Economic Budgeting for Agroforestry Practices
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Larry D Godsey
Center for Agroforestry
Evaluation of the economic aspects of agroforestry provides a basis for estimating financial needs and feasibility, highlights trade-offs between multiple benefits, and monitors economic efficiency. The main technique used in economic analysis is budgeting. Economic budgeting is a very flexible process.
However, effective application of budgets requires an understanding of the commodity, practice, or system to which it is being applied. Agroforestry poses some unique economic budgeting problems because it involves multiple enterprises with varying production cycles, such as trees, row crops, forages, and/or livestock.
First, unlike most agricultural commodities, agroforestry has a "planning horizon" of greater than one season due to the tree component. A "planning horizon" is simply a time period in which all costs and revenues for a given practice are realized. For soybeans, a planning horizon may be six months to a year. For agroforestry, a simple planning horizon may be as long as sixty years when the trees are taken into consideration.
Second, because of the long planning horizon of agroforestry practices, many of the revenues and costs do not occur at regular or predictable intervals throughout the entire planning horizon, but are irregular in occurrence.
Finally, because agroforestry practices typically incorporate a fixed tree component with a crop or livestock component, the crop or livestock component may change over time. For example, an alley cropping practice may start out as soybeans grown between rows of eastern black walnut trees, but by the time the trees are producing nuts, hay may be the crop grown between the rows of trees because more of a mat is required to harvest the nuts.
- Develop enterprise budgets
- Combine the enterprise budgets into a cash flow plan