"they" refer to what?
Smaller quantities (of herbicides) are used in forestry, pasture systems, and management of areas in which "they" are set aside as wildlife habitat.
in the above sentence, Which noun do "they" refer to?
what is the meaning of " in which "they" are set aside as wildlife habitat."
and is it correct to say and rephrase it like this:
Smaller quantities are used in forestry, pasture systems, and management of areas set aside wildlife habitat.
?
and why is it correct or nor?
thank you.

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Answer

With one small correction ("set aside FOR wildlife" - I think you may have made a mistake in copying and pasting) your rewriting is gramatically correct and makes logical sense. On its own, without any context, the original phrase is poor English which benefits from being rewriten in the way you have done. Did you add the quotation marks or are they there in the original text? It is possible that there is something in the preceeding sentence which makes the quoted sentence more legitimate.

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Perhaps the sentences was supposed to be "Smaller quantities (of herbicides) are used in forestry, pasture systems, and in the management of areas set aside for/as wildlife habitat."?

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They =  "Smaller quantities (of herbicides)"   in in plain terms, the "subject" of the sentence.