This paper investigated the rate of gully formation and development, and its impacts on land competition and crop yield reduction in the Genbo Wonz Watershed, north-west highlands of Ethiopia. Geometrical gully dimension measurements, field observations and satellite imagery assessment have been performed selecting 22 gullies. As a result, road construction and design problems of soil and water conservation practices (SWCPs) were found to be important causes of gully formation and development. The total volume of soil loss from 22 gullies in three decades was ~340, 957 t, changing ~10 ha agricultural land to unproductive land. The annual rate of gully erosion was found to be ~62 t ha-1 with an average gully density of 16.4 m ha-1. Gully erosion also results in loss of 24 t yr-1 Teff grain yield (Eragrostis teff, E. abysainica) and 14 t yr-1 animals forage. To arrest the problem, proper design of SWCPs within farmlands, appropriate runoff discharge mechanisms along roads and controlled grazing systems within the grazing lands ought to be executed.