Comparative financial profitability of agroforestry and cereal monocropping practices in Northwestern Ethiopia

Abstract Complimentary agroforestry systems play an important role in agri-food systems, ecosystem security, sustainable natural resource management, mitigates climate change, world development sustainability, and improving farmers' financial conditions worldwide. While the empirical literature on land use and agroforestry systems in Northwestern Ethiopia appears to be extensive, the literature on comparative financial analysis of agroforestry is very scanty. Thus, this study was conducted in the north-western of Ethiopia to: (1) explore the financial feasibility of farmers’ investments in three common agroforestry practices (i.e., homegarden, dogwood (Rhamnus prinoides), and coffee-shade), (2) evaluate and compare the relative financial attractiveness of the selected agroforestry practices and those of the cereal crop practices, and (3) discuss profitability constraints and identify potential solutions to farmers’ agroforestry practices. The result shows that all agroforestry practices were financially profitable (NPV ha− 1 193,932 − 296,739 ETB, r = 10%). The coffee-based was most profitable, with 34.65%, and 26.45% higher NPV ha− 1 than Dogwood and homegarden, respectively, but it has irregular cash flow patterns. Although all are profitable (positive NPV and EAI, and > Unity BCR ), agroforestry practices were financially more attractive than monoculture cereal practices (NPV ranges ETB 58,643 to 167,106) and had a crucial impact on the farmers’ income flow. Sensitivity analysis reveals more impact on returns from changes in discount rate than labour costs and revenue. Market fluctuation, disease, lack of improved fruit tree varieties, land shortage, and input shortages, particularly water pumps, were major constraints for the establishment and profitability of agroforestry practices. Government should support and subsidize different varieties of tree species, establish and develop market chains, and provide credit services and seeds and seedlings to enhance the adoption of agroforestry practices and increase the financial return of farm households. Through the positive externalities of trees, providing incentives to encourage the establishment and adoption of agroforestry practices by farmers may also benefit society. This is also in line with implementing and expanding the country's current state-led green legacy initiative.