Economics of climate-smart agriculture for sustainable farm income

Introduction

Agriculture continues to be among the sectors most vulnerable to climate, particularly in the developing world where the livelihood of majority of the population is tied to rain-fed agriculture (FAO, 2023; World Bank, 2023; Raveloaritiana and Wanger, 2024; Mwikamba et al., 2024) [43,48] . Climate variability and change have dramatically influenced agricultural productivity by way of increasing temperatures, unpredictable rainfall patterns, and growing occurrence of extreme events such as droughts and floods (Hussein & Toru, 2024; Wekesa et al., 2022; Tanti et al., 2024) [22,53] . These climatic shocks have caused declining crop yields and increasing production risk and farm income, posing food security and livelihoods of the rural poor at risk (Ma and Rahut 2024; Rahut et al., 2024; Musafiri et al., 2022) [41] . Against these challenges, Climate-Smart Agriculture (CSA) has been advocated as an integrated strategy to improve agriculture sustainability and resilience (FAO, 2023; Sang et al., 2024; Villalba et al., 2024) [51,58] . CSA is founded on three interrelated pillars, which includes sustainably increasing productivity, adaptation to and resilience of the agricultural system to climate change, and mitigation of GHG emissions (FAO, 2023; Springer, 2024; Musafiri et al., 2022) [41] . The synergistic combination of these pillars is vital in keeping agricultural systems economically sustainable, environmentally sound, and socially equitable (Bekuma, 2024; Raveloaritiana & Wanger, 2024; Bekuma, 2024) [8,48] . CSA seeks to increase farm income in a sustainable manner through enhancing resource use efficiency and reducing resource use entropy, and through decreasing the risk for production associated with climate variability (Rahut et al., 2024; Arslan et al., 2018; Anjanappa, 2025) [3,5] . Several panic studies have found that the usage of CSA practices is associated with substantial increases in farm productivity and household welfare (Musafiri et [31,41] .

Conceptual framework of CSA economics 2.1 Definition and principles

Climate-Smart Agriculture (CSA) is an integrated approach that seeks to improve productivity, strengthen resilience and mitigate emissions from agricultural systems (Joy et al., 2025; FAO, 2023) [25] . The economic basis of CSA is to manage trade-offs between resource use and environmental externalities and climate risk (Bekuma, 2024; Kompas et al., 2024) [8,30] . The increasing productivity of agriculture attributable to CSA practices is a result of improved soil, water, and crop management (Rahut et al., 2024). Simultaneously, CSA increases the resilience of farmers by promoting diversified and flexible production systems conducive to adapting to climatic variability (Musafiri et al., 2022; Lipper et al., 2014) [34,41] . CSA also has climate change mitigation significance in that it reduces greenhouse gas emissions through sustainable land management (Springer, 2024; Thierfelder et al., 2024) [56] . Economic evaluation of CSA revolves around cost-benefit analysis, which analyzes the costs and benefits of using different practices (Heena et al., 2025; Khatri-Chhetri et al., 2017) [20,27] . Likewise the risk-return considerations in CSA economics, farmers face balancing potential returns with uncertainties inherent to climate variation (Arslan et al., 2018; Makate et al., 2020) [6,36] . An efficient use of resources is also important, as CSA contributes to better management of resource inputs like water, fertilizers, and energy (World Bank, 2023).

Economic theory behind CSA

CSA is based on a set of economic theories, including sustainable development theory that focuses on reconciling economic development with environment protection (Raveloaritiana & Wanger, 2024; Yeshawanth et al., 2025) [48, 61] . Production economics is also essential for analyzing the effects of CSA practices on input-output relationships and farm income (Bekuma, 2024; Di Falco et al., 2022) [8,12] . Theory of risk management is more so applicable given that CSA enables farmers to reduce their exposure to climate-related risks and uncertainties (Arslan et al., 2018; Wossen et al., 2023; Manda et al., 2025) [5,37,60] . From the theoretical standpoint, CSA may be seen as the solution to a dynamic optimization problem farmers seek to maximize their long-run welfare under climate uncertainty (Rahut et al., 2024). Decisions related to this process include the allocation of resources, the adoption of technology, and the risk management policy to be followed in the long run (Musafiri et al., 2022). The determinants of adoption of CSA practices are related to anticipated benefits, risk attitudes and support system as institution (Heena et al., 2025; Jaleta et al., 2023) [20,24] . [28] . Conservation agriculture (minimum tillage and retention of crop residues) practices, for example, may lead to a 10-20% increase in yields compared to conventional farming (Rahut et al., 2024; Portner et al., 2022). These practices also lower the cost of inputs by reducing the need for labor, fuel, and chemicals, which means higher net farm income (Hellin et al., 2023; Bekuma, 2024) [8,21] . Through the combination of trees, crops, and livestock, agroforestry systems offer more diversified income sources, and hence better economic resilience (Raveloaritiana & Wanger, 2024; Vermeulen et al., 2023) [48,57] . In the same way, microirrigation methods, including drip and sprinkler irrigation systems contribute to enhanced water use efficiency, higher crop productivity and farm income (World Bank, 2023; Antle et al., 2017) [4] . Crop diversification also reduces production risk (Musafiri et al., 2022; Barrett et al., 2021) [7, 41] . In general, adoption of CSA results in increased income and less poverty in farm households (Rahut et al., 2024; Tesfaye et al., 2024) [55] .

Economic benefits

Cost-benefit analysis

Cost-benefit analysis is commonly applied to analyze the cost-effectiveness of CSA practices (Heena et al., 2025; Garrity, 2004) [17,20] . Reviews show that returns on investments in CSA are generally high with benefit-cost ratios of around 1.5 to 2.5 according to the practice and the region (Rahut et al., 2024; Mbow et al., 2020) [39] . In certain instances, returns from investments in CSA can be as high as four times the initial cost, especially in climate resilient agriculture systems (World Bank, 2023; Miller et al., 2022) [40] . While some CSA practices need significant up-front investment, such as drip irrigation systems, they deliver significant benefits over time (Bekuma, 2024; Snapp, 2020) [8, 52] . Costs for practices such as conservation tillage are so relatively low and returns so rapid that smallholder farmers can adopt them (Musafiri et al, 2022) [41] . [22,47] . Among the ways in which CSA mitigates risk is improved soil quality and water retention for crops to better endure dry seasons and irregular rainfall distribution (Wekesa et al., 2022; Bekuma, 2024; Duff et al., 2021) [8,13] . Such applications as conservation tillage, mulching and organic amendments enhance the level of soil organic matter to improve soil structure and its ability to hold moisture, which is important to crop growth in arid environments (Musafiri et al., 2022; FAO, 2023; Altieri et al., 2025) [2,41] . These practices, through the control of soil erosion and improved nutrient cycling, enhance long term productive capacity and resilience, and consequently the chances of crop failure under adverse climate scenarios are reduced (Rahut et al., 2024; Springer, 2024; Gliessman, 2020) [18] . Along with soil-based strategies, CSA also endorses drought-tolerant and climate-resilient cultivars better adapted to evolving environmental conditions which mitigate production risks even further (Hussein & Toru, 2024; World Bank, 2023; Zhu, & Burney, 2022) [22,64] . [41,48,49] . The diversification on the production side allows farmers to hedge against reliance on one crop or source of revenue, protecting them from commodity-specific shocks to production or prices (Bekuma, 2024; Rahut et al., 2024; Frimpong et al., 2023) [8,16] . For instance, the raising of animals integrated with crop cultivation can be a source of supplemental income and food security, while agroforestry is a means of obtaining long-term advantages from timber, fruits and ecosystem services (Raveloaritiana & Wanger, 2024; FAO, 2023) [48] . [26,41] . In the context of climate change, stability of agricultural production matters because it guarantees production continuity in the face of environmental variations, thereby showing a lesser probabilities of income shocks (Bekuma, 2024; World Bank, 2023; Bell et al., 2022) [8,9] .

CSA and Farm income sustainability

Determinants of economic adoption

There is a synergistic effect resulting in the adoption of CSA .

CSA and Poverty reduction

Climate-Smart Agriculture also contributes to sustainable farm income through the development of diversified and resilient farming systems that can sustain their productivity in the long run (Rahut et al., 2024; Raveloaritiana & Wanger, 2024) [48] . Diversification of income is a key element of CSA, which decreases level of financial risks and improve the liveliness security as it offers more sources of income (Musafiri et al., 20222; Bekuma, 2024) [8,41] . Crop-livestock systems, for instance, enable smallholder farmers to earn off both crop cultivation and livestock production, reducing risk by not relying on a single enterprise and increasing overall profit (FAO, 2023; Raveloriana & Wanger, 2024; Izuogu et al., 2025) [23] . Agroforestry systems contribute to diversifying income by incorporating trees within farming systems, trees which yield products including fruits, timber, and fuel wood while also rendering ecosystem services such as enhancing soil fertility and sequestering carbon (Springer, 2024; Rahut et al., 2024). These diversified systems not only lead to greater income stability but also have the potential to contribute to greater climate resilience through the distribution of risk among different farm system components (Bekuma, 2024; Wekesa et al., 2022; Alsanoosy, and Malik, 2025) [1,8] . [11,41] . These advantages may be especially significant in a changing climate since they allow farming systems to sustain production in the face of more variable and less predictable weather conditions (Bekuma, 2024; World Bank, 2023) [8] .

Policy implications

Case studies (Global Evidence)

The decision to adopt CSA practices is determined by a set of interrelated socioeconomic and institutional factors that influence farmers' capacity and willingness to invest in new technologies and practices (Heena et al., 2025; Rahut et al., 2024) [20] . Some of these socio-economic determinants of adoption include farm size, level of education, income, and labor availability, which influence individuals'/households' resource availability and risk bearing capacity (Musafiri et al., 2022; Bekuma, 2024) [8,41] . In general, larger farms with good access to capital and information tend to be the most adopters of CSA practices, while smallholders farmers commonly encounter barriers associated with insufficient financial means and knowledge (FAO, 2023; World Bank, 2023). Education and awareness also contribute to adoption since these two factors affect farmers' perception of benefits and risks of CSA technologies (Heena et al., 2025; Rahut et al., 2024; Wolfert and Isakhanyan, 2022) [20,59] . Factors such as extension services, market access and government policy also contribute to enabling adoption and improving economic benefits of CSA (World Bank, 2023; Bekuma, 2024; Zhang et al., 2025) [8,62] . Extension services give farmers technical knowledge, training and assistance, which helps them promote CSA practices more effectively and efficiently (FAO, 2023; Musafiri et al., 2022) [41] . Market access is also a crucial issue in agricultural production, affecting producers' ability to recoup their investments and the profitability of agricultural production (Rahut et al., 2024; Wekesa et al., 2022). Public policy including subsidies, credit schemes and insurance schemes can positively impact adoption by alleviating financial impediments and risk (World Bank, 2023; Bekuma, 2024) [8] Two other important determinants that emerge from the literature are the cost of technology and the risk factor. Nevertheless, cost of initial investment and credit access are still substantial impediments to adoption for a lot of smallholder farmers in developing countries (FAO, 2023; Heena et al., 2025) [20] . [41] . With its focus on increasing production and reducing risks, CSA allows farmers to have better and more stable income which helps reduce poverty and improve livelihoods (Bekuma, 2024; World Bank, 2023) [8] [41] . Commercial policy support is required to scale up CSA adoption and its economic benefit (FAO, 2023; World Bank, 2023). Financial support in the form of subsidies, tax relief and carbon credit schemes may incentivize farmers to adopt CSA practices by lowering the cost of implementation (Bekuma, 2024; Rahut et al., 2024) [8] . Institutional backing, eg, raising the capacity of extension services and offering training is essential to enhance awareness and preparedness among farmers (Musafiri et al., 2022; FAO, 2023) [41] . Risk management instruments, including crop insurance and climate advisory services, can assist farmers in adapting to climate variability and mitigating risk to encourage adoption (World Bank, 2023; Wekesa et al., 2022).

Environmental and

Challenges and Research gaps

The economic profitability of CSA across varied contexts has been substantiated by empirical findings from several countries (Rahut et al., 2024; Bekuma, 2024) [8] . In India, for instance, farmers that adopted micro-irrigation systems have experienced rise in income by 25 [41] . The adoption of CSA has played a role in the alleviation of poverty and enhancement of food security in Bangladesh, showcasing CSA's capacity to contribute to sustainable development (Wekesa et al., 2022; Bekuma, 2024) [8] . CSA fosters convergence of economic and environmental goals by advocating for production systems that increase productivity and mitigate environmental degradation (Springer, 2024; Raveloaritiana & Wanger, 2024) [48] . Enhanced soil fertility, sustainable water use, and decreased emissions of greenhouse gases support the durability of agricultural systems (FAO, 2023, Rahut et al., 2024). These synergies are key especially in the context of climate change, as they allow farming systems to pursue dual economic and environmental objectives (Bekuma, 2024; World Bank, 2023) [8] . However, the implementation and scaling of CSA is challenged by various bottlenecks (FAO, 2023; Heena et al., 2025) [20] . Among the important barriers to adoption are high upfront investment costs, lack of access to finance, and scarcity of long-term economic data (Rahut et al., 2024; Bekuma, 2024) [8] . Furthermore, there is a need for economic models that are location-specific, consider local conditions and variability, and for improved uptake of CSA by national and global policy frameworks (World Bank, 2023; FAO, 2023).

Future research directions

Conclusion

Climate-Smart Agriculture is the way forward for positive farm income and farm resilience in the era of climate change that is both sustainable and commercially attractive. Through increased productivity, risk mitigation and sustainable resource use, CSA finally enhances agricultural sustainability and poverty reduction. However, realizing the full potential of CSA will require dedicated policies, financial support and institutional capacity building to overcome existing constraints and foster wide spread adoption.

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