We examine linkages between national agricultural markets and the pattern of deforestation and agricultural development in an upland watershed. Growth in the watershed has been associated with deforestation as well as increasing evidence of agricultural land quality degradation, soil erosion and diminished watershed function. We ask to what extent forces external to the watershed and the local economy, and in particular market development and associated economic policies, might influence land use and resource management decisions. The evidence indicates that national markets -- and thus policies -- may play a much larger role in determining upland farmers' land allocation decisions than is commonly assumed in the design of upland "sustainable agriculture" projects and policies.