The authors address the issue of determining the size of less favoured area payments so that such payments, in compliance with the objectives of the measure, will be the compensation for the farmers' additional costs and income forgone due to the handicap of agricultural production in the area concerned. Alternative methods for the calculation of the handicaps caused by the less favoured conditions have been verified. A new methodology of determining the basic LFA payments level is proposed for

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... the following program period. Similarly, a method for calculating the envisaged impacts of changes in the EU Common Agricultural Policy after 2013 on the natural handicap compensation is proposed and verified.