Agriculture is an important part of Ethiopia’s economy constituting a significant proportion of Gross Domestic Product (GDP) and total export. The method of agricultural production in Ethiopia has resulted in increasing deforestation and degradation. Among others, Agroforestry has been considered as a potential alternative to address the increasing deforestation and degradation. Khat (Catha edulis), an indigenous shrub species offers the potential to be intercropped with other food crops in an agroforestry system. The aim of this article is to assess the competitiveness of Khat production as a complementary source of income for farmers in the West Shaw region of Ethiopia. Three focus group discussions (FGD) with 14 Khat producers per FGD were conducted in 3 villages in West Shewa and East Wollega zones in the Oromia region of Ethiopia. In addition, key informant interviews with traders were conducted to obtain further information about Khat production and marketing. Data was analyzed using Porters’ five forces framework. The results indicate that demand exceeds its current supply and farmers have power to determine the price. However, there is high level of competition among traders in sourcing from the farmers leading to price war among traders. The agro ecological suitability for Khat production in the area indicates that more farmers can produce it if the awareness of its market potential is built. However, with the high level of demand and existence of export market, supply can be absorbed. We conclude that Khat can be promoted as a profitable crop for agroforestry practice in Ethiopia.