Agriculture has major impacts on the environment, especially on land use, soil and water quality, biodiversity and landscapes, which is a growing public concern in OECD countries. The challenge is to find ways for agriculture to efficiently and profitably produce sufficient and safe food to meet growing world demand without harming the environment and degrading natural resources. Agricultural policies often provide substantial production-linked support that have boosted farm output, but with mixed results on environmental quality. The reform of agricultural policies and trade liberalisation has started to alter signals to farmers, leading to changes in farm practices, which will contribute to enhancing the beneficial and reducing the harmful environmental impacts of agriculture. Despite some progress in the environmental performance of agriculture over the last decade, there is still much room for improvement and more needs to be done. On which principles should policies be based? Who should pay or be paid for ensuring environmental quality? When could market approaches be harnessed for charging and remunerating environmental quality? And when might policy action be needed? This report sheds light on these questions and provides criteria and guidelines for the better design, implementation, monitoring and evaluation of policies addressing environmental issues in agriculture.