2020/07/22 by Reason L. Machete, Machete, Reason Lesego
Agricultural and Biological Sciences · Engineering · Social Sciences · #62P05 #62P12 #Agricultural risk and resilience #FOS: Economics and business #General Finance (q-fin.GN) #Income, Poverty, and Inequality #Risk Management (q-fin.RM) #Water resources management and optimization
paper · pdf · doi:10.48550/arxiv.2007.11618
openalex publication_date 2020/07/22 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Since 1986, Government of Botswana has been running an Agricultural Credit Guarantee Scheme for dry-land arable farming. The scheme purports to assist dry-land crop farmers who have taken loans with participating banks or lending institutions to help them meet their debt obligations in case of crop failure due to drought, floods, frost or hailstorm. Nonetheless, to date, the scheme has focused solely on drought. The scheme has placed an unsustainable financial burden on Government because it is not based on sound actuarial principles. This paper argues that the level of Government subsidies should take into account the gains made by farmers during non-drought years. It is an attempt to circumvent the challenges of correlated climate risks and recommends a quasi self-financing mechanism, assuming that the major driver of crop yield failure is drought. Moreover, it provides a novel subsidy and premium rate setting method.