Incentivising agroforestry: A Real Options Analysis

Yakubu Abdul-Salam, Paola Ovando, Deborah Roberts* (Corresponding Author)

*Corresponding author for this work

Research output: Contribution to conferenceUnpublished paperpeer-review


Agroforestry has a potentially important role in helping agriculture address both the climate and biodiversity crises. It provides a means of producing additional marketable goods from agricultural land and enhancing biodiversity at the same time as increasing carbon sequestration and, in silvopastural systems, reducing carbon emissions assuming a reduction in livestock stocking rates. However, the uptake of agroforestry in the UK has been limited. This paper adopts Real Options techniques to explore how the decision to adopt agroforestry is influenced by the relative levels of returns from agriculture, forestry and the price of carbon, taking into account the options value of the farmer being able to change or postpone decisions based on current conditions. The results are compared to the equivalent findings from a standard Land Equivalent Value capital budgeting approach to agroforestry adoption. Analysis is based on data on from a case study upland livestock farm in Scotland, comparing the impacts of introducing agroforestry into the hill sheep enterprise or the low ground cattle and sheep enterprise. The policy implications of the analysis are considered including the potential for upfront support payments to further incentivise the adoption decision
Original languageEnglish
Publication statusPublished - 2 Mar 2021
Event94th Agricultural Economic Society Conference: 94th Agricultural Economic Society Conference -
Duration: 29 Mar 202130 Mar 2021


Conference94th Agricultural Economic Society Conference
Internet address

Bibliographical note

Paola Ovando thanks the financial support of the Macaulay Development Trust though the Fellowship on Natural. This paper reflects only the authors’ views and not the views of the supporting institutions.


  • Agroforestry
  • carbon sequestration
  • livestock farming


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