Dynamic optimization for evaluating externalities in agroforestry systems

Integrating trees in cropping and grazing systems – agroforestry – can provide many benefits in the Australian agricultural context. These include the production of timber and non-timber products such as oils and flowers, fodder, windbreak protection, shade and shelter, wildlife habitat, flood mitigation, soil-erosion control, improved water quality, and reduced dryland-salinity emergence. Prinsley (1992), – Cleugh, Prinsley, Bird, Brooks, Carberry, and Crawford et al. (2002) and other authors in the same volumes present some examples for Australia. Many of the benefits from trees are off-farm environmental services, which are public goods or externalities and which landholders may not take into account. The social benefits from trees may therefore exceed the private benefits, and given such a divergence, landholders may conserve and plant too few trees from a social perspective. Without perfect information, landholders may even underestimate their private benefits from trees and further exacerbate this divergence. Concern for this issue is not new in Australia (see Tisdell, 1985). Market failure due to externalities and imperfect information provides a rationale for government intervention to encourage landholders to invest in vegetation management and reforestation. Regulatory, extension, and market-based approaches are all being used to this end by governments in Australia. State Governments have established regulatory controls on land clearing of private native vegetation (Walpole, 1999; Stoneham, Chaudhri, Ha, & Strappazzon, 2003), such as the Native Vegetation Conservation Act in New South Wales (NSW) and The Planning and Environment Act in Victoria. State and Federal Governments have also implemented extension programs to provide funds and/or assistance to landholders and community groups to manage native vegetation on private land. At the State level, these programs include Land for Wildlife and Trust for Nature in Victoria, and the Voluntary Conservation Agreement Program in Queensland. At the Federal level, there is Landcare, One Billion Trees, Save the Bush, Bushcare, National Heritage Trust, and the National Action Plan for Salinity and Water Quality. Stoneham et al.