Financial returns, stability and risk of cacao-plantain-timber agroforestry systems in Central America

Abstract

Diversification of agroecosystems has long been recognized as a sound strategy to cope with price and crop yield variability, thus increasing farm income stability and lowering financial risk. In this study, the financial returns, stability and risk of six cacao ( Theobroma cacaoL.) ‐ laurel (Cordia alliodora (RP 69 trees ha ‐1 ). An ex-post analysis was conducted using experimental and secondary data to build a simulation model over a 12-year period under different price assumptions. The probability distribution functions for the three commodity prices were modeled and simulated through time, accounting for their possible autocorrelation and non-normality. The expected net incomes from the agroforestry systems were considerably higher than from monocultures. The agroforestry systems were also less risky. Agroforestry systems with proportionally more cacao than plantain were less risky, but also less stable. The timber component (C. alliodora) was a key factor in reducing farmer’s financial risks. Methodologically, the study illustrates a technique to evaluate both expected returns and the corresponding financial risks to obtain a complete, comparable profile of alternative systems. It shows the need to allow for the possibility of non-normality in the statistical distributions of the variables entering a financial risk and return analysis.