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Soil and water conservation measures like bench terraces can reduce erosion in highland crop production. A cost‐benefit analysis for 11 cases of bench terraces was undertaken on the basis of both measured data and data obtained from farmers. It showed that the profitability of bench terraces was lower than believed by farmers. Whether terracing was financially attractive to a farmer, depended on his personal opportunity cost of labour. For most farmers an opportunity cost of labour below the market wage could be justified, as they had only temporarily off‐farm work. Considering these opportunity costs, the labour input in bench terracing was in most cases worthwhile. The costs and benefits of bench terraces were both much higher than the value of external project incentives. The incentives barely influenced the profitability of the bench terraces. Copyright © 2004 John Wiley & Sons, Ltd.