Cost–Benefit and Profitability Assessment of Land Use Transition from Agriculture to Plantation Forest in Bolosso Sore and Hadero Tunto Districts, Southern Ethiopia

Abstract

Rapid land-use transitions from crop farming to plantation forestry are reshaping rural economies in Ethiopia, driven by declining agricultural productivity, rising demand for wood products, and farmers’ preference for low-risk income alternatives. Eucalyptus dominates due to fast growth and high market value. This study assesses the economic viability of converting cropland to eucalyptus in Boloso Sore and Hadero Tunto by comparing tree- and crop-based systems. Data from 240 households were collected via surveys, interviews, focus groups, and field observations (multistage sampling). Cost–benefit analysis used NPV, BCR, and IRR at an 8% discount rate. Eucalyptus plantations yield higher long-term profits with lower labor: NPV 458,577.05 ETB, BCR 16.25, and IRR 66%. Crops provide short-term food and cash: NPV 388,319.97 ETB, BCR 16.36, IRR 203%. Sensitivity tests show plantation forestry is more robust across price, cost, yield, and discount-rate changes. As discount rates rise from 8% to 14%, NPVs fall for both, but plantations remain higher, converging only around 14.5%–15%, beyond which crops may gain advantage under very high capital costs. Under broader sensitivity scenarios including variations in price, production cost, and yield the plantation system demonstrates greater resilience due to its large periodic revenues, which buffer moderate market and productivity fluctuations. In contrast, crop-based agriculture is more vulnerable to input cost increment and short-term yield instability, although it is relatively less sensitive to extreme discount rate increases. Overall, within realistic ranges (8–14%), eucalyptus plantations remain economically superior despite food-security and ecological trade-offs.