Comparative Economic Analysis of Three Competing Land Use Types in Southern Ethiopia: Tools for Informed Decision-Making on Land Use Choices

Abstract

Land is a scarce natural resource and increasingly being constrained by competition among mutually exclusive uses. Ethiopia has experienced serious challenges to allocate this limited resource to socio-economically efficient uses. By using economic performance indicators such as Net Present Value (NPV) and Benefit Cost Ratio (BCR), this paper compares the socio-economic value of three major competing land use types in southern Ethiopia over three investment time horizons (5, 10 and 15 years). The study aims to provide empirical evidences for rational decision-making in allocating scarce land resources. We applied descriptive statistics, ANOVA, and econometric model to analyze and present the results of these three land uses. Wood Based Mono-Cropping (WBMC), Tree Cereal Mixed Cropping (TCMC), and Cereal Based Mono-Cropping (CBMC). Our results reveal that the economic values of WBMC is significantly higher than CBMC and TCMC as shown by the two performance indictors (NPV and BCR). Our study also finds labor, product price, land, tenure security, and rainfall variability significant to explain factors that determine farmers’ land use choice in the study area. The study concludes that WBMC is economically feasible compared to the two-competing land uses and is a lucrative enterprise in the study area. The outputs of this study can give useful insights for smallholder farmers and investors who like to engage in forestry enterprise; and assist decision-makers and practitioners to improve the current practices in land use planning.

Keywords: Net Present Value; Benefit Cost Ratio; WBMC; TCMC; CBMC; Southern Ethiopia.