The latest reform of the Common Agricultural Policy (CAP) aims at making subsidies independent from crops and crop yields, so as to avoid distorsions in production choices. This evolution is likely to have important consequences on both the land use and the yields, and ultimately on water quality and soil contamination. Indeed nitrogen run-off depends not only on nitrogen application, but also on crops and crop yields. Consequently a detailed evaluation of environmental impacts of CAP reforms in the arable crop sector must take into account the multi-output nature of farms. In this paper, we estimate a microeconomic multi-output production model that is coupled to an environmental simulator for nitrate concentration in the soil. We propose a simple procedure for estimating a multioutput profit function, from which elasticities of land use, variable inputs and crop yields are easily computed as functions of prices and crop-specific subsidies. The estimation procedure addresses corner solutions in land use, the role of agricultural rotation dynamics in crop choice, and unobserved heterogeneity in structural and crop selection equations. The profit function with multiple selection rules and panel data is estimated on French FADN data for the years 1995-2001. Estimated elasticities are used to simulate the productive and environmental impacts of the current CAP reform.