Piles up 38pc more subsidy as food grains get pricey in world market
The government will increase subsidy for food grains and agri inputs by 38 percent in the current fiscal year to check price hike of food grains.
Economists consider the additional subsidy necessary to cushion the impact of soaring prices of essentials on the country’s poor.
The subsidy is expected to go up to Tk 7,025 crore from the present outlay of Tk 5,088 crore, said officials in the food and agriculture ministries.
The raise comes hard on the heels of hikes in rice prices in recent weeks.
Talking to The Daily Star, Agriculture Minister Matia Chowdhury, however, allayed fears of rice prices going beyond the reach of consumers.
She said the government lowered prices of non-urea fertilisers several times to benefit farmers, and help them maintain a balance in the use of fertilisers and get a better output.
Matia said the government is constantly evolving ways and means to boost farm productivity to keep pace with population growth.
She said her ministry has plans to expand cultivation of Aus to an optimum level, so that the third important rice crop after Boro and Aman may provide the country with a much-needed increased output.
The government has moved to enforce anti-hoarding laws to discipline dishonest rice traders and millers, she said.
The government had initially allocated Tk 4,000 crore as subsidy for agri inputs in the current fiscal year. But a rise in fertiliser prices fuelled by oil price hike on the international market made it necessary to add Tk 1,800 crore to the amount.
“Financial support for farmers is a must to make farm inputs available at affordable prices, especially for a good Boro harvest in this season,” observed Agriculture Secretary Mustak Ahmed.
According to Bangladesh Fertiliser Association, international prices of urea now range from $375 to $400 a tonne, up from nearly $300 a tonne six months ago. Prices of triple super phosphate (TSP) and diammonium phosphate (DAP) also went up.
The requirement for food subsidy in the current fiscal year is likely to jump to Tk 1,225 crore from Tk 1,088 crore due to an increased rice allocation for open market sales (OMS), fair price and ration cards for defence and law enforcement agencies.
Subsidy for food grains might go up further as the government has to import grains at an increased price, said food ministry officials.
The Food Price Index, prepared by Food and Agriculture Organisation of the United Nations, reached a new high in the last week of January.
“We now purchase local rice for Tk 27 a kg. But we have to pay Tk 38 for one kg of rice on the international market. Rising rice prices on the global market will push up the average purchase cost,” said a senior food ministry official, seeking anonymity.
The government now sells more than one lakh tonne of rice a month, up from 80,000 tonnes a month ago, at OMS outlets for Tk 24 a kg, said Ahmad Hossain Khan, director general of the food directorate.
Officials claimed government intervention in the market helped check the upward trend in coarse rice prices. The decision to increase OMS price of rice by Tk 1 a kg from the beginning of this month was also postponed.
A hike in OMS price of rice might fuel the price expectations of traders and big farmers, leading to a further rise in prices, feared officials.
The need for increasing subsidy arose as the government had scaled up its food distribution target to 30 lakh tonnes from 27 lakh tonnes this fiscal year.
Distribution of food grains through OMS and fair price cards accounts for one-third of the amount with an increase in the allocation for the two to 10 lakh tonnes from 5.5 lakh tonnes.
The subsidy is aimed at keeping production cost low, and offering a cushion to the poor through various safety nets. It will also work as a tool for market intervention.
The government has no alternative but to provide this extra subsidy, said Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS).
He said the authorities will be able to bear the additional costs within their overall budget for the current fiscal year.
“Low implementation of the annual development plan and high revenue growth will give the government the space to finance within the budgetary framework,” he said.
The increase in subsidy will not fuel inflation as the government need not borrow from the market for it, Zaid said.
“It will rather contribute to easing inflation by facilitating an improved supply of grains to the market.”
Former BIDS director general Mahabub Hossain said the government is providing subsidy of Tk 15 a kg on rice, which should be cut down.
“Higher the gap between market and OMS prices, higher the chances of pilferage and rent-seeking,” he said, suggesting that the difference between the two prices should be Tk 5 a kg.
Mahabub, executive director of Brac, recommended distributing wheat also through OMS, and speeding up import of food grains.
He said although wheat prices have gone up on the global market, they are still lower than rice prices.
If the government starts selling wheat at OMS outlets, it will be able to give the facility to a larger section of the population, he said.
“Market intervention is required for the next couple of months until the new Boro rice is available after April. But if the government interferes beyond that, a supply glut may hurt farmers,” Mahabub noted.
Dr Quazi Shahabuddin, another former director general of BIDS, said, “If we can have a bumper Boro production, global market prices will not affect our domestic market.”
There is no alternative to widening the safety net programmes and ensuring a corruption-free public distribution system to offset the impact of food inflation on the poor, he added.
