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The recently proposed budget for FY2025–26 arrives at a time when Bangladesh’s agriculture sector stands at a crossroad—facing climate volatility on one side and structural and supply chain issues on the other.
The allocation for Agriculture, Food, Fisheries, and Livestock in FY2025–26 has been raised by around 3.6% compared to FY2024- 25, reaching a total of Tk 39,620 crore. While this increase signals a continued focus on the sector, what’s striking is how deeply interconnected agriculture’s future is with broader economic dynamics, particularly gas and LNG availability, and how this budget might shape backward and forward linkages across the value chain.
Energy remains a critical concern, especially given agriculture’s dependence on natural gas for fertilizer production. Although the government has retained VAT exemption on LNG, actual gas availability is uncertain, given the pressure from the power and industrial sectors.
A constrained gas supply could raise fertilizer costs and negatively affect crop production at a time when food inflation remains quite high. In this regard, to ensure uninterrupted supply of emergency agricultural inputs like fertilisers, the government has expedited the disbursement of subsidies — covering both imported and domestically produced fertilisers.
On the input side, the budget proposes a reduction in the advance income tax (AIT) on industrial raw materials, which is expected to lower input costs for agro-processors. Additionally, the withholding tax rate on the supply value of essential agri goods such as paddy, wheat, potatoes and jute has been proposed to be reduced from 1% to 0.5%.
This reduction could contribute to lower retail prices, potentially increasing consumer demand. However, broader investments in agricultural research, and mechanization remains to be noteworthy. This is evident in the declining share of agriculture in the Annual Development Programme (ADP)—down from 5.0% in FY25 to 4.7% in FY26—raising concerns about long-term productivity.
A notable step toward strengthening forward linkages has been the exemption of duties on cold storage machinery, aimed at improving post-harvest preservation—especially for perishable items like fruits, vegetables, and dairy. To ensure these benefits reach farmers effectively, supportive infrastructure is essential.
In this regard, the current budget outlines plans to construct 5,400 km of new roads and to develop 104 rural markets and growth centers. The budget also emphasizes specialized agro-processing zones, improved port infrastructure for agricultural exports with steps taken to address 50+ barriers to boosting agri-export performance.
On the other hand, the financing environment presents a layer of complexity. With 46% of the budget deficit projected to be financed through bank borrowing, there is a risk of private sector credit—particularly for agriculture and SMEs—being crowded out.
Given the already tight liquidity situation in the banking sector, smallholder farmers and agri-entrepreneurs may face hurdles in accessing affordable finance, which could undermine efforts to scale up production or invest in modern practices.
In summary, the budget includes several measures that could provide relief and support to the agriculture sector, such as increased allocation, targeted tax reductions, and duty exemptions. However, these steps alone are insufficient to drive transformative change.
To ensure sustainable growth and enhanced food security, a more comprehensive approach—focused on energy security, value chain development, and inclusive financing—is necessary to fully unlock the sector’s potential in the coming years.
Naziba Ali, Business Analyst at LightCastle Partners, has authored the article. For further clarifications, please contact here: [email protected]
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