AbstractThis chapter presents the principal findings of an analysis of the impact of the 2003 reform of the Common Agricultural Policy (CAP) on EU agricultural markets and incomes over the period 2004-2010. It also projects future developments in agricultural markets in the EU-25, taking into account CAP reform and the entry of new members. It is concluded that the agricultural sector in the EU will have to adjust significantly over the medium term. Enlargement from 15 to 25 members will drive adjustments in EU agriculture and the food industry, even without any changes in agricultural policies. The CAP reform, which decouples a large part of agricultural support from production, is also an important contributor to adjustment. Decoupling enhances the efficiency of transferring income to farmers, reduces trade distortions, reduces the risk of structural surpluses and encourages farmers to base their production and investment decisions on market developments. Projections indicate that adjustments in production will occur in three key areas of agricultural production in Europe: cereal, beef and dairy production. Farmers will have to increase their production efficiency, which may have implications for farm structure.