* EU official sees farm budget following downward trend
* Must not return to EU market protectionism, official warns
* Green NGOs want farm payments based on the public good
By Charlie Dunmore
BRUSSELS, March 10 (Reuters) - Reforms to the European Union's farm policy from 2014 are likely to result in a smaller net budget, and must avoid protectionism or any increase in support prices, a senior European Commission farm official said.
By the end of this year the EU's executive Commission will propose an overhaul of Europe's complex common agricultural policy (CAP), which eats up 40 percent of the 27-country bloc's total budget. Few details of the plan have been provided so far.
"We more or less know which direction (the CAP budget) will follow, which is the same direction of the past in real terms: it's been going down," Anastassios Haniotis, economic analysis director at the executive's agriculture department, said.
"Whether we like it or not there is a lot of dependence in agriculture on subsidies," and how to reduce that dependence will be a key question during the reform, he told a conference in Brussels.
"There are those that think the best way to do it is through the market, but by 'market' they mean higher support prices or border protections. We know that we cannot go back (down) this route," Haniotis added.
French President Nicolas Sarkozy said on Saturday he was ready to discuss a cut in the EU's farm budget in return for tougher conditions on imports to protect European produce.
Sarkozy's aides said he would propose to German Chancellor Angela Merkel that their farm ministers issue joint proposals on the future regulation and funding of EU agriculture by September. [ID:nLDE62506X]
Germany has been an ally for France during previous CAP reforms. But French Environment Minister Bruno Le Maire said last month the entry of the Free Democrats into Germany's ruling coalition could lead to a more free-market tone from Berlin.
COMPETING REFORM AGENDAS
"The current CAP is not delivering," said Ariel Brunner, head of EU policy at BirdLife International -- one of a group of environmental non-governmental organisations including WWF that put forward a joint proposal for reforming EU farm policy.
The future CAP should pay farmers for providing public services such as biodiversity conservation, water management, carbon storage and landscape protection, Brunner said.
But the Commission's Haniotis said: "The real question is, can we have the delivery of public goods without at the same time having economically viable farms to deliver them?"
EU governments have previously said the reform should iron out stark inequalities in payments to farmers, under which producers in eastern and central Europe receive a fraction of the cash paid to farmers elsewhere in the bloc.
But discussions on the precise details are likely to expose deep faultlines between market-oriented states such as Britain and Denmark and supporters of strong regulation backed by a large budget such as France.
The reform will be the first time the European Parliament has as much power as governments on EU farm policy. Ahead of the Commission's legislative proposals later this year, the parliament will soon start defining its objectives.
Next week lawmakers in the parliament's influential agriculture committee will hold a debate on reforming the CAP.
A working document by Scottish Liberal Democrat lawmaker George Lyon, who will lead the debate, calls for the policy's 50 billion euro ($67.9 billion) budget to be maintained. (Reporting by Charlie Dunmore, editing by Dale Hudson)