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How to defend farmers’ incomes under physical climate risks: The role of rural financial instruments in China

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  • Yu, Xinxin
  • Jiang, Mingdong
  • Shen, Xiaomei

Abstract

Rural areas are more vulnerable to climate change due to funding shortages, and the application of financial tools in such regions to ensure residents’ income stability under climate shocks has become a priority. To identify the most effective financial tool, we first assessed how climate risks affect farm incomes, including the moderating roles of various agricultural credits and insurance. The operational mechanism of heterogeneous financial instruments in protecting farmers’ income under climate risks have been further analyzed. We find that climate risks significantly exacerbate pressure on rural incomes, with the impact concentrated primarily on operating incomes rather than wage incomes. Agricultural insurance and policy-based rural credit effectively mitigate the negative effects of climate risks, while commercial credit appears to reinforce such impacts. Specifically, commercial credit exacerbates the negative effects on wage income, whereas policy-based credit alleviates the pressure on wage, operating, and transfer incomes. The moderating effects of these three financial instruments are mainly realized through scale effects, rather than structural effects of land use or agricultural output and the agricultural climate adaptation technological effect. Both agricultural insurance and policy-based credit positively moderate output scale and suppress price increases, while commercial credit restrains output scale but expands input scale. Based on the above analysis, this study provides a basis for the precise design of rural financial policies, aiming to defend farmers’ incomes and enhance rural climate resilience.

Suggested Citation

  • Yu, Xinxin & Jiang, Mingdong & Shen, Xiaomei, 2026. "How to defend farmers’ incomes under physical climate risks: The role of rural financial instruments in China," Land Use Policy, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:lauspo:v:168:y:2026:i:c:s026483772600181x
    DOI: 10.1016/j.landusepol.2026.108097
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