Cloud forests in highlands of south west Ethiopia are the last refuges to the wild population ofrnCoffea Arabica. Global community is benefiting from the forests, but all conservation costs arernimposed on subsistence farmers that are unable to afford. This in turn results in divergencernbetween benefits and high rate of deforestation . This paper attempts to identify area specificrnfactors that induce small holders to deforest, factors that determine profitability of competingrnland us e options and seeks incentives available to reconcile conflicting interests. To do this,rnprimary data is collected from 151 households. The regression results firstly, indicated the tradernoff between deforestation and maximization of the livelihood of the poor. Secondly, institutionalrninterventions have possibilities to achieve sustainable development. Thirdly, there are somernopportunities to cooperate conflicting interests by extending benefits. Therefore, the resultsrnsuggest the importance of functional institutions firstly, to compensate the forest users throughrnglobal transfer payments for the revenue they forgone due to strict conservation . Secondly,rninstitutions are important to realize premium for environmental friendly production, in so doingrnto increase the value of remaining forest. Thirdly, institutions are required to increasernproductivity of already cleared land via agricultural intensification, to invest on family planningrnand to reduce value chain by greater farm level processing of primary products.rnKey words: Ethiopia, deforestation, sustainable use, coffee Arabica, fair trade