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

Diversification of agroecosystems has long been recognized as a sound strat egy to cope with price and crop yield variability, thus increasing farm inc ome stability and lowering financial risk. In this study, the financial ret urns, stability and risk of six cacao (Theobroma cacao L.) - laurel (Cordia alliodora (R&P) Oken) - plantain (Musa AAB) agroforestry systems, and the corresponding monocultures, were compared. Production and cost data were ob tained from an on-going eight-year old experiment. The agroforestry systems included a traditional system and a replacement series between cacao (278, 370, 556, 741 and 833 plants ha(-1)) and plantain (833, 741, 556, 370 and 278 plants ha(-1)) with a constant laurel population (timber tree; 69 trees ha(-1)). An ex-post analysis was conducted using experimental and secondar y data to build a simulation model over a 12-year period under different pr ice assumptions. The probability distribution functions for the three commo dity prices were modeled and simulated through time, accounting for their p ossible autocorrelation and non-normality. The expected net incomes from th e agroforestry systems were considerably higher than from monocultures. The agroforestry systems were also less risky. Agroforestry systems with propo rtionally more cacao than plantain were less risky, but also less stable. T he timber component (C. alliodora) was a key factor in reducing farmer's fi nancial risks. Methodologically, the study illustrates a technique to evalu ate 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.