Most of the cash went to larger farms and not to growers most in need of help since payments were based on output, the Organization for Economic Cooperation and Development said in a report. So the more a farm produces, the more money it gets - creating one of the most widely criticized trade-distorting subsidies.

"Government intervention continues to be significant, creating important spill-over effects on production, trade and the environment," the Paris-based OECD said in its report.

Much of the support given by governments to farmers was of the most trade-distorting kind, worsening income disparities and helping depress world commodity prices, it said.

The European Union spent $121.4 billion, up from $94.8 billion, Japan $44.7 billion, versus $42.8 billion, and the United States $38.9 billion, down from $40.8 billion.

These three combined represent nearly 80 percent of outlays among the OECD's 30 member countries, which include Mexico, South Korea, Canada, Australia and Turkey.

Farm subsidies are one of the most contentious issues in the current round of World Trade Organization (WTO) negotiations.

Progress at the talks would help OECD states toward further reform of their own farm support systems, the OECD said. Levels of producer support remained high and although the most distorting forms had declined, they were still dominant. Current market protection levels continued to encourage domestic production and depress world prices of agricultural commodities.

"Increased production and protection in OECD countries reduces production incentives elsewhere, may affect consumption patterns and food security, and can limit growth opportunities in developing countries," it added.

EU REFORMS

Although in dollar terms the EU leads in supports, the cost as a ratio of farm receipts is highest in Switzerland, Norway, Korea, Iceland and Japan. On this measure, the EU, which had 15 members in 2003, came in sixth place, Japan in fifth and the United States at 13th.

The United States had made modest reductions in farm support but the most trade-distorting elements were still significant.

The European Union, whose 2003 farm reforms will begin to take effect this year, received a similar assessment, although the OECD said EU support levels had fallen only marginally.

"Major sectors remain insulated from world markets and support levels remain high, contributing to depressing world prices," the study said. "The move to a single payment is expected to reduce further production and trade distortions."

The EU reforms, which involved breaking the link between subsidy and output, would favor a more extensive use of land, the OECD said. But they made no significant cut in the level of support to EU farmers nor opened up markets to non-EU producers.

In Japan, no changes were seen in cutting the most distorting forms of support and the disparities across individual commodities had increased, the study said.

Subsidies provided a sizeable chunk of farm receipts in 2003 at an average 32 percent for the OECD group, slightly higher than in 2002 but down from 37 percent in 1986-88.

Payments ranged from below five percent in Australia to 20 percent in the United States, 35 percent in the EU and a massive 60 percent, or more, in Japan, Norway and Switzerland.