Economics of Agroforestry

This chapter provides principles, literature and a case study about the economics of agroforestry. We examine necessary conditions for achieving efficiency in agroforestry system design and economic analysis tools for assessing efficiency and adaptability of agroforestry. The tools presented here (capital budgeting, linear progranuning, production frontier analysis and risk analysis) can help determine when agroforestry is a feasible option and provide arguments for cases when agroforestry systems are economically, socially and environmentally appropriate, fostering improved sustainable development for landowners, farmers and communities.The chapter closes with a case study applying the capital budgeting and real options analysis to evaluate the potential for agroforestry to augment efforts to restore bottomland hardwood forests in the Lower Mississippi Alluvial Valley. Agroforestry systems provide multiple outputs, potentially reducing risk and increasing income while also purportedly producing more ecosystem services than conventional agriculture. Our review and case study, however, provide cautionary tales about the limits of agroforestry and the need for rigorous economic research and analysis to design efficient and productive agroforestry systems and to optimize private and public investments in agroforestry.