The Effect of the ‘Subsidy on Fertilizer’ on Food Prices in Bangladesh and Policy Options

Abstract

The paper analyzes the effect of ‘Subsidy on Fertilizer’ on the food price indices of Bangladesh. Fertilizer price indices and food price indices are highly correlated all over the world. The regression analysis shows significant positive relation between fertilizer price indices and food price indices. Using the universal parameters (regression coefficients), simulation has been done using the fertilizer price indices with and without subsidy. Results show that without subsidy, food prices would have increased 2.2 times. Results also show that, without subsidy, food prices would have been volatile. The standard deviation of simulated food prices was higher without subsidy than with subsidy. Data shows that in Bangladesh as percentage of total budget and Budget Deficit, cost of subsidy is decreasing. The paper finally ended with some policy options and recommendations.

Keywords: Subsidy on Fertilizer, Food price volatility, Subsidy policy.