Economic Evaluation of an Intensive Silvo-Pastoral System in San Martín, Peru

The cattle sector plays a critical role in Peru's agricultural economy, yet it faces challenges related to low productivity and environmental degradation. Sustainable alternatives like silvo-pastoral systems (SPS) offer promising solutions to enhance both economic returns and ecological outcomes in cattle farming. This study examines the economic and environmental viability of intensive SPS (SPSi) compared to traditional monoculture grass systems in San Martín, Peru. SPSi, which integrate grasses, legumes, shrubs, and trees, have the potential to enhance cattle farming profitability while simultaneously offering environmental benefits such as improved soil health and reduced greenhouse gas emissions. Through a discounted cash flow model over an eight-year period, key profitability indicators—Net Present Value (NPV), Internal Rate of Return (IRR), Benefit-Cost Ratio (BC), and payback period—were estimated for four dual-purpose cattle production scenarios: a traditional system and three SPSi scenarios (pessimistic, moderate, and optimistic). Monte Carlo simulations were conducted to assess risk, ensuring robust results. Results show that the NPV for the traditional system was a modest US$61, while SPSi scenarios ranged from US$9,564 to US$20,465. The IRR improved from 8.17% in the traditional system to between 26.63% and 30.33% in SPSi scenarios, with a shorter payback period of 4.5 to 5.8 years, compared to 7.98 years in the traditional system. Additionally, SPSi demonstrated a 30% increase in milk production and a 50% to 250% rise in stocking rates per hectare. The study recommends promoting SPSi adoption through improved access to credit, technical assistance, and policy frameworks that compensate farmers for ecosystem services. Policymakers should also implement monitoring mechanisms to mitigate unintended consequences, such as deforestation, ensuring that SPSi expansion aligns with sustainable land management practices. Overall, SPSi present a viable solution for achieving economic resilience and environmental sustainability in Peru’s cattle sector.