Agroforestry has an essential role in reducing global poverty and maintaining environmental sustainability. However, little is known about the association between agroforestry and farmers’ welfare. This study aims to estimate the factors affecting agroforestry adoption and its impact on smallholder farmers’ welfare. The cross-sectional data were collected from 301 potato farmers in East Java, Indonesia. The factors affecting farmers’ decision to adopt agroforestry were estimated using probit regression analysis. The subjective well-being was proxied by life satisfaction and happiness. The effect of agroforestry adoption on subjective well-being was measured by propensity score matching (PSM). The findings indicated that agroforestry adoption was positively and significantly affected by whether the land is terraced, farmers’ age and education level, and farmers’ participation in social activities, cooperatives, and farmers’ groups. The PSM analysis shows that agroforestry adoption has a significant and positive impact on both subjective well-being indicators. Farmers who adopted agroforestry were happier and more satisfied than those who did not. The findings imply that farmers should implement agroforestry in the long term to improve their well-being.

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