Need For Combined Policy

Agriculture policy should include biofuel, Creating ecosystem and make changes real.

The central bank is planning to provide Tk 390 billion worth of agricredit for the next fiscal year. The decision came amid rising inflation and good harvest of rice last year. Agriculture has growing leverage in employment, value addition and boosting consumption in other sectors. For instance, motorbike industry attributes increase in sales to rising remittances and boost in agricultural production,which augments income of rural households.

Since value addition to agriculture is higher than any other sector, its growth has lasting impact on the economy and provides extra capital for other businesses. In particular, good rice production could reduce the pressure on inflation and thereby may lead to a stable macroeconomic [situation]. Last year, Bangladesh produced $2 billion worth of extra rice. We have a better potato yield last year. The extra harvest ,however, contributed to drop in prices, causing woes to many potato farmers. Perhaps rice yield is not good enough to bring down the prices. So we have to import more rices from abroad.

Last year's extra earnings also include around $4.7 billion worth of remittances, which our workers earned working abroad, and around $2.59 billion worth of RMG export. The extra earnings set the ground for monetary intervention provided that extra earnings surpass extra losses of last year (see"Last Year's Extra Money", published here on January 10,2025).

But there are some questions on extra RMG earnings and remittances. As value addition to some items in the RMG is low, a large part of earnings go to pay off the input cost. In addition, some of the laundered money of past years return home in disguise of remittances and RMG earnings, producing nothing or adding no value to economy rather creating inflationary pressure. Not only that most of the RMG export money do not come to the country in the same fiscal year. So in the end true extra earnings from RMG export and remittances are much lower than the reported value. In that light, extra agricultural production retains most of the earnings at home and is crucial for the economy.

I think Bangladesh should blend its agriculture policy with a national biofuel/ethanol policy. If there is no biofuel policy,then we should introduce one. India has an active biofuel policy where it meets a certain percentage of its energy needs through biofuel. The byproduct of the biofuel industry is used as animal feed, which we also import from India. So having a functional biofuel policy means good use of extra yields of potato,tomato etc and creating an ecosystem for livestock and fisheries industry. Peasants are protected from any drop in prices and transportation cost will come down as petrol filling stations in rural areas will sell petrol-biofuel mix.

So combined agriculture and biofuel policy will help peasants from price shock,developing new industry, reducing transportation cost in rural areas and curbing inflation. Another special advantage is it will help providing a steady supply of grain, potato( even lower quality from abroad) for the biofuel industry and thereby helping grain market stable. Agricredit in that case will have more meaningful use,upholding peasant's interest, and monetary intervention, even amid tight monetary policy,will be justified.