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.