The Effects of Drought on Agriculture and SMEs: Solutions from a Financial Institution Perspective

The recent report by the Rural Development Secretariat under the Ministry of Local Government and Rural Development, has brought to light the devastating impact of drought on Botswana's food security, nutrition, water supplies, and overall food production. This situation calls for immediate action and long-term strategies to mitigate the effects of drought, particularly on agriculture and SMEs. As a financial institution, Bank Gaborone plays a pivotal role in supporting these sectors through innovative solutions and strategic interventions.

Impact of Drought on Agriculture and SMEs

The latest report shows a decline in crop yields. Botswana harvested 206,572 tonnes in 2021/22, but only 125,184 tonnes in 2022/23. This means only 23% of the cereal we need for national food security was produced. The 2022–23 cropping season was a challenge. We had low and erratic rainfall, long dry periods, setting back our food and agricultural production. Not only did this affect our urban water supplies, but it also hurt the rural economy and our way of life, leaving over 10% of the population facing chronic food insecurity.

In our country, where 70% of the rural population depends on rain-fed agriculture, the ongoing drought has made 163,000 people food insecure. The El Ni?o effect made things worse, causing severe rain deficits and tough harvest conditions across the region. According to the SADC Synthesis Report, 37,000 people in Botswana will struggle with food insecurity in 2024.

Side Effects of Prolonged Drought

• Soil Degradation: Prolonged drought leads to significant soil degradation. Reduced soil moisture diminishes fertility, making it harder for crops to grow. The lack of vegetation cover also increases soil erosion, while salinization further degrades soil quality.
• Water Scarcity: Drought depletes essential water sources such as rivers, lakes, and aquifers, intensifying competition among agricultural, industrial, and domestic users and exacerbating the crisis.
• Biodiversity Loss: Ecosystems suffer as plant and animal species dependent on water-rich environments struggle to survive. This biodiversity loss disrupts food chains and can lead to the collapse of local ecosystems.
• Economic Impacts: Agricultural yields plummet during droughts, leading to lower incomes for farmers. The increased costs for irrigation and water conservation measures push many SMEs to the brink of bankruptcy.

Social Impacts: Rural communities face increased migration to urban areas as people seek better livelihoods. Higher food prices lead to food insecurity, and the stress of managing dwindling resources can cause mental health issues among farmers.

Bank Gaborone's Role in Providing Solutions

As a financial institution, Bank Gaborone offers several solutions to support agriculture and SMEs affected by drought.

Currently farmers across Botswana are faced with effects of climate change which disrupts the traditional agricultural practices and threatening food security of the country. This means they must transition to more formidable ways of farming in order to reduce climate risks, these methods can be costly. It is thus critical that Bank Gaborone as a player within the agribusiness value chain provide resources such as finance so that farmers can improve their traditional way of farming by introducing technology and usage of drought resistant inputs to improve their efficiencies. Our commitment is to finance farmers in the right way so that we promote sustainable agriculture.

Here are some key strategies that we provide to mitigate the possible risks that farmers face every day:

Farmers Financing

Provision of financing solutions: we provide tailor made solutions to all the farming needs within the agribusiness value chain which includes working capital, farming implements and acquisition of farm land. This provides farmers a mix solution so that the business stays sustainable into the future.

Insurance Products

Crop Insurance: Safeguards crops from risks of fire, lightning, hail, excessive rainfall, and transit-related damages, allowing farmers to focus on cultivating their fields without worrying about potential losses.

Livestock Insurance: Protects cattle, sheep and goats against death caused by fire, lighting, accidents, and more. Special extensions cover for attacks by wild animals, snake bites, and freezing of livestock.

Agri-Personal Insurance: Provides comprehensive coverage for motor vehicles, houseowners, householders, personal assets, accidents and pleasure crafts, ensuring that all aspects of farms and personal lives are protected.

Sustainability and Innovation

Green Financing: Initiatives that support sustainable agriculture and environmental conservation efforts. For instance, the collaboration between Bank Gaborone and the Botswana University of Agriculture and Natural Resources (BUAN) to fund the Agrivolt BE project. This innovative agricultural system integrates renewable energy, particularly solar power, with traditional farming practices. The AgriVolt Research Centre employs drip irrigation to reduce water usage and enhance conservation, revolutionizing farming techniques while generating clean energy.

Prolonged drought poses significant challenges for agricultural SMEs, but with proactive measures, these businesses can enhance their resilience and recover more quickly. By implementing effective water and soil management practices, diversifying income sources, and building strong support networks, SMEs can navigate the challenges of drought and continue to thrive in the face of adversity. Bank Gaborone stands ready to support these efforts, offering tailored financial solutions and fostering sustainable practices to ensure a more resilient agricultural sector in Botswana.