Marginal and unstable environmental conditions force stockbreeders in drylands to develop adaptive strategies to ensure stability of production. In intensive market-oriented pastoral systems, the partial substitution of rangeland forage production by external feed increases the influence of commodity prices in stockbreeders' decisions, which become increasingly decoupled from environmental constraints. In Mediterranean countries of the European Union (EU), Common Agricultural Policy (CAP) subsidies also influence agricultural practices, potentially increasing environmental impacts. By modeling subsidy allocation to sheep and goat breeders in Crete, we showed that livestock subsidies for Less Favoured Areas (LFA) stimulated flock growth up to a point. By linking interviews of farmers to remote-sensing data in four village communities in central Crete, we tested statistically alternative hypotheses explaining the links between CAP subsidies, livestock-husbandry practices, and land degradation at the farm level. The flock growth stimulated by livestock subsidies was accompanied by the intensification of herd management, and decreasing yields and profits, with no statistical association to vegetation degradation. Farms with larger flocks became more sensitive to market fluctuations.