

As the EU sorts out its common budget for the 2021-2027 period, known as the multiannual financial framework, the CAP is set to undergo a major reform. Though the amount of farming subsidies is expected to remain similar — about €390 billion until 2027 — it remains to be seen how the funds will be distributed, and whether funds will be linked to mandatory environmental policies. 

Read more: Opinion: EU fails to introduce real agricultural reform

What is the CAP? 

The EU's common agricultural policy was launched in 1962 to ensure that postwar Europe would have enough food. It had five main goals: 

• improve agricultural productivity in Europe
• ensure a stable supply of affordable food
• stabilize European markets
• ensure that farmers could make a "reasonable" living
• ensure fair consumer prices

As is the case for the rest of the budget, the European Commission, the European Parliament and the EU Council of Ministers — in this case, the agricultural ministers of all 27 member states — must decide on the future of the CAP together.

Read more: 'Eat less meat to help the climate' doesn't apply to everyone – here's why

How does the EU currently distribute farming subsidies? 

The first pillar of the CAP comprises direct payments, which are calculated by hectare. Simply put: the larger the farm, the larger the subsidy. According to the German Environment Agency (UBA), direct payments account for, on average, about 40% of a farm's yearly income.

But these direct payments have been criticized for contributing to the decline of smallholdings; farmers with smaller properties benefit considerably less from the EU's subsidies than industrial factory farms. 

According to the German Ministry of Food and Agriculture, Germany receives €6.2 billion in agricultural subsidies each year. Of this, €5 billion is direct payments. The remaining €1.2 billion — the CAP's second pillar — is put aside for rural development plans and measures relating to the climate and environment.

The problem is that this second pillar is co-financed by member states. A country, region or municipality has to match any EU subsidy from the second pillar with the same amount from its own resources — which is why member states often don't apply for these funds.

Read more:In Europe, climate change brings new crops, new ideas 

What's been the criticism of these subsidies?

Large-scale industrial agriculture has often been blamed for contributing to biodiversity loss and growing CO2 emissions, and for polluting soil and water through the use of pesticides and fertilizers. Environment groups, climate activists and green political parties have criticized the CAP's direct payment-per-hectare system, accusing it of overwhelmingly promoting such practices.

These payments generally aren't linked to schemes that benefit the environment. As it stands today, to receive subsidies farmers simply have to confirm the "good agricultural and environmental conditions" of their land, as well as fulfill the "statutory management requirements," according to the European Commission.

However, a new regulation was introduced in 2013 to ensure that a third of direct payments would only be released if certain "greening" measures had been put in place — that is, if farms meet certain environmental requirements. But Friends of the Earth Germany and other environmental groups have said this requirement doesn't go far enough. The German Environment Agency admitted in September that "greening measures had not led to many operational changes and had hardly any positive effects from an environmental point of view."

Read more:Could high-tech Netherlands-style farming feed the world? 

What reforms are necessary? 

The EU's agricultural policy must become more ecological and sustainable, and farmers should be rewarded for introducing measures that protect the environment — that's idea, anyway. However, there's been a long-running debate within the EU as to what percentage of direct payments should be linked to ecological measures in the years ahead.

The European Commission has suggested that member states themselves should control the environmental measures, monitoring and sanctions — currently, these are stipulated by the EU. It also wants member states to send their policy plans to be approved by the European Commission. 

However, this proposal — backed on Wednesday by the bloc's 27 agriculture ministers — has been rejected by environmentalists, who think that member states would set the environmental bar too low, and agricultural lobby groups, who think the plan would unfairly distort competition between member states.  

The commission's proposed "eco-schemes," which will be linked to first pillar payments and are expected to be much stricter than any previous measures, have also been contentious. Under the eco-schemes, 20% of the payments to farmers would be earmarked for green initiatives such as organic farming and agroforestry. A farm would only receive the full direct payment once it proves that it has fulfilled all the new environmental regulations, and wouldn't be able use the money for other purposes. The European Parliament, however, has backed a plan that would see this upped to 30% of payments.

Read more: Vegan meat: The future of planet-saving plant-based eating 

What's been the reaction to the new plan?

Environmentalists want the EU to go even further. Angelika Lischka, an agriculture expert with NABU, Germany's largest nature conservation NGO, told DW that organizations such as hers "are calling for at least half of the direct payments in the first pillar to be linked with eco-schemes." 

But Joachim Rukwied, the head of the German Farmers' Association, has warned against maximizing the requirements "linked exclusively to the environment." He said the EU needed to provide support for the agriculture sector to guarantee that all of the CAP's goals are met, including ensuring that farmers are able to earn a reasonable living. 

Environmental groups and the German Environment Agency (UBA) agree that the coming funding period should be used to completely overhaul the EU's agricultural policy, considering that the environmental damage caused by the sector is already a major problem. 

Lea Köder from the UBA told DW that Germany had already breached EU law by exceeding the limits set out in the bloc's Nitrates Directive, which aims to reduce water pollution from agricultural sources. "We have to start reforming the system now, or it will only be possible to reach environmental goals with very expensive and drastic measures," she said.

Read more: Farmers in Germany feel the heat of climate change