Some good analysis from Aileen Kwa at Focus on the Global South on the subsidies-overproduction link -- or lack thereof (from the globalfarmcrisis list-serv):
Farmers are supposed to produce less, or even not produce at all, since they will receive payments in any case. Has it worked in the past? No. Since the 1990s, the EC has been decoupling part of its subsidies in cereals. EC intervened at prices much closer to the world price, and 50 per cent lower than the previous intervention price, whilst channeling payments to farmers directly. If the theory was right, cereals production should have fallen, since farmers could have produced less (and distorted world prices less) yet received their payments. The CTA (Technical Centre for Agricultural and Rural cooperation ACP-EU) instead found that EU cereals production increased by 25 per cent instead of contracting because overall subsidy levels had in fact increased. The direct payments given were calculated to more than adequately make up for losses experienced from a lower intervention price.While it's too simplistic to focus only on the sociological aspects here and ignore the much more powerful political-economic dimensions of overproduction, Kwa nonetheless has a point.
Why dont EU farmers follow the economic, price and subsidy signals which the decoupling theory presumes they do? Probably because the theory is just too simplistic. There are too many other factors involved. Farming is not just a job, but a part of ones family history possibly for hundreds of years. Producing drastically less, or eventually moving out of the farm altogether is also likely to entail moving to the city and accepting a very different culture and way of life. In reality therefore, most European farmers stick to farming as long as they possibly can. It matters little to the farmer then what labels the government supports come with.