THE promotion of local food was one of the key demands of a major policy report on the future of food and farming, published this week.

Retailers should receive business rate relief for devoting an area of their store to local produce and a new national champion for local food should be appointed.

The Policy Commission on Farming and Food, chaired by Sir Donald Curry, Northumberland farmer and former chairman of the Meat and Livestock Commission, presented its report to the Prime Minister, Tony Blair, on Tuesday.

The report said local food markets provided one of the greatest opportunities for farmers to keep a larger slice of profits from what they produced.

As such, markets should be encouraged because they provided economic, environmental and social advantages.

Farmer co-operatives should be encouraged and an English Collaborative Board established to secure fairer returns for primary producers, improve competitiveness and reduce inefficiencies.

It would represent a U-turn in government policy, which saw the Milk Marketing Board scrapped by the Competition Commission.

However the report was condemned for proposing that 10pc of the money earmarked for food producers should be switched to environmental and rural development schemes from 2004.

Ben Gill, president of the NFU, expressed "total opposition" to the move and the Scottish NFU described it as "nave".

But the Commission argued that the present system had left farming unsustainable. Fundamental changes were needed to methods of subsidy.

The report said farming was serving nobody well and called for the Common Agricultural Policy to be scrapped.

Sir Donald said there had to be wholesale change: "Tinkering around the edges will not solve the problem."

He said farm subsidies cost £3bn a year in this country - something which could not go on. "The situation today in the English farming and food industry is unsustainable, in every sense of that term. Current farming policy is not serving anyone well," said Sir Donald.

Mr Blair welcomed the report and Rural Affairs Secretary Margaret Beckett said the request for a 10pc switch in producers subsidies would be considered very seriously.

However she immediately announced a wave of consultations with farmers, the food industry, environmental and consumer groups, beginning in March.

Mr Gill stressed the NFU was not opposed to rural development and environmental spending: "But we have always been against this way of paying for it and today's report has not changed our minds." He claimed it would take away from farmers money which they did not have.

He welcomed many of the other points made by the Commission, but was disappointed it had failed to grasp the opportunity presented by non-food crops.

Aubrey Davies, chairman of the farming and rural business group of the Institute of Chartered Accountants, was also concerned about the switch from payments for crops and livestock to environment and rural development schemes.

"With a drop in production subsidies, we fear for the sustainability of many small farms which may now venture into organic farming with no guarantee of additional Treasury funding," he said.

The Tenant Farmers' Association welcomed the report, in so much as it meant the Government would now have to act. It also welcomed the Commission's recognition of the major problems facing farm tenants, which meant the Government would have to review restrictions which made it difficult for them to gain access to agri-environment and rural development schemes.

The TFA was, however, disappointed that there was no recommendation for a retirement scheme.

Yorkshire and Humber Euro MP David Bowe, Labour's European spokesman on the environment, said the rest of Europe now had to be persuaded the report was the way forward for all.

The UK Agricultural Supply Trade Association said the government would have to put its money where its mouth was to make the changes happen. It strongly supported the strengthening of food import controls.

Points made by the Commission to help farmers move towards an end to subsidies included:

l diversification: farmers should add value themselves to gain a larger share of the price paid by customers, such as making cheese or selling directly in farmers' shops and markets;

l modernise: embrace new technology;

l improve confidence in animal health: electronic tagging should be extended from cattle to sheep and pigs and sheep farmers should be encouraged to join the National Scrapie Plan which seeks to breed scrapie-resistant sheep;

l develop whole farm plans: every farm should be encouraged to produce an economic plan which makes a risk assessment of all aspects of the farm.

Recommendations to help revitalise farming included:

l disease insurance: the government should provide basic safety nets such as insurance packages against future outbreaks of disease;

l reconnect the supply chain: create a Food Chain Centre, part-funded by government, at which producers, processors, distributors and retailers would meet regularly, and supermarkets should look at the distances food travelled, giving priority to the distance animals travelled to slaughter;

l fairer farm gate prices: relations between supermarkets and producers should be improved through a new and independent mediation service;

l better labelling: the country of origin should be compulsory and clearly printed, not the country of processing;

l Little Red Tractor: the food mark scheme should be extended to cover environmental standards as well as animal welfare;

l organic farming: a strategy should be developed to cover research, development, standards and marketing;

l demonstration farms: more farms paid to operate the latest technology, conservation and business practices which others could visit;

l healthy eating: a strategy developed between the health department, Defra and the Food Standards Agency;

l illegal meat controls: Defra should implement food import controls as urgently as possible