Hedging Climate Risks in India’s Agrifood System
As the global population races toward 9.7 billion by 2050, the pressure to meet rising food demand is certainly expected to intensify. Historically, increased food production has come at the cost of unsustainable land and resource use, aggravating food and nutrition insecurity, especially under the escalating climate stress. This dynamic creates a vicious cycle wherein anthropogenic factors induce adverse climate change, which reduces crop yields, prompting intensified farming; this, in turn, increases greenhouse gas emissions.
Figure 1: Vicious Circle of Agrifood Vulnerability to Climate Change
Source: Based on World Bank (2025a)
India, home to over 1.4 billion people, of whom 46% are engaged in agriculture, stands at the heart of this challenge as the sector not only feeds the nation but also plays a pivotal role in supporting livelihoods and contributing to the national output. It also accounts for about 14% of India’s total GHG emissions, mainly driven by practices such as rice cultivation, livestock rearing, and biomass burning. Therefore, the Indian agrifood system should take proactive steps to strike a balance between high agricultural production and low greenhouse gas emissions. Nonetheless, the deeper concern lies in a more subtle but telling trend reported by the Food and Agriculture Organisation (FAO). In the last three decades, India’s emissions per capita from agrifood systems have remained relatively stable at an average of 0.92 tonnes. This may suggest progress towards ecological sustainability or at least containment of adverse environmental impacts. However, in reality, the constancy masks a troubling truth. As the population in India as well as the world, increased in this period, total consumption also increased, effectively leading to a rise in overall greenhouse gas emissions. Thus, the constancy of per capita emissions, juxtaposed with population growth and rising consumption, instead reveals that not enough progress has been made in adopting cleaner and more sustainable farming methods.
Figure 2: Population Growth and Per capita Emissions from Agrifood systems
Source: Food and Agriculture Organisation (2025); World Bank (2025b)
* Includes farm gate, land use change, pre- and post-production
Looking ahead, this trend in population and consumption growth is likely to continue. India’s total food consumption is expected to grow by 1.1% annually, reaching 20.6 million terra calories by 2033, as its population surpasses China. While yield improvements will support production growth, the real opportunity lies in sustainable intensification by way of adopting climate-resilient practices that reduce emissions and enhance productivity. This underscores the urgent need for targeted climate finance to support a just transition, even for the smallholder farmers, who form the backbone of Indian agriculture and are highly sensitive to income variability. The recent memorandum of understanding between FAO and the National Bank for Agriculture and Rural Development to advance climate-resilient agriculture through innovative finance and carbon markets indicates progress, but India’s journey toward a green agrifood system is just beginning.
Globally, agrifood systems contribute to one-third of total greenhouse gas emissions but receive only 4% of climate finance, with only a fifth of this going to smallholders. As per the latest data on disbursement of climate finance, despite agriculture’s central role in climate mitigation and adaptation, USD 95 billion was directed towards agrifood systems in 2022. This was significantly lower than allocations to other climate-sensitive sectors, such as transport and energy systems.
Figure 3: Disbursement of Climate Finance to Climate-Sensitive Sectors
Source: Climate Policy Initiative (2025a)
Nonetheless, recently, the climate finance disbursement to agrifood systems nearly tripled, showing increased global commitment. As most of the funds were allocated for climate mitigation, this suggests a stronger focus on reducing emissions from agrifood systems instead of just adapting to climate change.
Figure 4: Climate Change Adaptation and Mitigation Efforts in Agrifood Systems (USD billion)
Source: Climate Policy Initiative (2025a)
While awareness about the significance of climate change mitigation in agrifood systems is increasing globally, it is at a comparatively nascent stage in India.
Despite the importance of sustainable agriculture as an effective means to achieve the end goal of climate change adaptation and mitigation, it continues to face funding challenges in India. The annual financial flows to sustainable agriculture in India saw a modest dip of 1.32%, dropping from USD 303 billion in FY 2020–21 to USD 299 billion in FY 2021–22. The overall reduction was driven by a decrease in public sector contributions, as private sector investments in agrifood systems continued to grow during the same period.
Figure 5: Financial flows for sustainable agriculture in India
Source: Climate Policy Initiative (2025b)
At a time when strategic, long-term investments are needed to transform agriculture into a low-emission, climate-adaptive sector, a decline in the flow of climate finance by the public sector can decelerate the adoption of sustainable practices such as crop diversification, regenerative farming, and climate-smart technologies. Therefore, strategically planning and allocating climate finance toward agrifood systems is not just a fiscal necessity for India, but a strategic imperative for its climate and development goals.
Indian agriculture can rely on a range of innovative climate finance instruments to catalyze agricultural transformation. For instance, carbon funds can incentivize ecosystem services such as soil carbon sequestration, and green bonds can finance sustainable infrastructure to support the agrifood system. Additionally, farmers and public-private institutions can have contract farming arrangements based on blended finance models. This can promote crop diversification and assured procurement under a risk-sharing mechanism that can ultimately reduce farmer vulnerability. Eventually, the agrifood system could transform into not only a productive but also an environmentally resilient and economically inclusive system.
However, scaling these solutions has its own set of challenges. One of the most pressing challenges is the limited awareness and technical capacity at the farm level, especially among the smallholder farmers. This knowledge gap restricts their ability to use and benefit from the emerging climate financial instruments, despite their availability. Building awareness and capacity is thus a prerequisite to any meaningful climate finance strategy. Closely tied to this is the issue of low farmer participation, which is largely driven by income vulnerability and risk aversion. For farmers facing financial stress, the adoption of climate-resilient practices is unconventional and thus risky, especially when the benefits are long-term or uncertain. Without strong incentives and institutional backing, farmers are unlikely to adopt sustainable practices. Climate finance can bridge this gap by enabling and supporting such investments. Even if farmers adopt climate-positive practices, the complexity of verification and monetization models for climate finance instruments presents a significant barrier. For instance, measuring, reporting, and verifying (MRV) carbon sequestration or emission reductions at the farm level requires sophisticated infrastructure and technical expertise, which are currently lacking in most rural areas. Moreover, monetizing these verified outcomes by converting them into tradable carbon credits demands robust market mechanisms and regulatory clarity, which are still evolving in Indian agriculture. Such challenges underscore the need for a comprehensive and inclusive approach to climate finance in agrifood system of India, such that it prioritizes capacity building, simplifies financial instruments, and encourages active participation by the farmers to transition to climate-resilient agrifood systems.
Given the diversity of agroecological zones and socio-economic conditions across India, firstly, context-specific pilot projects must be initiated to test scalable models of climate finance. States such as Bihar, Assam, Meghalaya, and Odisha, where green budgeting frameworks have already been introduced, offer fertile ground for such experimentation. These pilots should be designed to incorporate farmers’ perspectives through household surveys, community consultations, and participatory policymaking, ensuring that interventions are locally relevant and socially inclusive. Secondly, local institutions and cooperatives can organise targeted awareness campaigns in person and via digital platforms to demystify climate finance instruments and foster greater engagement among smallholder farmers. Institutional innovations such as blended finance models and risk-sharing mechanisms (assured procurement and contract farming) must also be tailored to India’s agrarian realities. They can incentivize sustainable practices, especially in regions vulnerable to climate shocks such as Punjab, Haryana, and Maharashtra. Furthermore, to overcome the technical barriers associated with MRV, advanced technologies such as artificial intelligence, remote sensing, and satellite imagery can be leveraged to build robust, cost-effective systems for tracking climate-positive practices. This can enhance transparency and accountability and build stakeholders’ trust in climate finance mechanisms.
Ultimately, the success of climate finance in India’s agrifood systems will depend on its ability to integrate financial innovation with social inclusion, technological advancement, and ecological sustainability, creating a resilient agricultural economy that is both climate-smart and farmer-centric.
The article was published with Open Magazine on October 9, 2025.
