EU farm spending, worth almost 60bn euros (£51bn) annually, should no longer be based on previous subsidy levels for farmers, the European Commission has said.
But subsidies are still needed to protect Europe's food supplies and rural diversity, it believes.
The proposals are contained in an EU blueprint for farming beyond 2013.
Critics say too much of the EU budget is spent on supporting farmers and too little on skills and innovation.
Presenting the plans on Thursday, Agriculture Commissioner Dacian Ciolos said the payments system - the Common Agricultural Policy (CAP) - must become "greener, fairer, more efficient".
He said the EU must make its farm policy easier to understand, because "it is for all EU citizens - as consumers and taxpayers".
The CAP's twin-pillar structure - direct payments and separate grants for rural development - should be maintained, he said.
The CAP is the biggest item in the EU budget, followed by "Cohesion" spending - grants to develop the EU's poorest regions.
BBC News
