This study examines the impacts of coffee agroforestry system on social-economic performance of Upper Sekampung Watershed in the Province of Lampung, Sumatra-Indonesia.  Way Sekampung is the main watershed and major food baskets and agricultural exports of the province, covering land area of 484 thousand hectare, but also  known to have 49 percent of degraded land, 34 percent of potential to degrade and only 17 percent of non-degraded land.  The rate of soil erosion in the watershed is probably the highest in the country, averaging 67.5 ton per hectare per year, far higher than the tolerable rate of 25 ton per hectare per year.  Coffee agroforestry system in the watershed is aimed at reducing land degradation improving farm income in the region.

The study applies quasi-experimental impact evaluation method using a propensity score matching (PSM) technique by analyzing 248 farm households practicing coffee agroforestry in two subdistricts of Pulau Panggung and Pugung in Tanggamus Districts of Lampung. The PSM technique basically compares farm households that have grown high percentage of shade trees and multi-purpose tree species (MPTS) in their coffee farms and control group that grow small percentage of shade trees and/or not applying shade trees. Observed characteristics of the “participants” are then matched to “control” groups, from basic demography, characteristics of coffee farms and shade trees, estimated income, off-farm and non-farm employment and income, perception on economic and environmental risks, and other related information such coffee certification, extension system etc. The average treatment effect of agroforestry system is then calculated as the mean difference in outcomes across these two groups (matching), representing the overall gain of agroforestry impact on social-economic performance.  The study calls for a more structured and comprehensive action-research and development activities that facilitate the reward transfers for environmental services in the watershed.