The Economics and Ecology of Shade-grown Coffee: A Model to Incentivize Shade and Bird Conservation

Shade-grown coffee, which is grown under a forest-like canopy of trees, is a production system widely regarded as environmentally sustainable and enabling for biodiversity conservation. Although shade-coffee systems enhance pest-control services from birds, there is an important potential tradeoff, namely lower coffee yields. Yet few studies have explicitly examined this tradeoff and the economic incentives required for smallholders to adopt shade practices rather than conventional systems, in which coffee is grown in full sun or little shade. We formulated a dynamic optimization problem to model a grower's decision to convert land from conventional to shade-grown production based on (1) expected yields and costs of each system, (2) gains from pest-control services provided by birds and (3) price premiums for higher-quality, sustainably-grown coffee. Our results suggest that at least 36% of a five-hectare farm should be allocated to shade-grown coffee to maximize inter-temporal income. This proportion is positively related to (1) production savings associated with birds, (2) prices for shade-grown and conventional coffees, (3) number of trees used for shade and (4) yields of shade-grown coffee. We show that smallholders have incentives to allocate more land to shade-grown coffee when they benefit from bird conservation under the appropriate market conditions.