Abstract:
Climate change, resource degradation, rising input costs, and increasing market uncertainties are creating significant challenges for smallholder farming systems in developing countries. Circular agriculture offers a promising climate resilience strategy by promoting efficient resource use, recycling of agricultural resources, reducing external input dependency, and strengthening sustainable farm management practices. However, empirical evidence on the contribution of circular agriculture to farm efficiency and economic performance remains limited, particularly in the context of smallholder farmers in South Asia. This study examines the role of circular agriculture practices in improving technical efficiency, economic performance, and sustainability of smallholder farming systems in Nepal, while identifying policy pathways for scaling climate resilient agricultural innovations. The study was conducted in Lumbini Province of Nepal using primary data collected from 460 smallholder farming households. A Circular Agriculture Adoption Index was developed based on key practices including organic nutrient management, crop residue recycling, farm waste utilization, integrated crop livestock systems, and local resource-based input management. Technical efficiency was estimated using a stochastic frontier production function, while econometric analysis was applied to examine the relationship between circular agriculture adoption, farm efficiency, and economic outcomes. The results indicate that the average Circular Agriculture Adoption Index was 0.63, showing moderate adoption of circular practices among surveyed farmers. The mean technical efficiency level was estimated at 0.79, suggesting substantial potential for improving farm productivity through better resource management. Farms with higher adoption of circular agriculture practices achieved 16.8% higher technical efficiency compared to farms with lower adoption levels. Furthermore, higher circular agriculture adoption was associated with 13.5% lower production costs and 21.4% higher net farm income. Regression results revealed that a one unit increase in the circular agriculture adoption index increased technical efficiency by 0.07 points (p < 0.01), demonstrating the positive contribution of circular approaches to sustainable farm performance. The study highlights circular agriculture as an effective strategy for enhancing climate resilience while improving productivity, profitability, and resource sustainability among smallholder farmers. However, wider adoption requires supportive policy interventions, including strengthening agricultural extension services, promoting farmer capacity development, improving access to sustainable technologies, encouraging integrated farming systems, and developing incentive mechanisms for environmentally responsible agricultural practices. The findings provide important policy insights for Nepal and other developing countries seeking sustainable transformation of smallholder agriculture under changing climate conditions.
Keywords: Circular Agriculture, Climate Resilient Agriculture, Smallholder Farming Systems, Technical Efficiency, Agricultural Policy, Nepal.