Risk Transfer Policies Facilitate Smallholder Farmer Climate Adaptation

Increasing climate stress is likely to significantly impact smallholder farmer livelihoods, and can lead to divergent adaptation pathways. However, empirical evidence is inconclusive regarding how climate affects smallholder farmers’ deployment of various livelihood strategies, including rural-urban migration, especially as these impacts become more severe. Here we use an agent-based model to show that in a South Asian-type agricultural community experiencing a 1.5oC temperature increase by 2050, climate impacts are likely to decrease household income in 2050 by an average of 28 percent relative to the same income under a stationary climate, with fewer households engaging in economic migration and investing in cash crops. Pairing a small cash transfer with risk transfer mechanisms significantly increases the adoption of alternative livelihood strategies, improves community incomes, and reduces community inequality. While specific results depend on contextual factors such as risk preferences and climate risk exposure, these interventions are robust in improving adaptation outcomes by addressing the intersection of risk aversion, financial restrictions, and climate impacts.