Floods expose fault lines in Botswana’s new farm insurance model

A change in how Botswana’s agricultural insurance scheme assesses losses has left commercial farmers questioning whether the protection they were promised still works when disaster strikes.

The concern centres on the restructuring of the Agricultural Credit Guarantee Scheme (ACGS), the government-backed scheme designed to protect farmers and participating financiers against losses arising from adverse weather and other agricultural risks.

While the government has reassured grain farmers that protection remains intact following the transition to private underwriting by Phoenix of Botswana Assurance Company, the shift from government drought declarations to scientific assessments of weather and crop losses has become a source of uncertainty.

The issue came into sharp focus after severe flooding in Pandamatenga at the beginning of the 2025/2026 production cycle. A 1-in-200-year storm dumped more than 200mm of rain, submerging more than 8,000 hectares of crops. Farmers suffered significant crop and input losses and were forced to replant using borrowed funds and personal reserves to continue production.

In a recent joint statement, the Pandamatenga Commercial Farmers Association (PCFA) and the Botswana Grain Producers Association complained about the handling of the transition.

“The transition from the previous ACGS to a new model has been disconcerting for farmers. The absence of clear guidelines, assessment outcomes and feedback has left many farmers uncertain about the cover available to them and, in practical terms, feeling as though they have no insurance at all.”

Area-yield insurance versus on-the-ground losses

Rick Powe, ACGS coordinator in the Ministry of Finance, said the scheme remained largely unchanged, with the main difference being the method used to assess losses.

The previous approach relied heavily on whether a qualifying event had occurred or a declaration had been made, particularly in the case of drought.

The new approach uses a more scientific assessment of agricultural conditions and their effect on production and harvest. Rather than focusing primarily on the occurrence of a disaster, it looks more directly at the eventual harvest and yield.

The current assessment model relies on the Area Yield Insurance Index, which Powe described as a scientifically proven and widely used method.

Area-yield index insurance determines payouts based on whether the final measured crop yield in a defined area falls below a historically established threshold.

That creates a potential mismatch between the costs incurred by individual farmers after a disaster and the eventual yield used to determine an insurance payout.

During the Pandamatenga floods, for example, an area-yield policy does not necessarily provide immediate financial support for lost seed or fertiliser . Instead, the insurer waits until the end of the season to calculate the overall yield for the area.

If the collective regional harvest meets or exceeds the policy's target, individual farmers could receive no payout even if they have incurred substantial costs pumping water, treating soil erosion and replanting their fields.

Because the index measures the final regional harvest rather than the emergency costs incurred by individual farmers, the insurance mechanism may not be triggered. In such a case, the government would not clear any portion of the seasonal debt, leaving the farmer liable for the full annual loan repayment.

Powe said Phoenix was nevertheless willing to listen to farmers and assess what they had spent responding to the flooding. However, he said the assessment remained focused on the eventual yield.

“The question is therefore not simply what the farmer spent, but what effect the flood had on the eventual agricultural output,” he said.

Where an insured event materially affects eventual yields, the loss can be considered under the insurance arrangement. Conversely, if the eventual harvest is strong, there may be no compensation even where a farmer incurred significant costs recovering from the flooding.

From manual assessments to fiscal strain

The former ACGS model relied on a manual assessment process in which technical teams from the ministries of agriculture and finance, together with meteorological officials, physically inspected farms, collected rainfall data, conducted crop-cut estimates and assessed the severity of damage.

The findings were then compiled and submitted to Cabinet, with payouts requiring a formal Presidential Declaration covering either the whole country or a specific disaster zone.

Once such a declaration was made, the Ministry of Finance released funds directly to lenders such as the National Development Bank (NDB) and the Citizen Entrepreneurial Development Agency (CEDA) to clear a significant portion of farmers' outstanding seasonal loan instalments.

According to farmers, this would ordinarily have been the process followed after the Pandamatenga floods.

But Powe said the assessment process and the scheme had become increasingly costly for the government.

The ACGS was originally designed to protect rain-fed arable farmers against crop failure caused by natural disasters such as drought, frost and floods. Farmers pay a five percent premium, matched by another five percent from the lending institution, for total coverage of up to 85 percent of the seasonal loan.

Coverage was initially limited to the NDB but was later expanded to CEDA and commercial banks such as Absa, Standard Chartered and FNBB.

Over time, Powe said, the scheme became increasingly difficult for the government to sustain because premiums collected were insufficient to cover claims during widespread losses.

“These premiums were never enough to cover the severity of the situations, and the government has continuously been forced to create extra budgeting to cover the scheme’s shortfalls,” Powe said.

During severe localised or national disasters, including the 2023/2024 drought that affected 85 percent of the country, the scheme's funds were depleted and the government was repeatedly forced to step in as the ultimate guarantor through supplementary budgets.

“Over P200 million was paid out to NDB and CEDA, and this had to be done in bits and pieces because the government did not have money,” Powe said.

Privatisation and a second attempt at reform

A review by the Botswana Institute for Development Policy Analysis (BIDPA) recommended privatising the scheme and broadening its coverage to include micro-scale farmers under Temo Letlotlo, while also expanding participating lenders to commercial banks providing seasonal production loans.

Following an Expression of Interest and tender process in 2022/2023 to test the market and review the ACGS, several companies were considered before Phoenix of Botswana was awarded the contract to manage and administer the public-private partnership scheme.

However, Phoenix did not have historical agricultural data covering changing agro -ecological zones with which to properly calibrate market-related premiums.

Because of the limited historical data, premiums could not easily be recalculated using a long-term record of agricultural losses. The existing 10 percent premium structure was therefore retained, making the scheme, according to Powe, largely unchanged.

It is the same data deficit that has now emerged as a critical fault line under the new arrangement, according to Lucy Hoffman, PCFA administrator.

Hoffman said the revised system was considerably more complex and required an insurance mechanism capable of operating at a much more granular level, supported by extensive agricultural and climatic data.

The country would need to be mapped into geographic blocks according to climatic and agro -ecological characteristics, with area-yield assessments and historical benchmarks providing the basis for measuring losses.

Hoffman said farmers were concerned that Phoenix might not yet have the institutional and technical infrastructure required to administer such a data-intensive model effectively.

The problem, she said, had been compounded by limited visibility over the assessment process.

While field assessments had been conducted, farmers said they had received little information about what those assessments established, how the findings were applied or whether they resulted in any compensation.

The absence of assessment reports or substantive feedback has left farmers questioning whether they are receiving meaningful insurance protection under the restructured scheme.

Following intense discussions with the government, Hoffman said the model was now being revised again, with a newer version being developed that would be more closely aligned with farmers' realities.

Powe, meanwhile, said the guidelines governing the scheme were also being revised, with the changes expected to strengthen the framework and introduce wider provisions, including cover for bird damage, cold and dry spells.