Sedentary extensive small ruminant farming systems are highly important for the preservation of High Nature Value (HNV) farmland. Both the abandonment of grazing and overgrazing have led to environmental degradation in many Mediterranean regions. On the Greek island of Samothrace, decades of overgrazing by sheep and goats has caused severe degradation of local ecosystems. The present study highlights the importance of regional contexts for national and EU agricultural policies in regard to sustainable development of sedentary extensive livestock systems. By utilizing the conceptual framework of socio-ecological systems research, we analyze the interdependencies of environmental, economic and social factors on a local island level. Results show that between 1929 and 2016, the livestock and land-use system of Samothrace transformed from a diverse system towards a simplified system, solely used for small ruminant production. Total livestock units increased from 2200 in 1929 to 7850 in 2002, declining to 5100 thereafter. The metabolic analysis conducted for the years 1993–2016 shows that 80–90% of the feed demand of small ruminants was covered by grazing, exceeding available grazing resources for at least a decade. The regional implementation of CAP (Common Agricultural Policy) continues to support excessively high animal numbers, while farmers are highly dependent on subsidies and find themselves in an economic deadlock.