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Govt must increase agri subsidy to minimise production cost

17 May 2023 00:00:00 | Update: 17 May 2023 00:06:06
Govt must increase agri subsidy to minimise production cost

Whatever International Monetary Fund or other foreign organisations suggest, we have to stick to allocating 5-6 per cent subsidy on agriculture of the total national budget for the next fiscal year 2023-24, said Dr Jahangir Alam Khan, a leading agro-economist and director at Dhaka School of Economics, in an exclusive Interview with The Business Post’s Mehedi Al Amin

How does national budget help promote agriculture and how much should be allocated for agriculture?

Agriculture provides food. Agriculture development is necessary to achieve food security. Food production growth has to be higher than the population growth. Otherwise, food security will not be achieved.

Bangladesh will produce around 4 crore tonnes of rice this year. The country needs around 3 crore tonnes of rice when a person consumes half a kilogram daily. One crore tonne of rice is used in seedbed, wastage and preservation. But we import around 60 lakh tonnes of wheat, 25-30 lakh tonnes of maize and 15-16 lakh tonnes of rice annually.

Due to high prices of wheat and maize, some farmers use rice as poultry, dairy and fish feed. Insects and mice consume some food while wastage is around 25 per cent.

There is deficit of food. In fact, we are not self-sufficient in food production. Allocation for technology invention and a halt of price hike of fertiliser, fuel, electricity and other equipment are two most important areas in the upcoming budget.

Agriculture is the way to achieve food security, and the sector should get a 10 per cent of total allocation in the upcoming budget for FY24. Also, agriculture and rural development together must get 20 per cent.

Agriculture got only 6.2 per cent allocation in the budget for FY23 while the combined share of agriculture and rural development was 12.8 per cent.

Agriculture got 20 per cent allocation in the budget while the combined budget of agriculture and rural development was around 50 per cent during the Bangabandhu’s government after war of liberation.

What about the subsidies?

In last several years, the government allocated around Tk9,000 crore as subsidy. In the meantime, seed price increased 25-30 per cent while electricity, diesel and fertiliser prices increased in phases. All these things pushed up the production cost. If we do not give subsidies, farmers will lose interest in agriculture which may lead to acute food crisis. That is why at least Tk40,000-Tk45,000 crore subsidy is needed in the next fiscal. This amount is around 5.5 per cent of the total budget while we are getting an around Tk7.6 lakh crore budget. In FY12, the government allocated 7 per cent agriculture subsidy.

Last fiscal year 9,500 crore was allocated as subsidy while in reality, Tk28,000 crore subsidy was given. Current year’s allocation was more than Tk15,000 crore, but subsidy may exceed Tk40,000 crore this year in the field due to price hike of fertiliser, diesel and electricity.

However, we need to change the way of subsidising the farmers. Now we give indirect subsidies from which big farmers get a major share. It fuels inequality. We have to provide subsidy directly to the farmers. At least 40 per cent subsidy should be provided directly to the target people as cash support.

Should we comply with the IMF’s conditions in reducing subsidies?

IMF suggested an economic reform which means to cut government expenditure, give a right size of government employees and rein in on unnecessary operational cost. They also wanted the government to reduce subsidies.

Despite IMF’s conditions, we have to allocate adequate subsidies because we want to be self-sufficient.

Amid the global supply chain crisis, many countries are framing their policy towards import substitution by increasing domestic production. We also have no alternative but to increase production.

We have to keep in our mind that who is telling us to reduce subsidies. Inadequate subsidies reduce production and create food crisis for the countries like Bangladesh, which will result in food imports from those countries who patronise the IMF. Those countries are subsidising their agriculture sector.

They supply milk, maize, wheat globally. If the developing countries become self-sufficient with a good use of subsidy, the prices of those commodities will fall and their business will be hampered. That is why they suggest reduction of subsidies. But we need to achieve food security where increase of subsidies has no alternative.

Negotiations with the IMF or other lending organisations depend on in which way we give subsidies.

As part of the $4.7 billion loan programme, IMF recommended reducing subsidies but did not object to cash incentives. If we give cash support directly to the farmers in marketing, transportation and supply sector, they will not oppose it strongly.

Around 82 per cent of allocation for agriculture in current fiscal was operational cost, was it okay?

We need to expend a major portion on development. We have to invest in development projects from which the people directly get economic benefits. Operating cost is the big cost. IMF mainly suggests reducing this cost.

What kind of budgetary support is needed for technology and mechanisation?

In case of machinery and equipment import, we need to try our best to reduce taxes as much as possible. Farmers will get higher production and they will be well equipped if we reduce taxes.

To reduce production costs, we need to introduce and expand new technologies. On the other hand, highest tax needs to be imposed on those products we produce domestically such as milk. Our farmers will take interest in dairy farming and get expected price of liquid milk.