Financial evaluation of converting agricultural land to plantation forests in Ethiopia

s Land is a fundamental factor of production and plays a critical role in shaping rural livelihoods and economic development. In many parts of Ethiopia, increasing conversion of agricultural land to plantation forestry has raised important questions regarding its financial viability and land-use implications. This study evaluates the financial performance of converting agricultural land to plantation forests, particularly Eucalyptu s and Acacia decurrens , in six districts of Ethiopia: Cheha, Gumer, Jawi, Sinan, Hadero Tunto, and Boloso Sore . Data were collected from 645 households using structured interviews, focus group discussions, and key informant consultations. A multi-stage sampling approach was employed to select study districts, kebeles, and households. Financial viability was assessed using Net Present Value (NPV), Benefit–Cost Ratio (BCR), and Internal Rate of Return (IRR) over a 15-year planning horizon, complemented by sensitivity analysis to evaluate the effects of changes in interest rates and market conditions. The results show that plantation forestry provides substantially higher financial returns than most traditional crops. Crop production generated an average NPV of 89,060.70 ETB per hectare, with a BCR of 1.29 and IRR of 46%, whereas Eucalyptus plantations achieved an NPV of 280,240.14 ETB per hectare and a BCR of 5.23. Similarly, Acacia plantations yielded an NPV of 136,909.21 ETB per hectare and a BCR of 2.26, outperforming crop-based systems in most cases. These findings indicate that plantation forestry represents a highly attractive land-use option for smallholder farmers. However, the results also highlight the importance of balanced land-use planning to ensure that plantation expansion does not compromise food production and long-term environmental sustainability .