The origins of the CAP lie in the recognition after WW2 that Europe needed food security.  That, as a region, it could not depend excessively on longdistance trade for the supply of its food.  

I believe that continues to be a worthwhile policy goal for Europe (and indeed for all regions of the world).  Europe should continue to supply a significant part of its own food, and the only way to do this is to arrange a cross-subsidy between, for example Jerome ;-) the absurdly over-remunerated service sector of bankers and corporate employees, and the agricultural sector (and indeed heavy industry).

The goal of a balanced national and regional economies remains a worthwhile one-- the fucking free-traders believe that somehow the whole world will kumbya-style balance out and meet its collective needs.  It will never work efficiently: that is why sovereign nations have to plan their national economies in the collective interests, and why regional groups have to secure balanced economies (a mixture of agriculture, industry, and services) within themselves.

We cannot know if at some future moment of world history that rising energy costs, or some ecological disaster elsewhere, would either destroy one of the worlds breadbaskets (eg. the American, Canadian, Brazilian agroindustry) or make the supply or transport of food uneconomic or insecure.  

The CAP is also about the preservation of the land in agriculture, the preservation of farming skills, and the preservation of the beauty of the landscape
(such as those beautiful wheatfields in Normandie in the photograph you posted on your war memorial story)

If food security is a goal, then Europe needs agrobusiness too, and it might give to need those productive entities a leg-up in a world economy where its competitors can depend on cheap labour and massive direct or indirect subsidies.

God knows that the USA send massive support to its farmers (who are happily draining the continental aquifer dry), and while Brazil does not provide cash subsidies to its mega soya and citrus farmers, it gives them massive subsidies in kind by allowing them land at low costs and not regulating labour wages or conditions.  

As oethers have made clear, the small family farmer is also dependent on trickle-down from the large subsidies given to big agribussiness farms to make sure their income is sustainable. Thus we are paying cast sums to support big business in order to get relatively small amounts to those we really wish to support. Redirection of the CAP support to "citta slow" type small farm production would have health, taste and environmental benefits and actually promote the sort of lifestyle the French farm lobby is trying to retain. They would end up producing possible a little less quantity but geting far more money for it.

Those large farms that depend on high mechanisation and are raping the soil would not longer get ther subsidies. Ideally this would mean that they would move away from "fake" food production (like UK farmers growing beet for processing into refined sugar thus pricing out sugar cane growers) into producing fuel crops like rape and sunflowere that could be used as biofuel. Allying this to carbon trading could well produce alternative income to replace food production subsidies.  

What can be done to change the CAP so that it supports the small farmer better? What is the recourse? The European Parliament?

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

What happens when the prices both of the energy used in growing food and transporting it around the world, and of petro-inputs like fertilizers, begin to rise drastically?

Another 'peak food' worry is the undiscussed crisis of the water table in North America and in former Soviet Central Asia.  Regions which the world has depended on for food and agro-raw materials may lose the ability to be the world's breadbaskets.

On the other hand, I understand the historical role of the CAP, but it shouldn't be the foundation of the EU anymore.  It can't be gotten rid of overnight but it should be slowly pared down. It is a remarkably inefficient use of money.  

In Poland I'd strongly support the funding of mid size farmers to help them adapt to the market and to EU food industry regulations. But that's it and it should be in the context of development funds for the horribly poor rural regions (yeah Poland is cheaper than the West, but raising a family on $150-200 still means abject poverty)  

If anyone who reads this has any say in these matters please consider one measure that would help stop the transformation of the small peasantry into a permanent underclass. School buses.  Right now in much of the countryside children are effectively barred from progressing beyond elementary school since the middle and high schools are too far a way to walk. No school buses, no public transport and obviously you can't afford to own a car, or for that matter drive it on 150-200 a month in cash income.  Their parents way of life is doomed. Their is simply no way a couple hectare farm can be viable.  They cannot move to the cities where the jobs are because the rents are much too high. The situation is heartbreaking.