This research tries to answer three main questions: how important is agri-food sector for Croatian economy, why is Croatian agriculture uncompetitive compared to sectors in majority of the EU countries and what mechanisms of CAP could be used to improve agricultural competitiveness and sustain and develop rural life. Results show that agriculture and food processing industry are rather important for Croatian economy, contributing with more than 9% in the total GDP, with about 11% in total export and import and with more than 20% in total employment. However, within the EU context, agrifood sector is of little importance with a share of only about 1% in main economic indicators. Despite favourable natural resources, historical, organizational, economic and institutional reasons explain difficult situation in agriculture and in rural areas. Policy makers are trying to resolve these issues, now by available CAP mechanisms of income support and rural development. Despite considerable financial resources available for Croatian farmers, there is fear that the funds will not be adequately utilized. However, results of the previous research suggest that Croatian agriculture and food production still has a chance to survive and grow within European political and economic circumstances.