Agriculture sector needs to be prioritised in upcoming budget

The new budget is knocking at the door. The budget for the 2025–26 fiscal year may be presented on June 2. The preaparing the budget is currently underway. It has already been reported that the size of the upcoming budget may be Tk 7.9 trillion. Compared to this year’s original budget, it will be Tk 70 billion less. For the first time since independence, the budget size is decreasing in monetary terms. Undoubtedly, this will be a contractionary budget. Due to ongoing high inflation, slow revenue collection, and lack of capacity in budget implementation, a tight budget is indeed desirable for us.

Given the current social, political, and economic situation, an even more conservative and smaller budget may be more appropriate. Its goals should be to establish good governance, reduce social inequality, alleviate the suffering of low-income people, and curb criminalisation. It is now crucial to reduce spending on unproductive sectors while emphasising the productive agricultural sector, as well as the education and health sectors. Controlling inflation, increasing investment, employment, and production should be the main objectives of the budget. In this context, allocations for non-development sectors should be made with great caution. What we need now is a realistic budget that focuses on reducing expenditure and improving the quality of spending.

One of the main indicators of a country's economic development is the GDP growth rate. In every budget, this growth target is fixed with much importance. In the current 2024–25 fiscal year, the projected GDP growth rate was 6.75 percent. Later, it was revised to 6.5 percent, and now it has been further reduced to 5.25 percent. However, as per the forecasts from development partner organisations actual GDP growth would be much lower. According to the World Bank, the growth rate for this fiscal year will be 3.3 percent while the IMF forecasts 3.76 percent and the Asian Development Bank estimates it at 3.9 percent.

The reason behind this significantly lower-than-targeted GDP growth rate is recent political instability, reduced investment, and stagnation in production. At the beginning of the fiscal year, drought, followed by severe floods and excessive rainfall, severely affected agricultural production. Employment decreased and people’s incomes declined. The main driver of growth in the coming year will be a stable social and political environment. If that can be ensured, achieving a GDP growth rate of 5 percent to 5.5 percent may be possible.

Even if the growth rate is moderate, public can heave a sigh of relief—provided it is not overwhelmed by high inflation. The biggest affliction in the economy is high inflation, which causes severe hardship for the poor and those with fixed incomes. It increases the level of suffering and distress in people’s lives. Bangladesh has been experiencing high inflation for nearly the last three years, averaging over 9-10 percent. In the 2022–23 fiscal year, the inflation rate averaged 9.03 percent, which increased to 9.73 percent in 2023–24. In July of that year, it was 11.66 percent; in November, 11.38 percent; in December, 10.89 percent; and in April, 9.03 percent. Inflation has been gradually declining over the past three months. In the budget prepared for the 2024–25 fiscal year, the projected inflation rate was 6.5 percent. However, the average for the past ten months stands at nearly 10 percent. The IMF’s forecast is 9.98 percent. The most concerning issue is the high rate of food inflation, which has significantly worsened the suffering of the poor and vulnerable.

The key condition for reducing food inflation is increased production in the agricultural sector. Recently, agricultural production has been rising, but the growth rate is progressing very slowly. Currently, real growth in the agriculture sector is very low. The growth rate, which was 7.57 percent in the 2009–10 fiscal year, has now fallen to around 3 percent. The overall growth of the agriculture sector in the 2023–24 fiscal year was 3.21 percent—nearly half of the 6.55 percent achieved in 2009–10.

Food inflation has already turned negative in countries like Pakistan, Sri Lanka, and Afghanistan. In India, Myanmar, and Nepal, the food inflation rate is almost half of ours. In the World Bank’s recent report on food security and inflation, Bangladesh has been placed on the red list of risk. Due to the high inflation situation, it is feared that the poverty rate will rise to 23 percent this year. Nearly 3 million new people are expected to fall into lower poverty.

In the upcoming fiscal year 2025–26 budget, controlling inflation will be the main challenge. High inflation can be controlled by combining the current contractionary monetary policy with political stability and increasing production in both agriculture and industry. In a low per capita income country like Bangladesh, overall inflation should be brought below 4 percent, and food inflation should be reduced to 2–3 percent.

The key condition for reducing food inflation is increased production in the agricultural sector. Although agricultural production has recently been growing, the growth rate is progressing very slowly. At present, real growth in the agriculture sector is quite low. The growth rate, which was 7.57 percent in the 2009–10 fiscal year, has now dropped to around 3 percent. In the 2023–24 fiscal year, the overall agricultural sector growth was 3.21 percent—just half of the 6.55 percent achieved in 2009–10.

According to the SDG targets, in order to ensure food and nutritional security for all by 2030, the agricultural sector’s production growth rate must be raised to 4–5 percent. For this, investment in agriculture needs to be increased; however, in reality, this is not happening. Compared to the original budget of the 2011–12 fiscal year, the size of the 2024–25 budget has increased by 4.78 times. In comparison, the agriculture budget has increased by only 3.78 times. In the 2011–12 fiscal year, the share of the agriculture budget in the total budget was 10.65 percent. In the 2024–25 budget, it dropped to 5.94 percent. Similarly, the share of agricultural subsidies fell from 6.4 percent to 2.16 percent. In other words, the agriculture budget and subsidies have not increased proportionally to the overall budget.

In the current fiscal year, a total of Tk 47,332 crore was allocated for the five agriculture-related ministries. Among them, 27,241 crore taka was allocated for the crop agriculture sector, which is 3.41 percent of the total allocation. On the other hand, 2.45 percent was allocated for the ministries of fisheries and livestock, forest and environment, land, and water resources. This was insufficient. The allocation for crop agriculture was reduced by 18.21 percent compared to the revised budget of the previous year. In the revised budget of 2023–24, Tk 25,644 crore was allocated for agricultural subsidies. In the 2024–25 budget, it was reduced to Tk 17,261 crore.

This year, due to floods, the production of Aus and Aman rice was severely affected. The rice surplus has declined. As a result, rice prices have risen rapidly, increasing food inflation. Currently, due to increased production in agriculture, the situation is improving. To sustain this trend, the budget and subsidies for agriculture need to be increased. Along with input subsidies, price support should be provided for the products produced by farmers.

The prices of vegetables, potatoes, and onions in the market have remained relatively low over the past 3–4 months. While this has brought relief to consumers, it has caused considerable distress for farmers. In many cases, farmers are unable to recover even their production costs by selling their produce at the farm level. In such a situation, implementing a price support scheme would help protect farmers from incurring losses. The upcoming budget should include provisions for this. The share of the agriculture sector in the total budget should also be increased. At least 10 percent of the total budget should be allocated to the broader agriculture sector, with 5 percent dedicated to subsidies.

While GDP growth targets are set during budget formulation, no specific growth target is set for the agriculture sector. According to the Eighth Five-Year Plan, the target for average agricultural growth until the 2024–25 fiscal year was set at 4 percent. However, the actual achievement has been only 3.2 percent. This rate needs to increase—a minimum of 4 percent growth in agriculture must be achieved. Otherwise, it will negatively impact the overall GDP growth rate.

Currently, a structural change is taking place in agriculture. After independence, in 1972-73, the share of the crop sector in agricultural GDP was 75.54 percent. The shares of livestock, fisheries, and forestry resources were respectively 7.66, 10.48, and 6.39 percent. In 2023-24, due to structural changes, the share of the crop sector decreased to 46.75 percent. The shares of livestock, fisheries, and forestry resources increased to 16.37, 21.58, and 15.30 percent respectively. With the increase in people’s income, their dietary habits are changing, and their interest in consuming relatively more nutritious food is increasing. Therefore, the production of milk, eggs, meat, and fish needs to be increased significantly. This should also be reflected in the upcoming budget. It is desirable to establish fairness in the allocation and subsidy policies among the sub-sectors.

Currently, livestock production is increasing in the country; however, the prices of their products—milk, meat, and eggs—are quite high. In some cases, these prices are beyond the purchasing power of the common people. The main reason for this is the high cost of production inputs, especially the very high price of animal feed. Necessary support should be provided to reduce these costs.

In the case of fish, recent production growth is declining. The primary reason is that investment is not increasing at the desired rate. Every year, about 1 percent of natural water bodies are being encroached upon or lost due to pollution. These need to be conserved and restored. Since fishing in rivers and canals is unrestricted, even juvenile fish are being caught, which should be limited. The capacity to harvest fish from the vast ocean resources needs to be increased. Currently, our marine fish harvest is very low.

We have made very little progress in the agricultural processing industry. There is ample opportunity for investment in this sector. Both government and private initiatives can help achieve the desired goals here. Suitable infrastructure needs to be developed in various parts of the country for the preservation of seasonal fruits, vegetables, and onions. For the storage of paddy and rice, warehouses with a minimum capacity of 4 million tonnes need to be constructed. Currently, the storage capacity of existing warehouses is only 2.2 million tons. These should be considered important items in the agriculture budget.

To encourage the export of agricultural products, cash incentives of 20 to 30 percent were previously provided. Currently, this is no more than 10 percent. In certain cases, this could be increased.

The use of machinery in agriculture remains limited in Bangladesh, resulting in high production costs per unit. Mechanization can help reduce these costs and improve product quality. Over the past two years, a subsidy-based program was introduced to provide machinery to farmers; however, due to mismanagement during the previous government's tenure, the project has become ineffective and was eventually discontinued. This initiative can now be revived with integrity and transparency. Bangladesh’s agriculture is highly vulnerable to the adverse effects of climate change. Therefore, it is essential to implement necessary adaptation and mitigation programs. Separate budget allocations should be made for agricultural research and extension activities in this regard.

In recent years, frequent natural disasters have severely disrupted agricultural production, causing significant losses for farmers. To support them, a disaster response fund should be established. It is hoped that the upcoming budget will be truly agriculture- and farmer-friendly.

Dr. Jahangir Alam: Director, Dhaka School of Economics and Former Vice-Chancellor, University of Global Village