EU TO PROPOSE SUBSIDY SHAKE-UP FOR FLAX AND HEMP

BRUSSELS, Nov 8 (Reuters) - The European Commission will this week propose
a shake-up of its subsidy regime for flax and hemp, designed to curb an
explosion in production fuelled by farmers seeking EU aid payments.

European Union aid for flax and hemp growing has spiralled from 70 million
euros in 1995 to nearly 160 million euros this year, despite there being
few sales outlets for much of the crop. Spain, in particular, has witnessed
a huge jump in output.

``This is a clear case of subsidy-driven production,'' said Gregor
Kreuzhuber, spokesman for European Farm Commissioner Franz Fischler, who
will make the proposals on Wednesday.

The existing aid system fails to distinguish between high quality
long-fibre flax, which is primarily used in the textile industry, and the
lower quality short-fibre variety, mostly used in pulp making and as
packing in furniture.

EU officials said the new proposals would cut the subsidy rate for both
types, but at the same time introduce a processing aid purely for
long-fibre flax.

``The aim is to concentrate on quality production,'' one said.

The new regime is scheduled to come into effect from July 2000. Hemp aid
will also be cut to the same level, which will also be comparable to that
of linseed growers.

``This could help those wishing to switch production,'' an EU official added.

The EU subsidises hemp production provided plants have a level of THC --
the chemical responsible for the intoxicating effect of its sister variety
cannabis -- of less than 0.3 percent.

EU officials said that under the new proposals this threshhold would be lower.