The European Commission says EU farm spending, worth almost 60 billion euros annually, should no longer be based on previous subsidy levels for farmers.
But it believes subsidies are still needed to protect Europe's food supplies and rural diversity.
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 Common Agricultural Policy payments system must become "fairer, more efficient".
He also said the EU must make its farm policy easier to understand.
The BBC reports the CAP is the biggest item in the EU budget, followed by grants to develop the EU's poorest regions.
Price support to protect EU farmers - called "market measures" - encouraged over-production in the past, leading to butter mountains and wine lakes.
Market measures accounted for 92% of CAP spending as recently as 1991, but the commission says that dropped to 7% last year.
The commission's options for the CAP will be discussed by the 27 EU member states before new legislation is presented in mid-2011.
Mr Ciolos said the EU could no longer tolerate a system with one set of rules for the older member states - the EU-15 - and another set for the newer ones, the EU-12.
Most of the latter are former communist countries in central and eastern Europe.