In this paper we use a real options approach to analyze farmers' economic incentives to abandon gum production or expand by creating new plantations. Our results indicate that agricultural crops currently provide higher economic benefits as compared to gum agroforestry. However, we show that the incentives for gum producers to abandon gum production is low, because (i) land is abundant, (ii) gum arabic is produced during the dry season and agricultural crops mainly during the wet season, and (iii) the dry season opportunity cost of labor is low. Hence, an increase in deforestation in the near future is not expected. The analysis further shows that an increase in the prices of gum arabic of about 315% is needed to induce an expansion of gum agroforestry and a shift in land use system from continuous agricultural production to gum agroforestry system. Hence, also an expansion of gum forests and/or agroforests in the near future is not expected. Price policies to improve incentives for expanding gum forests are discussed.
- carbon sequestration