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It remains a little-known fact among West Europeans that food prices are 44 percent higher in the European Union than they would be without the EU's farm subsidy and market intervention program.

Because of a web of tariffs and quotas, milk costs 70 percent more than it would without the policy, beef 221 percent more and sugar 94 percent more, according to calculations by the Organization for Economic Cooperation and Development.

Yet, when the European Commission polled 16,000 people last spring about their attitudes toward the Common Agricultural Policy, or CAP, as the farm program is known, half of the respondents said they did not know it existed.

It was a remarkable finding considering that Europe's farm policy directly affects Europeans' wallets more than any other EU program. In addition to higher food prices, EU citizens finance the Brussels agricultural budget of E45 billion, or $43.7 billion, a year through various taxes.

Today, the EU faces a crossroads in its four-decades-old farm policy.

The planned admission of 10 countries into the Union in 2004 will increase by half the number of farmers in the EU. Poland, the largest country scheduled to join, has more farmers than France and Germany combined.

Enlargement presents EU nations with a dilemma: If they subsidize East European farmers at the same level they do West European farmers, they risk breaking their budget. But if they withhold subsidies from the new members, as several EU governments are urging, they risk creating an EU with different rules for East and West.

The subsidy question is one of the last major negotiating hurdles before the timetable for enlargement is finalized.

And while it may seem perverse that a historic project like the unification of Europe hinges on farm aid, this is a story with much wider implications than just milk quotas or sugar subsidies. Because it accounts for nearly half of the EU's E98 billion budget, farm spending virtually defines the financial relationships among EU countries in Brussels.

The battle over farm subsidies is in many ways a proxy war between Germany and France to determine whether the EU will continue to be financed as it has since its earliest days, with Germany shouldering the greatest burden, partly as a tacit recognition of its belligerent past.

The European Commission is scheduled to propose major reforms to the existing farm policies July 10, but diplomats in Brussels say these changes will only be possible if Germany and France agree to break the status quo.

FOOTING THE BILLToday, Germany's net contributions to the EU budget are six times higher than France's. German citizens effectively subsidize French farmers, who are the main beneficiaries of the agriculture program.

France, partly because it receives so much farm money, pays less into the EU budget on a net basis than a relatively small country like the Netherlands.

Enlargement has forced all sides to rethink these lopsided contributions. Germany, with a tight budget at home and somewhat gloomy economic prospects, is resisting calls for it to increase its spending in the EU. France, meanwhile, says it wants the farm program to remain the way it is and that the same benefits should be extended to the Eastern countries.

Estimates vary on the cost of offering subsidies to the 10 new members. A study by the European Parliament estimated it would cost an extra E4.7 billion a year. The German government estimates it will cost nearly double that.

In January, the European Commission suggested a compromise: Farmers in candidate countries would receive one quarter of EU levels of direct subsidies when they join in 2004, gradually increasing to 100 percent of EU levels a decade later. This system would cost less than E1.5 billion annually for the first few years after the new members were accepted, according to the commission.

But this proposal has been criticized by several EU governments, most vocally by Germany and the Netherlands. Instead of phasing out the program, the critics say, the EU would now be committing itself to phasing it in over a 10-year period. Thus Europeans would continue to have high food prices and the EU budget would continue to be dominated by farm subsidies.

"This is a very crucial matter," said Ed Kronenburg, a top official at the Dutch Ministry of Foreign Affairs.

The proposal to phase in the subsidies "prolongs the life of the way the system now works," he said. "It's all about the sustainability of the funding. If we would continue on the current basis and include the new countries on the same basis, it's impossible to finance the whole operation."

The Dutch government said in a report last year that if the EU phased in the agriculture policy for the 10 new members, there must also be plans to phase it out across the EU.

Yet, given past debates, changing the Common Agricultural Policy will be a fierce battle.

The policy has been described by the Economist magazine as "the single most idiotic system of economic mismanagement that the rich Western countries have ever devised." But it is staunchly defended by countries like France, which hailed the policy a few years ago as "one of the most efficient tools in the construction of Europe."

DEFENDING SUBSIDIESEuropean farmers, especially in France, have long had influence far disproportionate to their numbers. Less than 5 percent of the population in West Europe works in the agricultural sector. But farmers are well-organized and have a tradition of highly visible protests when they do not get their way.

"Politicians know from experience that if they change subsidies by 5 or 10 percent, which they have tried in France and Greece, it would mean protests," said Kurt Wickman, a Swedish economist who published a report on the policy last year.

Wickman jokes that if major reform was proposed, farmers would dump potatoes on Europe's highways and corn on the steps of government buildings. "They will have tractors on all the roads, fires lit all over the place, and pigs in all of Brussels running around," he said.

And yet if the EU waits until after the enlargement of the Union, reforming the policy will be a lot more tricky.

The increase in the number of farmers by 50 percent in the EU after enlargement will strengthen the farm lobby; and the increase to 25 member countries threatens to make decision-making unwieldy.

"You see how complex it is now to get an agreement through because of the voting weights and procedures," said Johan Swinnen, an expert on farm policy at the Catholic University of Leuven in Belgium. "With 10 more countries this is going to become more difficult."

Swinnen adds that once heavily agricultural countries like Poland join the EU "there will be a lot of pressure on the new member governments to keep the subsidies coming from Brussels to support their income and to keep them in business."

For years, Europe's farm subsidy program has been a favorite whipping boy of American and Asian officials, who say it is a prime example of protectionism and the influence of special interest in determining trade policies.

The program is so complex and at times illogical that it baffles even the world's biggest brains.

"I have never mastered EU agricultural policy," Jeffrey Sachs, a Harvard University economist, admitted in a recent interview, "because I figured if I did so it would drive me into such a surrealistic world that I would never climb out of that twilight zone again."

CAP subsidizes farmers and, because these subsidies make crops too expensive by world standards, then pays export subsidies to sell their goods abroad. The policy also seems to favor Europe's wealthy, industrial farms, which undercuts the argument that subsidies are necessary to maintain traditional family farming.

"The vast majority of subsidies went to the larger firms," said Swinnen. "And to some extent I think the big, more efficient farms are using the smaller farms in a kind of political game of trying to keep the subsidies coming."

Since the European Union is the world's largest importer of food, the policy also distorts the world food markets and hurts farmers in poor countries, who cannot compete against Europe's subsidized mass production.

In the case of milk, the CAP alone distorts world prices by as much as 15 percent or 20 percent, according to Stefan Tangermann, the head of the agricultural division of the Organization for Economic Cooperation and Development.

But Europe is not the only country with a massive and complex system of agricultural subsidies.

Today, the United States is beginning to challenge the EU for the title of farm subsidy king. The decision in the United States last month to increase subsidies and other farm aid to American growers of corn, wheat, cotton, rice and soybeans by more than $180 billion over the next decade will further distort the international market and risks breaking Washington's free trade commitments under the World Trade Organization.

The sharp increase in U.S. subsidies also bolsters arguments by European farmers for maintaining the CAP.

Japan also has a huge subsidy program that undermines free trade in agricultural goods - and more than doubles the average price of food in the country.

In Europe, CAP is defended as a guarantee of "food security" for Europeans and as a way to preserve Europe's rural heritage. Small villages would shrivel up without the farm aid and fields would lie fallow, hurting future prospects for cultivation, the argument goes.

"Only a Common Agricultural Policy allows us to maintain farm incomes," President Jacques Chirac of France said in March. "France has led a permanent fight to maintain a certain idea of the CAP, while others want only to suppress it because they think it is too expensive and serves only our interests."

Today, there is widespread recognition that the farm policies need reform. But few analysts believe farm subsidies will go away anytime soon. "There is now strong pressure to phase out part of it," Swinnen said. "But to phase out all of it seems unrealistic given the current political constellation."

Because the issue is so sensitive, reforms are couched in euphemisms. Bureaucrats in Brussels speak of "degressivity" when they mean phasing out subsidies. There is talk of "modulation" - putting a ceiling on how much an individual region or farmer can receive. There are also proposals for "renationalizing" farm aid - making national governments pay for farm subsidies directly, not through the EU.

The issues of CAP reform and subsidies to Eastern farmers is so sensitive that EU leaders have agreed to postpone any major decisions until after Germany's elections on Sept. 22.

"We can understand that in the current circumstances these are delicate issues to bring up," Chirac said at a summit meeting over the weekend. "It's better to wait until after the elections to find an appropriate solution."

He added hopefully: "I do not doubt for a moment that we will find one."