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This study explores the influence of incidence of poverty and plot-level perception of soil degradation, on soil conservation behaviour of small subsistence farmers in the central highlands of Ethiopia. The study results confirm that poverty in assets significantly reduces the probability of soil-conservation efforts as measured by use of stone/soil bund structures in the highlands of Ethiopia. Perception of soil degradation, public assistance with sharing initial costs of constructing soil-conservation structures, improved security of land tenure and farmers’ education and access to information on soil degradation are essential for farmers making long-term investment in conserving soil resources. On the other hand, improved access to short-term credit for the purchase of inorganic fertilizers acts as a disincentive for long-term conservation practices, an important trade-off with serious policy implications that should be carefully evaluated.