Retrenchment under climate-driven risks in subsistence farming communities.

Increasing climate risks introduce new sources of uncertainty to smallholder farmers' livelihood decisions. While farmers in different development contexts tend to accurately perceive long-term climatic trends, livelihood diversification as a climate resilience strategy has generally lagged behind awareness of climate risks. In this study, we investigate potential mechanisms behind this lagged response through a survey of 500 farming households in Nepal's Chitwan Valley, a region that is highly dependent on subsistence agriculture and highly exposed to several climate-driven hazards. Specifically, we employ a suite of cross-sectional and time series econometric techniques to analyze how farmers' information sources, social capital, and previous exposure to climate hazards shape climate risk perceptions and livelihood decisions. We find that climate-driven risks are highly salient to household perceptions of farming risks; however, they also drive higher perceived risks of common livelihood diversification strategies, including rural-urban migration and off-farm employment. Further, while farming households generally maintain diversified income portfolios, exposure to droughts and/or floods leads to persistent increases in the reliance on farming income, which we term a "retrenchment" response. We find evidence for both financial and psychological mechanisms behind this response, which may exacerbate environmentally driven poverty traps. Our results indicate that efforts to build farmers' resilience to climate risks should especially account for perceived risks of livelihood alternatives, financial constraints, and loss-averse behavior in response to income shocks.

Supplementary information: The online version contains supplementary material available at 10.1007/s11111-025-00493-8.