Subsidy-heavy spending slows farm progress: WB

A gradual shift towards more effective public spending in agriculture could help Bangladesh build a more productive and resilient agrifood system, safeguard farmers’ livelihoods and create employment opportunities, according to a new World Bank (WB) report.

The report, Repurposing Agricultural Public Spending for Quality Growth and Jobs in Bangladesh’s Agrifood System, notes that Bangladesh assigns considerable importance to agriculture, allocating around 10 per cent of total public expenditure to the sector.

However, agricultural growth has slowed in recent years, productivity gains have weakened, and diversification into higher-value products has progressed more slowly than expected, despite growing consumer demand for fruits, vegetables, protein-rich foods and processed products.

According to the report, a significant proportion of public spending continues to be directed towards subsidies and rice-related support, while areas critical to improving farm productivity and incomes — such as research, extension services, irrigation, market access and climate resilience — remain comparatively underfunded.

Fertiliser subsidies constitute the largest form of agricultural support, accounting for approximately 80 per cent of the Ministry of Agriculture’s budget.

While these subsidies have helped farmers sustain production and maintain price stability, the report notes that benefits are linked to the volume of fertiliser purchased, resulting in larger landholders receiving a greater share of support.

The top 20 per cent of landholders receive around half of all fertiliser subsidy benefits, whereas the bottom 40 per cent receive only about 15 per cent.

The report also highlights an imbalance in fertiliser use, with only around 5 per cent of farmers applying nutrients within recommended ranges. Addressing this issue could significantly improve yields and enhance overall productivity.
“Agriculture remains central to Bangladesh’s development, employment generation and poverty reduction.

However, climate-related risks, changing consumption patterns, fiscal constraints, and disruptions to fertiliser prices and supply chains linked to the Middle East conflict are exposing weaknesses in existing policies and spending priorities,” said Jean Pesme, World Bank Division Director for Bangladesh and Bhutan.

“The encouraging news is that there is a clear way forward. By modernising support mechanisms and gradually rebalancing agricultural expenditure towards high-return investments, Bangladesh can build a more resilient and productive agrifood system that generates more and better-quality jobs,” he added.

The report further observes that public expenditure remains heavily concentrated on rice production, which may limit incentives for diversification.

Rice accounts for around 72 per cent of cultivated land and receives roughly 80 per cent of subsidy benefits, despite higher-value subsectors such as livestock, fisheries, vegetables and agro-processing offering stronger prospects for income growth and employment.

To address these challenges, the report recommends a phased reform agenda. In the short term, it suggests expanding soil-testing services, strengthening agricultural advisory support and introducing the Farmer’s Card and e-voucher systems to improve the targeting of public spending towards poorer and climate-vulnerable areas.

Over time, improved delivery mechanisms could release resources for investments that enhance productivity, support higher-value agriculture and benefit small and disadvantaged farmers.

“Modernising the design and delivery of fertiliser subsidies presents an important opportunity to reduce pressure on foreign exchange reserves, improve agricultural productivity, enhance soil health and ensure that support reaches the farmers who need it most,” said Mansur Ahmed, Senior Economist at the World Bank and co-author of the report.