AbstractThe spatial dimension of agri‐environmental analysis has been recognized in a large number of studies, and the implications for the choice of analytical approaches and, further, environmental policies have been investigated both theoretically and empirically. Spatial management is an integrated part of Danish legislation, which, especially, is manifested in the land use policies. In this paper we analyse the opportunity costs of spatial management, as the costs of two strategies for establishing 400 ha of forest on existing agricultural land are assessed. The first ‘planning’ strategy involves establishment of the forest in afforestation zones designated by the local county based on the criteria of vicinity to cities and existing forest. The second strategy involves selecting afforestation areas based on a cost‐minimizing approach using spatial variations in farm economic output in the study area. Results suggest that the opportunity costs of the planning strategy are 2.5 times higher than of the cost‐minimizing strategy, indicating that the additional benefits of the planning strategy need to be significant in order to justify choosing this management approach. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment