Households living in peripheral villages of the natural forests are primarily dependent on agriculture and secondarily dependent on forest gatherings. High rates of forest dependency occur, in part, from the efforts of inefficient farmers securing subsistence. Due to excessive use, the productivity of the remaining forests is at a critical stage. Technical efficiency in agriculture in forest peripheries is one aspect in which agricultural capacity and rural incomes can be enhanced.The study’s main objective was to assess the efficiency of farming in forest margins and to determine its effect on dependency on forest resources by rural households. The findings of the study showed that the mean technical efficiency in agricultural farming in forest peripheries ranges between 67 – 73 percent. Factors such as age, education, experience, extension, and the nutrition status of the household head are mainly responsible for determining the level of inefficiency. Further, study findings showed factors such as technical efficiency in agriculture, off-farm income, wealth and the diversification index had negative and significant effects on dependency of rural households on forest resource extraction. It is estimated that on average, an increase in mean technical efficiency in agriculture by 10 percent would increase agricultural revenue by 2,142 – 3,987 rupees/farm. Based on the threshold efficiency levels needed to arrest forest dependency, it is estimated that increasing agricultural income through increasing technical efficiency can be partly compensated for forest resource extraction. Compared to the measured efficiency levels, the efficiency gaps needs to be addressed by policy measures range from 2-14 percent for NTFP categories and 10-26 percent for the fuelwood category. Technical efficiency in agriculture can be minimized via policies to enhance farmer education, extension and nutrition status of households. Income diversification and off-farm employment, may be other viable options to minimize forest dependency. Based on the economic value of forest products extracted from each forest reserve, it is estimated that increasing technical efficiency in agriculture by 10 percent would reduce the opportunity cost of biodiversity conservation by 27, 46, 34 and 75 percents respectively in the forest under investigation. The study findings showed that intersectoral activities such as agriculture produce positive externalities in forest conservation. Additional revenue generated by improving technical efficiency of agriculture can be partly compensated for the income gained by extracting forest goods. Hence, improving technical efficiency in farming in forest peripheries should be an integral part of forest conservation policy in Sri Lanka.

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Evaluating the Economic Potential and Feasibility of Producing Bioenergy from Underutilized Crops in Sri Lanka