Workshop on Diesel Subsidy Programme for the Poor Farmers in Bangladesh

Dr. C. S Karim, Hon’ble Advisor for the Ministry of Agriculture, Chief guest for today, Hon'able Chairman and Distinguished Guests, Ladies and Gentlemen:

Assalamoalikum & a very good morning!  It is a great pleasure and distinct honor for me to join this important workshop on ‘Diesel Subsidy Programme for the Poor Farmers in Bangladesh’. In recent times, we have collectively witnessed a growing concern over the increase in the price of fuel and food and are reassured to see representatives from Government, private sector and business, along with the think-tanks, NGO communities, and development partners present here to contribute to this critical discussion. I would like to express my deep appreciation to Bangladesh Institute of Development Studies (BIDS) for organizing this event. 

Let me begin by drawing your attention to the increase in domestic food prices, in particular rice, on an average over 20% this year, even though production of rice in Bangladesh has been increasing over the past few years. This increase in the rice prices is due mainly to the twin natural disasters – floods affecting the Aus rice crop and cyclone Sidr affecting the Aman rice crop – along with the global upward trend in rice prices. The higher rice prices, combined with the continuing fertilizer and fuel subsidies, have made rice a very profitable crop. As a result, farmers have responded by converting every possible piece of land to Boro rice and a good harvest is anticipated.

Concerns remain as shortage and/or price hikes of power and fuel may lead to higher costs of rice production. This may result in lower level of output due to sub-optimal use of inputs by cash-constrained farmers. To ease the situation, the government has already started to provide a subsidy to farmers, in the form of a cash transfer, hoping to have a positive impact on agricultural output and to protect, in particular, the marginal and small farmers. 

As some of you may know, The World Bank, with the support of DFID, is conducting a study to assist the government in the implementation of diesel subsidy. The overall objective of the study is to determine the impact of the increase of price of inputs on farmers and of the intended diesel subsidies.  We are hoping that this study will review policy on possible options for the implementation of subsidy and its impact.  And we hope, such policy options, will help in the design of future support programs for poor and marginal farmers.

Before touching on what we have seen thus far, let us first look into the complex choices that the government is faced with in terms of (i) the support needed to sustain agricultural production of rice, (ii) the recipients of the subsidy and (iii) the mechanism to provide this subsidy.  At present, the government provides universal subsidies for diesel and fertilizer to support agricultural production. One of the problems with universal subsidies is that they are expensive and might be captured by the better off segment of the population, with only insignificantly reaching to the poor farmers.  So, appropriate targeting is important to reap the benefit of subsidy.

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Let me now turn to the preliminary findings of the study.  The presentation we have heard points out that it is difficult to identify clearly who has been affected by the increase in the price of fuel from last year, and those who might be affected the most by a possible further increase in the price of diesel or other inputs such as electricity or fertilizer. One indication is that the smaller and marginal farmers buying the irrigation and power tillage services will be affected adversely. This is largely because they have not been able to increase their revenue since the amount of their marketed surplus is small – most of them have no surpluses – their benefit may come from increased demand for labor by those with surpluses.

To take the road forward further, the World Bank welcomes a policy that promotes targeted subsidies for inputs and for energy, and at the same time attempts to design ways to compensate the poor and those who might be adversely affected by this policy.  Direct cash transfer benefits to poor and marginal farmers are Safety Nets policies and interventions that can effectively provide the support needed for people that will need the most. The challenge is to ensure that it is effective and that it reaches the intended beneficiaries.

Let me conclude by saying that there are many lessons that can be learned from this first phase study on fuel subsidy to poor farmers.  The World Bank will continue with the second phase of the study.  Therefore, it is our hope that the completed study, combined with its consultation, similar to the one today, will ultimately enable the policy makers, and eventually the farmers to benefit from this undertaking and, in the process, help the nation to grow steadily.

Thank you