Agriculture is still the single-most important sector of the Bangladesh economy. However, highly protectionist policies aimed at fostering an import-substituting manufacturing sector had adverse indirect effects on the agriculture sector. High protection to the domestic manufacturing sector permitted highly overvalued exchange rates. The result was indirect taxation of agriculture and resource outflows from the sector. The paper uses a partial equilibrium approach to compute the magnitude of the implicit taxation of agriculture and related disincentives. The transfer of resources out of agriculture due to the protectionist trade and exchange rate policies is estimated at around 20 per cent of the average agricultural value added from 1986/87-1989/90.

The study draws upon data collected in 1994 from 200 farm household in 10 thanas, purposively selected to represent major geographic and agro-ecological zones in the Bangladesh. The paper attempts to identify problems associated with diversified crops, based on farmers’ perceptions. More importantly, farm characteristics are examined to explain levels of crop diversity or specialization; and results from regression analyses are presented. In the latter exercise, Simpson Index of diversity as well as Rice-share Index have been used. The survey results suggest several constraints to crop diversity, such as, low profitability, high input cost, risk in selling non-rice crops, susceptibility to weather variation and pests. The Simpson Index of diversity is found to decline with farm size, implying that large farmers specialize in few crops, particularly rice and few cash crops. Among other things, proximity to towns increase crop diversity while credit is found to reduce it. The study was however unable to identify any relationship between efforts by NGOs and the degree of crop diversity on farms.

Achieving crop diversification has often been stressed as a major policy objective. Yet, past policies in the agriculture sector had promoted rice cultivation at the expense of minor crops. While static profitability analyses indicate greater relative profitability of many non-cereal crops, risks in marketing these produce are found to be significantly high. More importantly, land characteristics are found to largely limit the expansion of area under these crops. Along with it, minor irrigation in Bangladesh is found to have favoured cereal production, making the crop economy less diversified. In order to achieve greater diversification in the crop sector, future policies need to facilitate exports, promote agro-processing industries, and emphasize on research to develop field channel designs that will facilitate simultaneous production of both cereals and non-cereals within the same command area. Along with these, large scale investments on flood control and drainage, continued support for canal re-excavation, and more rational planning of rural housing are called for to increase the size of suitable land.