Economic trade-offs of farmland conversion to Eucalyptus plantations in southern Ethiopia

The rapid expansion of fast-growing tree species such as Eucalyptus and Acacia decurrens is reshaping agricultural systems in Ethiopia. Although many studies report high returns from smallholder tree plantations relative to food crops, the evidence remains mixed and highly context-specific, depending on crop systems, time horizons, discount rates, and valuation approaches. This study evaluates the economic feasibility of allocating farmland to Eucalyptus plantations relative to major food crops within smallholder farming systems in southern Ethiopia. We applied a modified Hartman–Faustmann framework to estimate the Benefit–Cost Ratio (BCR), Net Present Value (NPV), and Land Expectation Value (LEV) under six scenarios that vary by carbon price, discount rate, and time horizon. NPVs were also converted into Equivalent Annual Income (EAI) to improve comparability between annual crops and perennial tree plantations. Results show that the potato crop generates the highest average annual profit (ETB 196.8 thousand ha −1 ), while haricot bean exhibits the highest BCR among annual crops. Smallholder Eucalyptus plantations produce a NPV of ETB 230 thousand ha −1 from timber alone, increasing by ETB 42.6 thousand ha −1 when carbon payments are included at USD 4 t −1 CO₂. Although food crops outperform Eucalyptus in short-term indicators (EAI, NPV, and BCR), the infinite-horizon land expectation value (LEV) of Eucalyptus is substantially higher, reaching ETB 3.3 million ha −1 under repeated rotations. However, this result should be interpreted as a theoretical long-run benchmark rather than a realistic representation of farmer or policy decision horizons , and thus does not necessarily imply that Eucalyptus is preferred in practice. At higher carbon prices (USD 20 t −1 CO₂), NPV increases approximately twofold, highlighting the sensitivity of plantation profitability to carbon markets. Overall, the findings underscore important trade-offs between short-term food production and longer-term income and carbon benefits in smallholder agricultural systems. This study advances understanding of land-use trade-offs in smallholder agricultural systems by integrating crop and tree-based land uses within a unified economic framework. By incorporating carbon values and long-term land valuation (LEV), it demonstrates how carbon markets can shift the relative attractiveness of tree plantations. The results highlight tensions between immediate food security and long-term climate and income gains, providing policy-relevant insights for sustainable land-use planning and climate-smart agricultural development. • Fast-growing trees reshape Ethiopian farmland and land-use trade-offs. • Economic returns assessed using a modified Hartman–Faustmann model. • Food crops outperform Eucalyptus short-term; carbon raises long-term value. • Carbon credits can enhance income and support climate-smart land use.