Agri ministry seeks Tk8,000cr more for subsidies in FY26 budget

Infographic: TBS

The Ministry of Agriculture has proposed a budget of Tk25,000 crore for agricultural subsidies in the upcoming fiscal 2025-26 – Tk8,000 crore more than it got this fiscal year.

The proposal was made by the ministry during a meeting of the Budget Management Committee with the Ministry of Finance recently. However, the Finance Division expressed its preference on keeping the subsidy amount at Tk17,000 crore, similar to the current fiscal year, officials familiar with the matter said.

Agriculture Secretary Mohammad Emdad Ullah Mian told TBS on Tuesday that a subsidy proposal of Tk25,000 crore has been made based on overall considerations. "The Ministry of Agriculture hopes that the government will allocate funds in the budget after due review."

A significant portion of the agricultural subsidy is allocated to fertilisers. The government also provides subsidies for the purchase of machinery to modernise agriculture, as well as for agricultural rehabilitation and research. Additionally, direct subsidies are given to landless, marginal and small-scale farmers.

As reasons for the subsidy increase, a senior official of the agriculture ministry, speaking to TBS on condition of anonymity, said, "The depreciation of the taka against the dollar is driving up agricultural subsidies. This is because a large portion of the subsidy is spent on fertilisers. Fertiliser prices have risen in the international market, along with transportation costs. 

"Additionally, the depreciation of the taka against the dollar has made fertiliser imports more expensive. On the other hand, the demand for fertilisers is also expected to increase slightly next year. Considering these factors, the request for additional subsidies has been made."

The official said the subsidy demand had already reached nearly Tk15,000 crore by December and the amount is expected to increase further by the end of the fiscal year.

He said agricultural subsidies were set at Tk17,533 crore in the original budget for FY24, which was later revised to Tk25,644 crore. 

The official continued, "However, the full subsidy amount has not been paid, leading to a significant backlog. Private sector importers, who have yet to receive payments, are now demanding interest.

"The ministry has agreed to pay the interest and has also warned that if the government does not improve its payment system, fertiliser supply could be disrupted in the future."

He said the Finance Division has issued bonds worth approximately Tk10,000 crore to the agriculture ministry as part of the subsidy. The ministry then transferred these bonds to the banks through which contractors had opened LCs for fertiliser imports, he added. 

However, banks are now showing reluctance to accept these bonds, said the official.

Subsidies on fertiliser

The government last raised the price of fertilisers on 11 April 2023. At the time, the price of all types of fertilisers was increased by Tk5 per kg. Since then, the price of urea fertiliser at the farmer level has been at Tk27 per kg, DAP at Tk21 per kg, TSP at Tk27 per kg, and MOP at Tk20 per kg.

At the time, the agriculture ministry had announced in a notification that the international market prices for fertilisers were Tk48 per kg for urea, Tk70 for DAP, Tk50 for TSP, and Tk60 for MOP. Even after the price increase of Tk5 per kg, the government would still have to provide subsidies of Tk21 per kg for urea, Tk49 for DAP, Tk23 for TSP, and Tk40 for MOP.

According to the agriculture ministry, the demand for fertilisers in the current fiscal year is 6.9 million tonnes. Of this, 80% is supplied through imports.

In the latest meeting of the Advisory Committee on Government Purchase held on 5 March, the proposal to purchase each tonne of urea fertiliser at $422 was approved. Based on the exchange rate of 1 US dollar (Tk122), the purchase price per kg of fertiliser comes to Tk51.48. The actual price is further determined by adding transportation costs, inventory losses, and dealer commissions to determine the final price.

The officials said the current interim government will not increase the price of fertilisers, meaning that it may have to go for an increase in subsidies.

Reliance on subsidies

A Finance Division official said the government is working towards gradually reducing its reliance on subsidies. "In 2026, Bangladesh will graduate from the Least Developed Country (LDC) category to a developing country. To comply with World Trade Organization (WTO) regulations, the country must phase out certain subsidies." 

He added, "Although there will be a three-year grace period after LDC graduation, the government is already managing its subsidy framework in preparation. However, subsidies in the agricultural sector will continue, though their structure may change."

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), emphasised that subsidies in the agricultural sector are essential for food security. 

She told TBS, "Both the rich and the poor depend on agricultural products. However, considering the state of revenue collection and Bangladesh's graduation from the LDC category, the country must gradually move away from subsidies. Nevertheless, agricultural subsidies cannot be completely withdrawn. 

"Therefore, the government needs to assess where subsidies can be reduced, how to prevent waste and ensure that benefits reach genuine farmers. This should be done in a way that does not harm agricultural productivity."