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Decisions made by farmers involve complex interaction and feedback system, particularly, in the economy and the natural environment. Their decision-makings may have significant influences beyond the farm boundary. This is more so when considering the farmers at the mountainous area in monsoon Asia because their agricultural practices at the upland have potential impacts on deforestation, soil degradation and erosion. The Upper Solo River watershed in Central Jawa, Indonesia, is our study area where rain-fed paddy and maize-cassava farming system are commonly practiced. High population density and constant demand for food crops put pressure on deforestation and mountainous cultivation, thereby resulting in high soil erosion. This soil erosion deteriorates reservoir sedimentation at the downstream Wonogiri reservoir. Wonogiri reservoir has already lost 25% of its useful capacity in the last 30 years. Appropriate agricultural practices are needed to mitigate soil erosion while increasing upland farmers’ income. Perennial crop such as clove is still underdeveloped even thought their cash income mainly comes clove productions. This paper analyzes famers’ decision making in land use, and examine the constraints of perennial crop development. Our simulation results indicate that the shift in land use from annual to perennial cropping system is expected to increase farm income in the long-run. The results also show that optimal timing and amount of investment into clove trees are considerably delayed and reduced when the financial liquidity is constrained.


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