The CAP reform of 2003 will change farmer's business environment in Europe. This paper analyses the impact of the reform on the land use in southern German grassland regions. The assessment will be based on model calculations for two typical grassland regions. Each study area represents one village with its specific farm structure and natural conditions. These regions differ in their excellence with respect to agricultural use. In Southern Germany small to medium sized family farms is the most frequent type of farming. We use a regional land-use model that conceives farms as independent agents aiming at maximum individual utility. Farm agents optimize their farm organisation with the help of a linear-programming algorithm that takes into account natural, economic and personal restrictions. Interactions between farms take place on the land market, which is modelled as an equilibrium market. It becomes clear that the CAP reform of 2003 has various significant consequences with respect to grassland use. In particular the decreasing profitability of dairy farming will relatively promote low-intensive forms of grassland use, including mulching. If some payments (e. g. agri-environmental payments) remain coupled to livestock production area-wide agriculture can be maintained even in marginal areas. Land rents will generally increase in more marginal areas due to the effects of decoupling.