Dzalanyama Forest Reserve covering 935 km2 is marked with substantial land cover transitions. The objective of this study was to simulate, using multi-agent simulation model, the cropping decisions and a competing labour practice (charcoal production) by smallholder farmers surrounding the forest reserve. The results show close similarities with observed trends between 1990 and 2010. Food deficiency in the smallholder farming system is the major driving factor to deforestation and the future looks bleak in the scenario of business as usual (S1). An increased reward from the scenario of formalized charcoal sector (S2) shows a positive and sustainable trend to control the deforestation. It predicts a reduction in forest loss than in S1 equivalent to an accumulated gain of forest cover of 4 %in 2030. Despite there being a complex pathway to achieving formalization of the charcoal sector in the area in reality, we build on its reported success elsewhere in sub-Saharan Africa to test its effect on deforestation. From S2 we extrapolate that, with ‘private taxes’ diverted into formal revenue, the accruing revenue to both charcoal producers and government would be increased. More revenue allows for rules on efficient and effective charcoal production to be enforced, allowing charcoal producers to make more charcoal from less wood stocks. More charcoal means increased revenue to the households that has the potential to increase crop production while less wood stocks imply fewer trees felled. Either way, a formal charcoal sector of S2 serves to suggest reduced deforestation in the long term.
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