Reducing financial risk in agroforestry planning: a case study in Costa Rica

Abstract

We used fluctuations in net income from alternative cropping systems to assess the financial risk associated with an agroforestry system. Mean-variance analysis was used to derive a set of minimum-risk farm plans for a 15-hectare farm in Costa Rica. Monocultural coffee production provided the highest expected net income, but also had the greatest economic risk. As risk was reduced, the optimal agroforestry system diversified to include other cropping systems in addition to the coffee monoculture. Risk aversion was, however, accompanied by significant reductions in expected net income for the cropping systems studied. The inclusion of additional cropping systems whose net incomes are negatively correlated with the systems considered here could help reduce the economic risk facing rural agriculturalists in this region.