the economics of smallholder agroforestry: two case studies

World Development, Vol. 17. No. 11, pp. 1827-1839,1989. Printed in Great Britain.

0305-750X/89 $3.00 + 0.00 0 1989 Pergamon Press plc

The Economics of Smallholder Agroforestry: Two Case Studies

RICHARD H. HOSIER* University of Pennsylvania, Philadelphia

Summary. - Agroforestry programs must be economically attractive to farmers if they are to be successful. In addressing the economics of an agroforestry system, planners must pay attention to input and output mixes and attitudes toward risk as components of smallholder profitability. From the smallholder’s perspective, local market conditions and existing practices may provide a greater indicator of project success or failure than environmental benefits, which may be nearly impossible to quantify. A positive on-farm economic analysis provides a necessary, but not sufficient, indication of the successful introduction of an agroforestry project. This paper makes use of two case studies to demonstrate the need for and shortcomings of economic analysis as applied to agroforestry projects.

1. INTRODUCTION

Agroforestry has been defined as “any form of permanent land-use by which tree-crops are cultivated in combination with agricultural crops (simultaneously or in rotation) and possibly also in combination with animal husbandry.“’ It has gained a great deal of popularity with academics, planners, and analysts as an “appropriate technology” response to environmental degradation, intended to provide an ecologically benign, sustainable, and locally self-sufficient form of agricultural production2 However, agroforestry did not originate with analysts, planners, and academics. In fact, these newfound proponents are outsiders to the practice of agroforestry. As a result, their perspectives may differ markedly from those of the practicing agroforester.3 Sophisticated intercropping systems have been retained by farmers in many parts of the developing world.4 Small-scale farmers in the developing tropics utilize a wide range of agroforestry practices.’ While indigenous practices are not sacred, they have enabled smallholder farmers to eke a living out of land on which most outside experts would starve. Clearly, the expert cannot ride in on a white steed blindly dispensing agroforestry technology packages. The dissemi- nation of agroforestry practices requires innova- tive work with local people and traditional practices.6

Unfortunately, even in the field of agroforestry, there is no such thing as a free lunch.

The growing of trees on farmland is not a costless enterprise. Ultimately, farming households will decide whether or not agroforestry is a worthwhile endeavor. For smallholders throughout the developing world to adopt agroforestry techniques, they must be convinced that the benefits of such innovations exceed the costs. Thus, for agroforestry to successfully spread, it must be economically profitable to the smallholders who are practicing it.

Agroforestry programs have been incor- porated into national development plans. These projects or programs are intended to increase on-farm production of food, fuel, ferti- lizer and fodder for own consumption or sale. Planners working with agroforestry and farm forestry projects need two types of information in order to successfully carry out their work. First, they will need to be aware of the local conditions, both opportunities and constraints, which im- pinge upon the decision making of the smallholders. Second, they must know about the production capabilities of the proposed agroforestry system. These two types of knowledge

‘An earlier version of this paper was presented as Washington State University Agroforestry Consor- tium, Technical Report No. 2, entitled “The Eco- nomics of Agroforestry: Obstacles and Incentives to Ecodevelopment,” presented on 15 October 1987. Helpful comments were received from John Bassman, Keith Blattner, and two anonymous referees. The author is wholly responsible for the final contents.

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can then be combined through an on-farm economic analysis to ensure that proposed programs are beneficial to the smallholder participants, thereby providing positive incentives for their involvement. Such an economic analysis provides feedback to the planning and implementation process as well as an indication of the validity of the suggested techniques from the perspective of the smallholder. A positive on- farm benefit-cost analysis is a necessary, but not sufficient, precondition to the successful dissemi- nation of agroforestry practices.

After a review of the literature on agroforestry economics. this paper examines two economic evaluations of agroforestry projects. Each of the case studies has certain weaknesses which high- light the pitfalls into which the planner may fall. The first case study is an evaluation of two hypothetical farm forestry schemes in Kenya. It demonstrates a mismatch which may occur if planners respond to their own bureaucratic mandate instead of paying attention to the conditions facing the smallholder. The second is the economic evaluation of an agroforestry project in Haiti. Its weaknesses stem from an inadequate understanding of agroforestry production techniques and an overly restrictive set of analytical assumptions. These case studies point to the need for more research and information on agroforestry, as well as better-informed analysis on the part of agroforestry planners.

2. ECONOMIC PRINCIPLES AND AGROFORESTRY

In one of the first papers directly tying economic principles to agroforestry, Filius at- tempted to deduce what an economic approach to agroforestry must entail. He noted that the interrelationships between agriculture and forestry on a single piece of land may be supplementary, complementary, or competitive. In the former two cases, agroforestry is always an attractive option. In the last case, it may not be. He wrote “agroforestry will not always involve maximum production as suggested in definitions. Agroforestry will . . . be an efficient way of production in situations of complementarity or supplementarity of agricultural and tree crops.“’ Thus, the unique relationship between trees and crops and the intensity of their cultivation will determine the value of agroforestry in a specific setting.

.The application of economics to agroforestry has utilized economic analysis to answer several questions about agroforestry systems.* The first question is raised in the paragraph above and is

common to all resource economics. It has to do with the optimization of inputs and product mixes through time in agroforestry systems. What inputs should be used to produce what goods, or rather, how should inputs be allocated? The second relates to the concept of risk. What is the best production mix to satisfy the “survival algorithm”’ or to minimize the chances of having a disastrous season? The third question is perhaps the more fundamental one, as it deals with the profitability of agroforestry. What are the benefits and costs of an agroforestry system? Is it a worthwhile endeavor, first for the smallholder and second for the nation at large’? While the literature would agree that these questions are essential, they may not be answerable in any specific situation due to the shortage of empirical data.

With respect to the optimization of both the use of inputs and production of outputs, the small farmer should be viewed not as the producer of one crop, but as the manager of a firm combining several inputs to produce numerous products for own consumption or for sale.” One of those inputs is the farmer’s own labor which may be sold on the market directly or applied on the farm, if it is considered profitable to do so. Thus, the concept of the multi- the agroforestry farmer.’ P

roduct firm applies to The optimal input mix

is obtained when the use of each input provides an equal marginal value product for all products in which it is used. With respect to product mix, the agroforester should decide whether to produce an additional product (i.e., food, fuel, fodder, etc.) depending on whether the incre- mental benefits or revenues exceed the incre- mental costs of production.”

While smallholders in developing countries make these allocations based on an understanding of local economic conditions, the formal solution to these situations necessitates the use of mathematical programming. For example, Dykstra used linear programming to optimize food and wood production for an ujamaa village in Tanzania.” Unfortunately, the underlying relationships between trees and crops grown on the same land is not well understood. As a result, such formal modeling exercises are marred by their reliance on rough assumptions and in- complete data with respect to the fundamental physical relationships.

The farm forester’s optimization problem has been presented in a rigorous manner by Johansson and Lofgren.14 Under their formulation, farmer-foresters must optimize the allocation of their time to agriculture, industry, forestry, and implicitly to leisure. This is subject to budget constraints taking into account prices,

ECONOMICS OF SMALLHOLDER AGROFORESTRY 1829

productivity, and income. The first-order conditions for a maximum show that the critical factor determining the allocation of time is the in- dustrial wage. If the wage is higher than the returns to on-farm labor, the farmer-forester will choose to work in industry. Although the analysis stems from an understanding of the Swedish system, the freedom to migrate is a critical component of farm-level resource allocation in tropical agroforestry systems as well.

With respect to risk management, the returns from agroforestry systems are less risky than returns from monoculture.i5 Particularly when project outputs are negatively correlated or competitive, the failure of one crop may lead to the improvement of the other. By planting tree crops alongside agricultural crops, the “portfolio” of the farmer is diversified and made less vulnerable to sudden changes in market conditions or the environment.i6 While there are efficient and inefficient portfolio combinations, the trick is to find the optimum portfolio for a given farm. By planting trees on their farmland in addition to crops, agroforesters are diversifying their income base and protecting themselves against a bad year (either physically or fiscally) in one of those crops. Were the data strong enough, the opportunity would exist to demonstrate the best portfolio mix in any given context.

With respect to system profitability, it is possible, although not necessarily desirable, to develop a detailed system of equations to analyze the optimal combination of inputs and outputs.” Unfortunately, such a system may be overly complex. More important, and indeed more useful from the practical perspective, is a simple farm-budget analysis, detailing the costs and benefits of production to the producer. In order to determine appropriate system design from both the individual and national perspectives, benefit-cost analysis is an essential tool in assessin the attractiveness of an agroforestry project. H 8 While foreign exchange and labor become critical considerations, so also are the seemingly nonexistent markets for woodfuels in East Africa.” Hoekstra highlights the importance of both the opportunity cost of labor to the smallholder and the appropriate discount rate to be used ” While smallholders will likely have a high discount rate, it is not clear how high the rate should be.*’

In summary, economic analysis is essential to the successful determination of optimal input combinations and product mixes within agroforestry systems. While farmers may solve such problems intuitively, identifying a formal solution requires an analysis of the value of the marginal product through a linear program.

Particularly in the case of poor farmers, labor plays a critical role in determining resource allocation. If the labor requirements of a farm product are not adequately compensated, the farmer will choose not to produce it. Economic analysis also points to the role of agroforestry as a risk diversification strategy. Trees can provide a useful method of reducing susceptibility to the social or environmental uncertainties surround- ing smallholder agriculture. Finally, on-farm benefit-cost analysis is the most appropriate analytical tool to measure the overall profitability of any agroforestry system to both the individual farmer and the nation as a whole. While different parameters may be used for analysis at different levels, a positive net present value provides a necessary, but insufficient indication of the acceptability of a particular agroforestry system. If smallholders do not receive adequate compensation from practicing agroforestry, they will not practice it, no matter what environmental benefits may be perceived by outsiders. Unfortunately, economic analysis of agroforestry programs is currently limited by the inadequate empirical data on the interactions between trees, plants, livestock, and the environment. More empirical research is required to redress this shortcoming.

3. THE ECONOMICS OF AGROFORESTRY: CASE STUDIES

In this section, two case studies will be used to demonstrate the use of economics in agroforestry planning and management. The first is set in Kenya and was undertaken initially in early 1982 as part of project design work. It provided ideas which have served to inform much of the rural afforestation work carried out as part of the Kenya Woodfuel Development Program.” The second analyzes the effects of the Haitian Agro- forestry Outreach Program. It represents an attempt to understand the economic impacts of the project after five years of agroforestry extension work.23 Both analyze agroforestry costs and benefits on the farm-level. However, the first does it from the perspective of a one hectare plot, and the second analyzes the impacts on all farmers involved in the project.

(a) Kenyan case study

Beginning in late 1980, the Kenya Fuelwood Cycle Project (KFP) was intended to assemble a national energy balance for Kenya and plan for future energy needs.” The energy balance

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demonstrated that wood resources accounted for over 80% of the national energy needs. While this heavy reliance on woodfuels meant that some deforestation was taking place in the lower- potential rangeland areas. the higher rainfall areas faced the most severe wood shortages. These high-potential areas comprise about 20% of Kenya’s land area, but serve as a home to 80% of the population and include all of the arable land. Counter to intuition, the rural population in the high-potential areas faced the greatest shortage of wood for domestic fuel.

By early 1982, it had become clear that the most effective way to alleviate the shortage of woodfuel in Kenya was through rural afforestation. However, uncertainty remained as to what approach to adopt. The question revolved around the best type of production system to propose. On the one hand, there was the conventional woodlot approach. But rural woodlot programs initiated by the Forestry Depart- ment had not met with success. On the other hand, there was the nonconventional “fuelstick” approach. Under the latter, a shrubby species, such as Calliandra calothyrsus is planted by direct sowing at about a one-meter spacing. It is then harvested once a year, producing “fuelsticks” until the coppice loses its vitality. To resolve these questions, farm-level economic analysis was undertaken to compare equivalent woodlot and fuelstick projects of one hectare in area.*’

The production details for each scheme are listed in the appendix, Tables Al and A2. The fuelstick scheme consisted of planting Calliandra spp. on a one-meter spacing over one hectare. It was harvested with a machete in the second and subsequent years, uprooted in year five and replanted in year six. The woodlot was comprised of Eucalyptus saligna planted on a 2.5meter spacing. It was thinned in the fifth and seventh years and finally clear-felled in year 10. Table 1 summarizes the production and cash-flows from each project, assuming that fuelwood sells for 175 Kenyan shillings per cubic meter (about US$17 at the then-prevailing exchange rate).

The figures in Table 1 show that if there is no time value placed on money, the conventional woodlot is the more attractive of the two options. If a smallholder is indifferent between a dollar today and a dollar tomorrow, he or she would prefer the woodlot project over the fuelstick project. However, work on peasant households in a number of settings has shown that they are not indifferent between consumption in the present and in the future.26 In fact, smallholders generally have a very high discount rate.” With this in mind, what happens to the two hypothetical projects?

Table 2 and Figure 1 show what happens to the net present value (NPV) of the two projects at different discount rates. The fuelstick project demonstrates a greater NPV at all discount rates greater than 4%. That is to say, at any discount rate greater than the switching value of 4%, the fuelstick project is to be preferred over the woodlot project. In fact, the approximation to the internal rate of return shows that while the net return on the woodlot project turns negative at 19.5%) the fuelstick project remains profitable at interest rates greater than 100%. Based on this simple demonstration, it is no wonder that previous attempts to get smallholders to plant eucalyptus woodlots had failed. They failed because the farmers saw that they were not particularly attractive investments. In these cases, the smallholders knew more than the foresters and rural afforestation extensionists. They recognized a losing proposition for what it was.

The production of fuelsticks became a main- stay of rural afforestation efforts in Kenya. If fuelwood production is an important objective, short rotation agroforestry is a very valuable tool. Not surprisingly, when field workers finally ventured into Kakamega District in Kenya to study current agroforestry practices, they found some systems resembling the hypothetical fuelstick project. Some farmers planted trees at a close spacing, particularly in the form of live hedges. While some farmers planted trees by direct sowing, a greater number transplanted wildings. Woodlots were a less favorable form of production over the sample of households drawn, partly due to the land shortage problem.** On their own, a number of farmers had learned the lessons of the above analysis without resorting to a formal assessment.

But there is a problem with the above analysis which was also discovered by an examination of farmers’ actual practices. In the southeastern part of the district, a higher percentage of the actual woody biomass cover is made up of woodlots. Many of these are eucalyptus woodlots with production and management schemes not dissimilar to the ones in the above example.29 Why should farmers in one sublocation be interested in growing woodlots while those in other districts are not? Being closer to urban markets offered by Kisumu and Kakamega towns, the men in these areas have learned that if they grow eucalyptus on a 5-7 year rotation, they can sell the stem-wood as poles. Thus, a significant number of the farmers are cash-cropping trees, not for fuelwood, but for poles. They have learned that wood sold as poles has a higher per unit value than does wood used for fuel.


Table 1. Production and cash flow: Kenya fuelsrick and woodlot project

Year 1 2 3 4 5 6 7 8 9 10 Total

Fuelstick project Production (m’) 30 30 30 30 30 30 30 30 240 Cash Flow

(‘000 Ksh) -2.66 3.43 3.43 3.43 1.23 -2.16 3.43 3.43 3.43 1.23 18.:?

Woodlot project Production (m’) 20 30 200 250

Cash Flow (‘000 Ksh) -3.61 -1.6 -1.6 -1.6 1.72 -1.6 3.39 -1.6 -1.6 32.08 23.92

Source: Van Gelder, Hosier, and Van der Donk (1983).

Table 2. Net present value: Kenya fuelstick and woodlot project

24

22

20

16

16

14

12

10

a

6

4

2

0

-2

Project Dif”=“n; ,,rate (r) Internal rate of return

r = 0% O0 r = 15% (r for which NPV = 0)

(in ‘000 Kenyan shillings) Fuelstick project 18.220 14.112 9.044 r > 100% Woodlot project 23.920 13.123 2.325 r = 19.5%

Source: Van Gelder, Hosier, and Van der Donk (1983).

-4 / , , , , ( , ( , , , , , , ( , , , , , , , , , / , / , / ,

0% 5% 10% 15% 20% 25% 30%

Discount Rate

Figure 1. Net present value [Fuelstick (I ha) YS Woodlot (1 ha)].


This demonstrates a significant shortcoming in the above analysis. Because the ex ante analysis was so focused on fuelwood, the formulation failed to pay sufficient attention to market forces and the possibility of supplying other wood products to markets. The wood shortage in Kenya is largely a rural, subsistence problem. Its solution was sought within a nonmarket context. The market price of wood was taken simply as a benchmark measure. Wood markets are very underdeveloped in rural Kenya, as only a small proportion of the rural population purchases woodfuel. The value of fuelwood can be estimated by the time spent gathering it, but it is hard to quantify these costs when they represent women’s labor time. 3’ The market for construc- tion poles is more fully developed than the market for fuelwood. If the above analysis had been informed by the need of the farmer to obtain money at almost any cost, some form of pole production for the market might have entered into the solution. Thus, by focusing totally on fuelwood production and paying insufficient attention to local market opportunities and the provision of nonenergy forest products the above analysis was unrealistic in formulating a course of action for Kenyan smallholders.

This is not to say that the analysis was not useful. Indeed, the analysis demonstrated the superiority of short-rotation agroforestry over conventional woodlots for the production of fuelwood. But the proposed system did not correspond to what would actually pertain in a smallholder setting as insufficient attention was given to local market opportunities. Forced by their bureaucratic mandate to focus on fuelwood, the planners did not sufficiently investigate local market conditions and constraints. As a result, the plans which were formulated ignored production for markets in favor of production for own consumption. Luckily, the planned project was not forced on anyone, but sufficient flexi- bility was maintained to respond to the actual rural conditions. The smallholders in Kakamega have had the sense to mix the fuelstick approach with other techniques, thereby taking the best from each in a manner resembling portfolio management.

(b) Haitian case study

Having been the second independent nation in the Western Hemisphere, Haiti went through a land reform program in the first half of the 19th century. Agricultural intensification, the cause of much tropical deforestation, had already begun by the latter half of the 19th century. Due to this

process and exploitative deforestation, Haiti’s forests were commercially logged out and badly degraded by the midpoint of this century.32 By the early 198Os, the country depended on its dwindling wood resources to supply 75% of its national energy needs. Estimates placed the depletion of these resources at a rate exceeding three million cubic meters per year.‘: Apart from recent political instability, Haiti is frequently mentioned as one of the worst examples of deforestation, intense soil erosion, and environmental deterioration in the developing world.

In 1952, the Agroforestry Outreach Pro- gram (AOP) was established to disseminate tree seedlings to Haitian peasants through rurally- based nongovernmental organizations. The pur- pose was to enable smallholders to produce wood products for the market. In fact, the hypothesis that cash-cropping of trees can be a money-making venture was one of the major cornerstones of the project. The project docu- mentation notes that “the Project places a major emphasis on the generation of income through cash-cropping of trees. “3J Because the AOP was viewed as an income-earning project for Haitian peasants, the objectives of environmental improvement were viewed as secondan. From 1952 to 1985, a total of about 74,000 farmers planted nearly 20 million seedlings.

Nearly five years into the project, Grosenick set out to evaluate how well the project achieved this objective. 35 Did Haitian farmers actually make money through tree planting’? To answer this question, Grosenick utilized a detailed matrix of prices, the results of a participant’s cropping survey, and a set of volumetric yield equations to measure the economic effectiveness of the project. He used the .*with/without” project criteria36 to isolate the net effects of the AOP on the farmers involved with it. The benefits and costs of the project were estimated for 16 years, entailing four-year coppice rota- tions. The benefits of the project arose from the sale of the produce of these trees. The costs fell into two categories. The first included the costs of the labor put into planting. cultivating and harvesting the trees. The second was the opportunity costs of the foregone income from the land used to plant the trees. Only in these last two years of the four-year coppice cycle did canopy closure preclude intercropping trees and agricultural crops.

Farm-level costs were estimated using survey results of the cropping combinations planted by the project participants from each region. The crop combinations were then multiplied by the average yield for each crop and the price for each crop to provide an estimate of the expected


production from one hectare of land. This provided a measure of the opportunity cost of the land put into tree production, assuming that each tree appropriates 4.8 square meters of land. However, this cost figure is reduced by the assumption that without the project, soil erosion results in a 2% loss in productivity for each year of the project’s lifetime. Thus, without the project, the value of the production from peasant agriculture would decrease throughout the project’s lifetime.

On the benefit side, the analysis begins with the estimated seedling survival rate for each region. These are multiplied first by an average volume per tree and second by the average number of trees planted per AOP farmer in each region. This provides the volumetric offtake for a farmer from each region. It is then assumed that 33% of the volume goes into poles for sale and the remainder goes into charcoal production (at 20% physical conversion or 40% energy effi- ciency). These physical quantities are then balanced against the price of each commodity. The price of poles is assumed to remain constant while the price of charcoal is assumed to rise at 4% per annum.37 The farm-gate price of the charcoal is assumed to be split between the farmer (55%) and a sharecropping producer (45%). The sum of the value of the poles and the owner’s share of the value of the charcoal constitute the undiscounted benefits of the project.

These benefits are then balanced against the costs to arrive at an estimate of undiscounted net benefits. The undiscounted net benefits are then used to estimate the net present value (NPV) for each crop combination in each region. Without explanation as to the choice of a discount rate, a discount rate of 10% is used to arrive at the net present value of involvement with the project. Aggregating crop combinations and numbers of farmers by NPV yields the figures contained in Table 3. According to this information, while 85% of the participants profit from growing trees, slightly more than 15% of the farmers will experience a net loss from involvement with the project. While for most participants, growing trees was anticipated to improve their standards of living, it would have made a minority of them worse off.

Three reasons are advanced to explain why certain farmers would choose to be involved with the project even though they might expect a net loss from it.3s The first states that the analysis overestimated the costs to the farmers. The main way this might have occurred is through the use of the average regional wage rate for all planting, cultivating, and harvesting costs. As the farmers

Table 3. Distribution of ner present value: Haiti Agroforesrry Outreach

Project

Net present % of participating value farmers in category

<% 0 15.3% c S 40 13.3% < $ 80 40.6% <: $120 18.8% < $160 5.5% < $200 0.3% > $200 6.2%

Source: Grosenick (1986).

may overlook these internalized costs, the average wage rate provides too high an estimate of on-farm costs. A second reason would hold that the farmers maintain a patron-client relationship with the distributing agency. They might not want to jeopardize their preferred client status by refusing trees. Third, the trees yield more benefits than are expressed in the simple calculus of prices, such as environmental benefits and additional forest products. Being aware of these extra benefits, the farmers might not mind “losing money” on an investment.

Of the reasons offered above, none provides a satisfactory explanation for project involvement in spite of negative expected returns. The first reason offered is akin to the arguments about whether or not rural labor in developing countries has a zero shadow price. The resolution of the debate was that it does not.39 Even if rural smallholders are unemployed, their time can only be assumed to have no opportunity cost if they place no value on leisure time. There will be some implicit cost on the planting of trees: it may not be as high as the prevailing wage, but there will still be a cost in the minds of farmers. Thus, the first reason does not account for the discrepancy.

The patron-client argument makes some sense. Haitian peasants might be persuaded to plant some trees which are not in their economic interest provided they remained in the good graces of their benefactors by doing so. This argument might hold for the first coppice rotation, but it is hard to imagine Haitian peasants continuing in a money-losing venture. Even if they had to lie to the patron organization, they would kill the trees or eliminate the loss in one way or another. The second reason does not explain the loss over the entire life span of the project.


The externalities argument also makes only limited sense. Haitian peasants doubtless understand the environmental contributions of trees to their surroundings. But to say that they will invest in the environment when they see no tangible financial benefits is absurd. People living so close to the margin of starvation cannot afford to take a long-term loss, no matter how much it does to improve the environment.

In reviewing this dilemma, the assumptions utilized demonstrate an inadequate understanding of both the agroforestry technology itself as well as the Haitian context. First, while 15% of the AOP farmers lose money on the project, the expected value of involvement with the project is nearly $63. This represents a significant expected gain for a Haitian smallholder. Any risk-neutral peasant selected at random would probably want to be involved with the project if the expected returns are as calculated.a However, since the Haitian peasants would most likely be risk- averse,” they could be expected to use a maxi- min strategy, or a strategy which maximizes their minimum expected gain or minimizes their potential loss. In such a case, they would choose not to plant trees at all. However, all this assumes that they knew beforehand that they would lose money from the trees. It may be that the farmers in question are not aware that they can be expected to realize a loss from growing the trees. Have they been provided with sufficient information to make an informed decision? Grosenick’s analysis should provide the basis for feedback and increased information flow. Apart from pointing to the needs for realistic assumptions, this discussion also points to the need for participatory research, assessment, and planning in agroforestry. The formal analysis should provide the basis for improving practice through time.

Second, the analysis allows for no change in the cropping patterns of the involved peasants for the 16-year evaluation period. If peasants are economically rational,4z they will not stick with a money-losing venture. They simply cannot afford to. Thus, they will change their mix of crops, plant trees only in place of their least profitable crops, change the rotation period, or abandon the trees. The static nature of the analysis is imposed by the need to analyze a large quantity of data using limited means. But the results of the analysis do not mean that farmers will necessarily lose money. This analysis should be taken as feedback for the next stage of the project. At worst, it means that the farmers should be provided with more information about better crop mixes or a more diversified approach to tree-cropping (such as the fuelstick scheme,

perhaps). The analysis does a great service in exposing a possible Achilles’ heel of the project. However, the question is not whether the project is beneficial, but rather how to better use this information to improve future project benefits.

Third, restrictive assumptions were utilized in place of actual data about how the agroforestry systems work. If better information were avail- able to the planner about the environmental implications of agroforestry, some of those assumptions would have been unnecessary. For example, Grosenick assumes that each tree takes 4.8 square meters of land out of production in the final years. Research from West Africa demonstrates that plant complementarit can more than compensate for the loss of land. J The opportunity cost of planting trees on land is overestimated by the analysis. Grosenick also assumes that the planting of trees will halt the annual 2% loss in fertility due to erosion. This is likely not to be the case. Planting trees does not always halt erosion, and under rare circumstances may exacerbate it. While it is easy to oversell agroforestry in terms of erosion control, the nutrients funneled back into the soil by the trees may more than compensate for the soil lost.J” The generally inadequate information which exists about the practice of agroforestry makes it nearly impossible to do anything other than make bold assumptions. Agroforestry planning and analysis will improve when these technical information gaps are filled.

Finally, as Filius pointed out, it may be that agroforestry is not a solution for everyone.45 Perhaps the AOP is overextended, attempting to involve farmers who have insufficient land, technical knowledge, or labor to be suitable agroforesters. In tightly constrained situations, agroforestry may place too much of a burden on limited resources. It might not be appropriate for all smallholders everywhere. This doubtless comes as a shock to those who would like to believe that “what is good for the environment is good for the country.” The claims of environmental fundamentalists to the contrary, agroforestry is not universally desirable.‘6 It may not even be profitable for every member of a target population. The planner’s task is to sort through the information and analyses to show where and how agroforestry is profitable and to provide this information to the practitioners. In so doing, the planner is shortening the farmers’ search for optimal combinations and helping them to hasten their improvement of existing systems.


3. THE ECONOMICS OF AGROFORESTRY: CONCLUSIONS

The preceding discussion has argued that agroforestry planners must have a firm understanding of the existing practices and conditions facing local farmers as well as a detailed knowledge of the systems being proposed. The Ken- yan case study points to the problems which may be encountered if local market conditions are not carefully evaluated due to bureaucratic imperatives. By paying insufficient attention to local markets and economic conditions, a system was suggested to meet a fuel problem when what was needed was a solution to a cash shortage. The Haitian case study points to two things. First, inadequate information about the proposed system may lead to a negative economic evaluation, especially if environmental benefits are excluded. From a smallholder’s perspective, positive externalities exist only if they are tangible and therefore, quantifiable. More research is needed to measure the magnitude and direc- tion of these benefits. Second, the economic analysis of agroforestry projects must be seen as an iterative process of information flow between planners and smallholders. The formal analytics should be used to improve smallholders’ yields and marketing practices.

Benefit-cost analysis is the tool which planners will use to decipher the impacts of a new agroforestry system in a specific area. It should form an essential part of the diagnosis, planning, and design of agroforestry projects, both before and during their implementation. The private farmers’ perspective should be embodied in a financial analysis. This stage tests the financially necessary, but by no means sufficient, incentives for smallholder participation. While the economic analysis from the national perspective must be more complex, but chances are that it will not turn out favorably if the farmers do not profit from the program. While the opportunity cost of land and the discount rate deserve thoughtful

NO

1. Wiersum (1981), p. 6.

2. Douglas and Hart (1976).

3. Spooner (1987).

4. Richards (1985).

5. National Research Council (1983).

6. With respect to the evaluation of indigenous

attention, the value of labor will usually be the most important determinant of project success. Some alternative employment opportunity nearly always exists. While the shadow price of labor may be low, it will never be zero. Smallholders will reserve the right to vote with their feet through migration if their farming efforts fail to compensate them adequately.” Along the same lines, national economic policies, particularly with respect to crop marketing, can play a critical role in determining whether or not the economic climate is favorable to agroforestry. “Cheap food” policies, wherein farm-gate prices for staple foods are kept low to subsidize the urban labor force. make agroforestry an unattractive option.

Agroforestry has gained popularity because of its appeal as an ecologically sustainable approach to agricultural development. However, it is the production from agroforestry systems that makes it an attractive land-use system for farmers, not its environmental benignancy. While agroforestry practices are indigenous in some areas, they are virtually unknown in others. It is essential that planners working on agroforestry programs maintain a keen understanding of the local system as well as close communication links with the agroforestry farmers. Outside “experts” can take reassurance from the fact that if their recommendations are off-base, they will be politely ignored. There are a significant number of situations in which agroforestry is not a desirable land-use practice. Careful economic analysis from the perspective of the smallholder is essential for sorting out when agroforestry is part of the wheat and when it is part of the chaff. Economic analysis will also provide a key to when and how unsuccessful practices can be improved upon. Only if economic analysis forms an integral part of agroforestry programs can agroforestry make useful additions to the standards of living of smallholders throughout the developing world.

#TES

agroforestry systems, ICRAF (International Center for Research into Agroforestry) should be commended for spending so much effort examining indigenous systems as part of their classification and diagnosis work (Raintree, 1983; 1987).

7. Filius (1981). p. 52.

8. This review skips a large, but tangential literature which could be referred to as the development economics of forestry. This genre might include parts of


Gregory’s forest economics (1972). Algvere (1969), Earl (1975). and Guess (1981). While these nieces are _ of relevance to agroforestry ‘in developing countries, they do not actually discuss agroforestry as a form of production. However, discussed directly set agroforestry.

9. Lipton (1968).

10. Hoekstra (1983a).

the principles and problems the stage for the focus on

11. Bowes and Krutilla (1981)

12. In passing, Films notes that another prerequisite to the successful implementation of agroforestry is that market prices must be sufficiently high to justify the costs of production inputs to the farmer. The importance of price or the production for market will be touched upon later.

13.

14.

15.

16.

17.

18.

19.

Dykstra (1981).

Johansson and Lofgren (1985).

Harou (1983).

Blanden (1985).

Etherington and Matthews (1983).

Openshaw and Moris (1980).

Much has been made of the commons arguments in discussion of agroforestry and the management of fuelwood resources. For example, French (1985) argues that attempts to solve *the woodfuel ‘prob: lem” must fail because wood is a free good. Any attempts to solve “the problem” will fail because farmers are unable to recover their costs. French’s arguments would be convincing if it were not for three flaws in his analysis. First, he confines himself to speaking only about woodlot production, not intercropping systems. Thus, trees are grown to the exclu- sion of agricultural crops, leading to a high opportunity cost of land. Second, he erroneously assumes that the opportunity cost of the labor going into collecting firewood is equal to zero (Ray, 1984). This leads him to use an equivalent price of firewood which is equal to zero. Finally, he ignores the possibility of cash-cropping trees for the urban market. French’s arguments fall short of convincing us that there is no solution to the woodfuel shortage not because he employs marginalist economics (O’Keefe, 1985) but because he employs it badly.

Elsewhere, writers have demonstrated that the existence of a commons does not necessarily lead to resource degradation (Ciriacy-Wantrup and Bishop, 1975). McGranahan (1986) argues that it is the de- struction of traditional patterns of land ownership which lead to the commons problem. Repetto and Holmes (1983) demonstrate how it is in fact the penetration of a subsistence economy by the demands of an exogenous market which are most liable to lead to the destructron of a commons.

20. Hoekstra (1983a).

21. Hoekstra (1983b).

22. Kenya Woodfuel Development Program (KWDP) has been carried out by the Beijer Institute of the Royal Swedish Academy of Sciences under the aus- pices of the Kenyan Ministry of Energy and Re- gional Development. Funding- was provided by the Ministry of Foreign Assistance of the Kingdom of the Netherlands.

23. The Agroforestry Outreach Program (AOP) was supported by the US ‘Agency for Int&natidnal Devel- opment (USAID). The research component of the AOP was implemented under USAID Project Number 521-0122 by the University of Maine.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

O’Keefe, Raskin, and Bernow (1984).

Van Gelder, Hosier, and Van der Donk (1983).

Low (1986).

French (1980).

Van Gelder, Enyola, and Mung’ala (1985).

Bradley, Chavangi, and Van Gelder (1985).

Hosier and Milukas (1989).

Hosier (1985).

Lundahl (1979).

Winterbottom and Hazlewood (1987).

Murray (1984), p. 143.

Grosenick (1986).

Gittinger (1982).

McGowan (1986).

Grosenick (1986), pp. 23 ff.

Ray (1984).

A more serious problem with the analysis lies in the choice of a discount rate of 10% without any discussion. This rate is probably too low for the Haitian peasantry, but was doubtless used for convenience’s sake.

41. Lipton (1968).

42. Schultz (1964).

possible to oversell tree planting in terms of its

43. Juo (forthcoming)

44. As Hamilton and Pearce (1987) argue, it is


environmental benefits. However, Anderson (1987) (1981) provides other warnings about agroforestry. points out that the soil-nutrient benefits may dwarf the erosion benefits in a particular situation. 47. Agroforestry systems may require either more or

fewer labor inputs. Fortmann (1987) cites cases in 45. Filius (1981). which a farmer leaving the rural homestead will plant

his land to trees in order to obtain a return without 46. The term ‘*environmental fundamentalist” is having to work the land. taken from Blaikie and Brookfield (1987). Budowski

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Algvere, K. V., ‘*Development economics of forestry,” in Readings in Forest Economics (Oslo: Universitet- forleget , 1969).

Anderson, Dennis, The Economics of Afforestation: A Case Sfudy in Africa, World Bank Occasional Paoer No. 1 (new series) (Baltimore: Johns Hopkins University Press, 1987).

Blaikie, P., and H. Brookfield, Land Degradation and Society (New York: Methuen, 1987).

Blanden, Peter, “Agroforestry and portfolio theory,” Agroforesrry Systems, Vol. 3, No. 3 (May 1985). pp. 239-249.

Bowes, M. D., and J. V. Krutilla, “Multiple use forestry and the economics of the multi-product enterprise,” Mimeo, Multiple Use Forestry Project (Washington DC: Resources for the Future, 1981).

Bradley, P. N., N. Chavangi, and A. Van Gelder, “Development research and energy planning in Kenya,” Ambio, Vol. 14, No. 4-5 (1985), pp. 22% 236.

Budowski, G., “Applicability of agroforestry systems,” Paper presented at the International Workshop on Agroforestry in the African Humid Tropics, IITA (Ibadan: 1981).

Ciriacy-Wantrup, S. V., and R. C. Bishop, “‘Common property’ as a concept in natural resources policy,” Natural Resources Journal, Vol. 15 (1975). pp. 71s 727, reprinted in R. C. Bishop and S. 0. Andersen (Eds.), Natural Resource Economics: Selected Papers (Boulder: Westview Press, 1985).

Douglas, J. S., and R. A. de J. Hart, Forest Farming: Towards a Solution to Problems of World Hunger and Conservation (London: Watkins, 1976).

Dykstra, D. P., “Food and fuelwood: A preliminary mathematical programming analysis for -an ujamaa village in Tanzania,” in L. Buck (Ed.). Proceedings of the Kenyan National Seminar on Agroforestry (Nairobi: ICRAF, 1981). pp. 12%136.

Earl, D. E., Forest Energy and Economic Development _. (Oxford: Clarendon Press, 1975).

Etherington. D. M.. and P. J. Matthews. “Aooroaches to the economic evaluation of agroforestry’ farming systems,“Agrofbresrry Systems, Vol. 1, No. 4 (1983), pp. 347-360.

F&us, A. M., “ Economic aspects of agroforestry,” in K. F. Wiersum (Ed.), Viewpoinrs on Agroforesfry (Wageningen, The Netherlands: Department of Forest Technique and Forest Products, Agricultural University of the Netherlands, 1981). pp. 47-74. Also published as Filius, A. M. “Economic aspects of agroforestry,” Agroforesrry Sysrems, Vol. 1, No. 1 (1982), pp. 29-39.

Food and Agriculture Organization of the United Nations (FAO). Eucalvpts for Planting (Rome: FAO, 1979). ’ ‘. ’

_

Fortmann, L. P., “The importance of land and tree tenure in agroforestry” (Pullman, WA: Washington State University Agroforestry Consortium Technical Report No. 1, 1987).

French, D., “The economics of bioenergy in developing countries,” in H. Egneus and A. Elle- gaard (Eds.), Bioenergy ‘84: Proceedings of an International Conference, Volume 5. (London: Elsevier Applied -Science Publishers, 1985). pp. 161-170.

French, D., “The economics of renewable energy systems for developing countries,” Natural Resources Forum, Vol. 4 (1980) pp. lQ-42.

Gittinger, J. P., Economic Analysis of Agricultural Projects, 2nd ed. (Baltimore, MD: Johns Hopkins University Press, 1982).

Gregory, G. R., Forest Resource Economics (New York: John Wiley & Sons, 1972).

Grosenick, G., “Economic evaluation of the Agro- forestry Outreach Proiect,” Mimeo (Port-Au-Prince, Haiti: -US-AID-University of Maine Agroforestry Outreach Proiect, Research Working Paper Series, No. 6. 1986):

I .

Guess, G. M., “Technical and financial policy options for development forestry,” Narural Resources Jour- nal, Vol. 21 (1981), pp. 37-55.

Hamilton. L. S.. and A. J. Pearce, “What are the soil and water benefits of planting trees in developing country watersheds?” in D. DI Southgate and J. F: Disinter (Eds.). Sustainable Resource Develoomenf in the Third World (Boulder, CO: Westview Press, 1987), pp. 3%58.

Harou, P. A., “Economic principles to appraise agroforestry projects,” Agricultural Adminisrrarion, Vol. 12 (1983). pp. 127-139.

Hoekstra, D. A., “The use of economics in agroforestry,” ICRAF Working Paper No. 2 (Nairobi: ICRAF, 1983a).

Hoekstra, D. A., “Choosing the discount rate for analysing agroforestry systems/technologies from a farmer’s ooint of view.” ICRAF Workine Paoer No. 9 (Nairobi: ICRAF, 1983b). - ’

Hosier, R., Energy Use in Rural Kenya: Household Demand and Rural Transformation, Energy, En- vironment, and Development in Africa Volume 7 (Stockholm: Beijer Institute and the Scandinavian Institute of African Studies, 1985).

Hosier, R., and M. Milukas, “Urban woodfuel markets in Africa: Depletion or development,” Paper pre-


sented at the Association of American Geographers convention (Baltimore, MD: March 1989).

Johansson, P. O., and K. G. Lofgren. The Economics of Forestry and Natural Resources (Oxford: Basil Blackwell, 1985).

Juo, A. S. R., “New farming systems development in the wetter tropics,” in Experimental Agricultural (Cambridge: Cambridge University Press, forthcoming).

Lipton. M., “The theory of the optimizing peasant,” Journal of Development Studies, Vol. 4 (1968). pp. 327-351.

Low, A., Agricultural Development in Southern Africa: Farm-Household Economics and the Food CrtX.s (Portsmouth, NH: Heinemann, 1986).

Lundahl, M., Peasanti and Poverty: A Study of Haiti (London: Croon-Helm. 1979).

McGowan, L. A., “Potential marketability of charcoal, poles, and planks produced by participants in the Agroforestry Outreach Project,” Mimeo (Port-Au- Prince, Haiti: University of Maine Agroforestry Outreach Research Project, US-AID Project No. 521-0122, 1986).

McGranahan, G., “Searching for the biofuel energy crisis in rural Java,” Unpublished Ph.D. dissertation (Madison, WI: University of Wisconsin-Madison, 1986).

Murray, G., “The wood tree as a peasant cash-crop: An anthropological strategy for the domestication of energy,” in C. R. Foster and A. Valdman (Eds.), Haiti - Today and Tomorrow: An Interdisciplinary Study (Lanham, VA: University Press of America, 1984), pp. 141-160.

National Academy of Sciences (NAS), Firewood Crops (Washington, DC: National Academy Press, 1980).

National Research Council (NRC), Agroforestry in the West African Sahel (Washington, DC: National Academy Press, 1983).

O’Keefe, P., “Response to David French,” in H. Egneus and A. Ellegaard (Eds.), Bioenergy ‘84: Proceedings of an international Conference, Volume 5 (London: Elsevier Applied Science Publishers, 1985) p. 176.

O’Keefe, P., P. Raskin, and S. Bernow, Energy and Development in Kenya: Opportunities and Con- straints, Energy, Environment, and Development in Africa Volume 1 (Stockholm: Beijer Institute and Scandinavian Institute of African Studies, 1984).

Openshaw, K., and J. Moris, “The socioeconomics of agroforestry,” in P. Huxley (Ed.), Interna- tional Cooperation in Agroforestry: Proceedings of an fnrernational Conference (Nairobi: GTZ and ICRAF, 1980). pp. 327-351.

Raintree, J. B., “Frontiers of agroforestry diagnosis and design” (Pullman, WA: Washington State Uni- versity Agroforestry Consortium, Technical Report No. 5. 1987).

Raintree, J. B., “A methodology for diagnosis and design of agroforestry land management systems,” in D. A. Hoekstra and F. M. Kueure fEds.). Anro- fores@ Systems for Small-ScaleUFarmers (NaiGbi: ICRAF, 1983), pp. 8-26.

Ray, A., Cost-Benefit Analysis: Issues and Methodo- logies (Baltimore, MD: Johns Hopkins University Press, 1984).

Repetto, R., and T. Holmes, “The role of population in resource depletion in developing countries,” Population and Development Review, Vol. 9, No. 4 (1983). pp. 609-632.

Richards, . P., Indigenous Agriculture Revolution (Boulder. CO: Westview Press. 1985).

Schultz, T. W., Transforming Traditional Agriculture (New Haven, CT: Yale University Press, 1964).

Spooner, B., “Environment and development in Baluchistan,” in P. D. Little and M. Horowitz (Eds.), Lands at Risk in the Third World (Boulder, CO: Westview, 1987). pp. 27-53.

Van Gelder, A., M. Enyola, and P. Mung’ala, “Tradi- tional agroforestry practices on farms in Kakamega District” (Nairobi: Kenya Woodfuel Development Programme Working Paper, Beijer Institute, 1985).

Van Gelder, A., R. Hosier, and W. Van der Donk, “Fuelwood production in developing countries: Toward an appropriate forest technology,” Proceed- ings of the Indian Academy of Sciences, Engineering (1983) pp. 213-232.

Wiersum, K. F., “Outline of the agroforestry concept,” in K. F. Wiersum (Ed.), Viewpoints on Agroforesfry (Wageningen, The Netherlands: Department of Forest Technique and Forest Products, Agricultural University of the Netherlands, 1981), pp. l-24.

Winterbottom, R., and P. T. Hazlewood, “Agro- forestry and sustainable development: Making the connection,” Ammo, Vol. 16, No. 2-3 (1987), pp. lo@llO.

APPENDIX: TABLES FOR KENYAN CASE STUDY (Source: Van Gelder, Hosier, and Van der Donk, 1983)

Table Al contains the data for the fuelstick project. observations from Indonesia. The price of labor is set at The yield estimate is a conservative one taken from the range of yields given in NAS (1980) of 35-65 m3 per

20 Ksh/day, a figure approximating the minimum wage at the time of the analysis (10.5 Ksh = US$l). The

annum. The figures for labor were obtained through price of wood is based on observations made in the use of the following assumptions and observations. rural areas of Machakos District at the time of the Seeding was assumed to take place at a rate of two analysis. seeds per minute. Weeding was assumed to take place Table A2 contains the data for the conventional at a speed of two plants per minute. Uprooting was woodlot project. The yield figures are based on estimated to require five minutes per tree. The cutting information about Eucalyptus saligna in Kenya (FAO, of fuelsticks is assumed to take place with a machete at 1979, p. 93). For labor inputs, it was assumed that one the rate of one stere meter = 0.44 man-days based on man could plant 100 seedlings per day. Weeding was


assumed to require the same input as under the fuelstick scheme. Harvesting is assumed to be 25% more efficient than under the fuelstick scheme, as axes are used instead of machetes.

The opportunity cost of not using the land for agriculture was computed by taking a figure of three tons per hectare as an average output level for the highlands of Kenya (double cropped). This was then

broken down into 33 bags of maize selling at 120 KsN bag for a total of approximately 4,COO Ksh. The net was obtained by multiplying an estimate for the value of labor required to cultivate one hectare of maize (120 days) by the minimum wage (20 Ksh) and subtracting from the total to get 1,600 Ksh. This was then taken as an assumed maximum rent for one hectare of agricultural land.

Table Al. Estimated undiscounted costs and benefits: Fuelstick scheme (1 ha Calliandra calothyrsus)

Measure Year 1 2 3 4 5 6 7 8 9 10 Total

Labor* s 14 cl1 c 11 c 11 c 11 s 14 c 11 c 11 c 11 c 11 364 (Man days) w 14 u 110 w 14 u 110 364

Labor costs (at 20 Ksh/day)t 560 220 220 220 2420 560 220 220 220 2120 7280

Seed costs (0.05 Ksh a) at 0.05 Ksh 500 500

Land rent (Ksh) 1600 1600 1600 1600 1600 1600 1600 1600 1600 1600 17.900

Total costs (Ksh) 2660 1820 1820 1820 4020 2160 1820 1820 1820 4020 25,680

Production (m3) 30 30 30 30 - 30 30 30 30 240

Benefits (175 KsNm3) 5250 5250 5250 5250 - 5250 5250 5250 5250 42,000

*Under labor: s = seedling, w = weeding, c = coppicing, and u = uprooting; 710.5 Kenyan shillings (Ksh) = flus.

Table A2. Estimated undiscounted costs and benefits: Woodlot scheme (1 ha Eucalyptus saligna)

Measure Year 1 2 3 4 5 6 7 8 9 10 Total

Labor’ (Man days)

Labor costs (at 20 Ksh/day)t

Seedling cost (0.6 Ksh/plant)

Land rent (Ksh)

Total costs (Ksh)

Production (m’)

Benefits (175 Ksh/m’)

P 25 w 3.5

t9 t 13 C66 116.5

570 180 260 1320 2330

1500 1500

1600 1600 1600 1600 1600 1600 1600 1600 1600 1600 17,900

3670 1600 1600 1600 1780 1600 1860 1600 1600 2920 21,730

20 30 200 250

3500 5250 35OOcl 43,750

‘Under labor: p = planting, w = weeding, t = thinning, and c = clear felling; t10.5 Kenyan shillings (Ksh) = %lUS.

the economics of smallholder agroforestry: two case studies

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