Journal of Agricultural Science and Food Research
Open Access

Abstract

Financial Analysis of Smallholder Farmers Woodlot and Homestead Agroforestry Systems and its Implications for Household Income Improvement, the Case of Hawassa Zuria District, Southern Ethiopia

Eshetu SB, Pretzsch J and Mekonnen TB

Farmers determine their land use selections based on potential benefits of the farm products and costs related tothe production processes. Undertaking the financial cash flows in the farming practice of woodlot and homesteadagroforestry system can help the farmers to decide on their land use practices. Furthermore, farming practices canbe integrated to the optimal combination of a better financial reward considering the available resources. Theobjective of this research was to evaluate the financial profitability of smallholder woodlot and homesteadagroforestry systems. To undertake this research both primary and secondary data were used. Primary data weregathered through a questionnaire, key informant interview, focus group discussions and field tree measurements.Net Present Value (NPV), Benefit Cost Ratio (BCR) and Internal Rate of Return (IRR) analysis were used as profitindicator. Maximization of profit from the two farming practices was analyzed using linear programming model. SPSSand excel solver were used to analyze the data and presented in graphs, tables, and descriptive texts. The averageland size owned by the household was 0.8ha where Farming was the major means of living for about 98.5% of thefarmers in the study area. The average land size allocated for smallholder woodlot was 0.125ha whereas 0.68hawas allocated for Homestead Agroforestry system (HAFs). In the study area, 42% of the households sustainablysecured their fuelwood demand and sold extra fuelwood to the market. Only 18.5% of the household soldEucalyptus poles to the market which have extra waiting time than firewood. The NPV calculation shows that bothfarming practices were profitable whereby HAFs was 1.33 times profitable than woodlot. The BCR for both farmingpractices was greater than unity at an interest rate of 10%. Investing on HAFs above 44% of interest rate was a lossfor the households that extend up to 129.8% in the case of the woodlot. A decrease in 10% of the HAFs commodity(chat, coffee, enset, avocado, cordia, and gesho) had a reduction of 104,245 birr (4,430.41 US$) per hectare ofproduction per year which was about 33.3% of the NPV. In the case of the woodlot, reduced price of Eucalyptuspoles by 10% has a profit reduction of 23,781 birr (1,009 US$) per hectare of woodlot production which means20.39% profit loss per year. To maximize the profit, land allocation of woodlots and HAFs can be allocated as acombination of 0.53 and 0.47 hectare, respectively.