A team from the International Monetary Fund (IMF) was in the country recently to discuss economic issues with the Ministry of Finance. On the table of discussion was the issue of lowering subsidies on energy and fertilizer. Such suggestions could not have come at a worse time for the country as farmers to consumers are already reeling from the impact of slashed subsidies that have taken place over the last year. Fertiliser and power are both production inputs and any rise in their cost affects prices paid for by both producers and end users.

Earlier in the year, the government had already raised the price of fuel and power for irrigation. Then it initiated a blanket increase in prices of the four main pillars of fertilizers used for agricultural production - Urea, DAP, TSP, and MOP by Tk 5.0 per kilogram, which constituted a 27 percent hike. This is on top of the 37.5 percent increase in prices earlier. While this would go on to save Tk 70 billion in subsidy for the government, the increased cost contributed heftily to the price spiral at the retail level, one that was paid for by consumers suffering record-high inflation rates throughout the year. The cost of every essential item considered edible for people went through the roof.

Now that the IMF has made these observations, it leaves policymakers in a fix as the country is months away from the national elections. To what extent fertiliser and energy prices will be possible remains to be seen. As pointed out by former research director of Bangladesh Institute of Development Studies (BIDS), M Asaduzzaman, the price of fertiliser had already been increased by 60 - 80 per cent in the last six months that ate through farmers' profits. On top of this, they were struggling with skyrocketing fossil-fuel prices. It is interesting to note that while cost of fertilisers is being increased at this rate in the domestic market, the same cannot be said for those items in the international market. Unfortunately for Bangladesh, the foreign exchange is not available to buy fertiliser from international markets presently, given the precarious situation with the foreign exchange reserve. So, Bangladesh finds itself at a crossroads.

If one looks at the last increase in prices of fertiliser, it is seen that it would still have to pay a hefty amount for subsidies amounting to Tk21/kg of urea,Tk49 for DAP, TK40 for MOP and Tk23 for TSP. Although, it is understandable that the government would wish to reduce this hefty subsidy amount, but is it reasonable to expect the poor, marginal farmers to bear the cost of upward adjustment of fertiliser. How feasible is this? How are farmers expected to spend an additional amount of Tk 25 - Tk 36 billion extra to buy fertiliser? This is the amount, prior to any new hike in fertiliser prices, being mulled by the state now.

It is understandable why farmers are now turning away from agro-production because they are left to their own devices to take up the extra burden of spiralling cost of inputs like power and fertiliser. Any cut in agriculture production will inevitably hurt food security in the country since there is hardly any money to import the shortfall from international markets. Then there is the question of energy prices. As pointed out by the former head of BIDS, "if the government is forced to raise energy and fertiliser prices in line with the IMF suggestions, then they must compensate the farmers to keep prices of grains and other foods within the reach of commoners." As is evident from the market situation, there is no mechanism to guarantee prices at farm level to cover the cost of production and this is a losing proposition for farmers in general. It is imperative to keep the cost of farm inputs within the reach of producers if the state wishes to maintain production levels and this surge in fertiliser and diesel prices have triggered a chain reaction in the market of essential commodities. No wonder, consumers have been subjected to unparalleled price hikes at retail level throughout the year. Any further rise in input cost would further increase prices of rice, vegetables, fruits, dairy, meat, fish and other essentials. The government must not raise prices of fertiliser or fossil fuels if it wishes to avoid famine-like conditions because if cost of inputs becomes uneconomic, production across the board will fall. This is a scenario unthinkable at this point in time and the government ought not to give in to external pressure on the issue.

News Link: https://today.thefinancialexpress.com.bd/editorial/fallouts-of-further-reduction-of-subsidies-on-energy-and-fertiliser-1697209773