Fertiliser subsidy reform: Who will bear the cost?

Bangladesh is under pressure to reform its costly fertiliser subsidy system, but how the government would protect small and marginal farmers from higher input costs remains unclear.

The World Bank has recommended gradually replacing administered fertiliser prices with market-based pricing, backed by electronic vouchers for vulnerable farmers. Its latest assessment found that the largest 20 percent of landholders receive about half of all fertiliser subsidy benefits, while the smallest 40 percent receive just 13 percent.

The findings have renewed scrutiny of a subsidy bill that has nearly quadrupled in five years to around Tk 28,000 crore.

However, the distribution figures need context. Larger farms buy more fertiliser and therefore receive greater subsidies in absolute terms. For poorer households, even a smaller subsidy can represent a larger share of income.

The World Bank estimates that direct and indirect fertiliser subsidies account for 1.04 percent of income for the poorest fifth of households, compared with 0.10 percent for the richest fifth.

Bangladesh imports more than 85 percent of its fertiliser needs, leaving subsidy costs exposed to global prices, exchange-rate fluctuations and supply disruptions. The Middle East conflict has heightened these risks, threatening to increase import costs and the fiscal burden.

International lenders have long called for reform. In 2025, the IMF cited government plans to reduce subsidy costs through better storage, lower import expenses and higher selling prices.

The World Bank recommends phased price increases supported by digital farmer registries and electronic vouchers.

Yet the government had no plan to raise fertiliser prices while preparing the FY2026-27 budget, despite rising costs and subsidy spending, The Daily Star reported in June. A review of subsequent public announcements found no confirmed decision to introduce market-based pricing.

THE COST TO FARMERS

Higher fertiliser prices would immediately raise cultivation costs, while farmers would recover those expenses only after harvest. Their ability to do so would depend on yields, crop prices and access to finance.

Sharecroppers and farmers leasing land face additional pressure. The World Bank estimates that three-quarters of marginal rice farmers consume more rice than they produce, leaving them dependent on market purchases to meet their food needs.

The bank warns that abrupt price increases could force cash-strapped farmers to reduce fertiliser use or struggle with higher costs.

Higher prices would not automatically reduce output or fuel food inflation, however. The impact would depend on the scale of the increase, current fertiliser application rates and whether compensation reached farmers in time.

CAN FARMER CARDS BRIDGE THE GAP?

Launched in April, the government’s farmer-card programme aims to provide digital identification and access to agricultural inputs, subsidies and financial assistance.

The FY27 budget allocates Tk 1,062.5 crore to distribute 42.5 lakh cards across 100 upazilas. Eligible landless, marginal and small farmers are to receive Tk 2,500 annually.

On September 30, Agriculture Minister Mohammed Aminur Rashid said 100,047 farmers were scheduled to receive assistance in the first phase, while a database covering around 43 lakh farmers was being developed.

The World Bank recommends linking digital farmer registries to electronic vouchers so assistance can be targeted according to farmers’ circumstances and input needs.

But registries based mainly on land ownership could miss landless farmers who cultivate leased plots. Fertiliser requirements also vary by cultivated area, crop and cropping frequency, making a uniform payment an imperfect substitute for existing subsidies.

The Tk 2,500 annual assistance has not been designated as compensation for fertiliser price increases, and no published calculation shows how much of any additional cost it would cover.

The World Bank’s e-voucher pilot documentation also identifies beneficiary selection, dealer participation, digital infrastructure, legal requirements and monitoring as issues that need to be addressed before implementation.

SUBSIDISED ON PAPER, COSTLIER IN PRACTICE

A World Bank study based on 2019 survey data found that farmers paid an average of 27 percent above official fertiliser price ceilings.

The Daily Star has also reported farmers paying inflated prices when authorised dealers could not meet demand. Despite reports of adequate national stocks, local shortages and disruptions to the dealer network have left some farmers facing higher prices.

Electronic vouchers could improve the traceability of subsidies, but they would not solve distribution problems on their own. Farmers would still need functioning dealers and timely access to fertiliser.

SECURING SUPPLIES AMID REFORM PRESSURE

On October 5, Bangladesh signed a $300 million financing agreement with the World Bank to maintain fertiliser supplies during critical planting periods amid global price volatility and supply disruptions.

The Emergency Support for Food Security Project will run from July 2026 to June 2027, supporting fertiliser imports and smallholder farmers. The Finance Division will implement it in coordination with the Bangladesh Chemical Industries Corporation and the Bangladesh Agricultural Development Corporation.

The financing addresses immediate supply risks, not compensation for higher fertiliser prices. It also does not specify how a replacement voucher system would work.

Bangladesh is therefore seeking external financing to maintain fertiliser availability even as international lenders press for changes to the subsidy system.

THE UNRESOLVED SEQUENCE

The World Bank’s recommendations point to four requirements for reform: gradual price adjustments, reliable identification of eligible farmers, timely assistance and adequate fertiliser supplies.

Larger farms receive more subsidy in absolute terms because they cultivate more land. That alone does not establish whether their support is excessive or how reducing it would affect production. Nor do aggregate subsidy figures reveal how individual farmers would fare under a replacement system.

The government has yet to announce whether it will adopt market-based fertiliser pricing. If it does, the central question will be whether targeted support reaches small and marginal farmers before they face higher costs.