OECD Urges Smarter Tree-Farming Policies to Boost Climate Resilience and Rural Growth

The OECD urges governments to integrate trees into farming through targeted incentives, highlighting major gains for climate resilience, biodiversity, soil health and farmer incomes while warning against water, carbon-permanence and land-use risks. For governments, development partners and investors, success depends on shifting from simple tree-planting targets to locally tailored, economically viable policies backed by long-term finance, strong monitoring and farmer participation.

A report by the OECD argues that trees can become a powerful tool for making agriculture more resilient, environmentally sustainable and economically diverse. Prepared by Lauren Lee and Ada Ignaciuk, the study shows that governments are increasingly supporting agroforestry, afforestation and the conservation of existing trees on farms. But its message is not simply to plant more trees. Policies need to put the right trees in the right places, protect farm incomes and water resources, and ensure that forests supported for climate purposes remain standing long enough to deliver real benefits.

Tree Planting Moves Up the Policy Agenda

Government support has expanded quickly. The OECD identifies around 100 policies that encourage tree and forest planting or management on agricultural land, most of them introduced during the past decade. About 60% use subsidies, 14% rely on information and advisory measures, 12% support planting through carbon credits, while the remaining 14% include voluntary measures and research and development programmes.

The environmental gains can be significant. Research reviewed by the OECD suggests that well-designed agroforestry can reduce wind erosion by more than 80%. One study found around twice as many pollinators in agroforestry systems as in monocultures and 4.5 times higher seed set. Woodland soils have also been found to be 11 to 20 times more permeable than permanent pasture in certain conditions, potentially improving water infiltration and reducing flood risks.

Trees can additionally store carbon, protect biodiversity, improve soils and create cooler conditions for crops. However, governments need to avoid one-size-fits-all programmes. Trees can consume significant amounts of water, and planting in dry areas may worsen water scarcity. Afforestation on some grasslands or peatlands can also deliver weaker carbon benefits than expected.

Money Matters: Farmers Need the Right Incentives

The OECD finds a major difference between payments for large-scale afforestation and those for smaller environmental improvements. Carbon-focused afforestation policies provide around USD 1,800 per hectare on average, excluding outliers, while biodiversity-focused projects average approximately USD 1,450 per hectare. Exceptional programmes can exceed USD 7,000 per hectare. Some carbon-related payments reach about USD 52 per tonne of CO2 equivalent.

By comparison, programmes encouraging farmers to maintain existing trees, plant on marginal land or deliver several environmental benefits average only around USD 235 per hectare per year, although some payments reach approximately USD 910.

For policymakers, the lesson is that farmer economics cannot be ignored. Productive farmland has a higher opportunity cost than marginal land. In Ireland, for example, conversion of lower-quality cattle and sheep land to forestry can be financially attractive, while productive dairy farms are unlikely to be converted without additional support.

The gap between private and public benefits can be large. Research cited from Denmark estimates that converting conventional farmland to forest can create a private cost of about EUR 500 per hectare annually. Once carbon reduction, improved water quality and recreation are considered, however, the same conversion could produce a social benefit of roughly EUR 1,500 per hectare per year.

For development partners, this strengthens the case for financing models that reward farmers for ecosystem services rather than paying only for the number of trees planted. International financial institutions and climate funds could support farmer training, nurseries, research, carbon monitoring and market development alongside direct planting incentives.

Big Opportunities Come With Long-Term Risks

The shift also creates business opportunities. Farmers can diversify income through timber, fruit, carbon credits and biodiversity payments. Nearly 70% of agroforestry financial scenarios examined in research cited by the OECD became more profitable than business-as-usual systems when payments for ecosystem services were included.

Carbon-market developers, forestry companies, nurseries, agricultural technology businesses, insurers and monitoring companies could benefit as governments expand nature-based programmes. Technologies such as drone-assisted sowing may also lower planting and monitoring costs.

But investors face important risks. Forests can be damaged by wildfire, pests, storms or future land conversion. Some carbon programmes in Australia and the United Kingdom allow commitments lasting as long as 100 years, creating uncertainty for farmers and investors because obligations may continue through several changes in land ownership.

The OECD also warns about "leakage". If productive farmland is converted to forest and food production falls, countries may import more agricultural products. Environmental damage could then simply move abroad through increased agricultural expansion or deforestation in exporting countries.

Existing trees also have considerable economic value. Research from Normandy found that removing hedgerows to consolidate farmland could generate private benefits of up to EUR 123 million under favourable conditions. Yet once carbon impacts were considered, the resulting social costs could reach EUR 310 million. This suggests governments should reward farmers for protecting existing trees and hedgerows, not just subsidise new planting.

From Tree Targets to Smarter Land Policy

The OECD's recommendations point toward a more targeted approach. Governments should assess soil conditions, water availability, agricultural productivity and opportunity costs before financing afforestation. Payments should recognise biodiversity, soil restoration, water management and farm resilience alongside carbon storage.

Implementation capacity also needs investment. Governments will require sufficient supplies of high-quality and genetically diverse seedlings, stronger nurseries and advisory services capable of helping farmers select suitable species. More than 60% of the policies identified by the OECD are already administered by agricultural ministries or jointly by agriculture-related ministries, making coordination with forestry, environment and rural-development agencies increasingly important.

Development partners can help governments build these institutions, develop reliable monitoring systems and design payments that make sustainable land management commercially attractive. Private investors, meanwhile, need credible safeguards against carbon reversal, water stress and land-use leakage.

The central policy message is straightforward: success should not be measured simply by hectares planted. Governments, development institutions and businesses should focus on whether tree-based investments improve farm incomes, protect ecosystems, store carbon reliably and remain economically and environmentally viable for decades.