S Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks of the product onto the market when supplies are low. An example of a buffer stock scheme is the international coffee agreement.
Buffer stock. A buffer stock is a system or scheme which buys and stores stocks at times of good harvests to prevent prices falling below a target range (or price level), and releases stocks during bad harvests to prevent prices rising above a target range (or price level).The buffer stock scheme is a scheme where an organisation buys and sells in the open market so as to maintain a minimum price for a product. It is used mainly on primary products such as agriculture, mining, and etc. It was designed to even out price fluctuations for producers and to maintain produc.Buffer stocks are excess supplies of foodstuffs bought and stored by the government, usually for the purpose of stabilizing commodity prices. For example, a government might buy up hundreds of thousands of bushels of corn when the price is falling to shore up demand.
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Buffer stocks do not prevent the initial problem from arising. Critics argue that they distort the operation of free markets and prevent the price mechanism working effectively. Finally, there is the potential problem of moral hazard, which means that buffer stocks provide an insurance against poor harvests and may encourage producers to be inefficient.
Get the details list about provisional Mill Wise Buffer Stock Allocation of sugar in India at ChiniMandi.
The importance of Buffer Stocks are:- These stocks help in uniform distribution of food materials in different parts of the country. These stocks can be used to satisfy the food requirements in the event of all in production due to adverse climatic conditions such as floods and droughts or due to plant diseases.
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A bad harvest will raise the price, but the farmer might have very little to sell. Governments often step-in to correct this market failure. They can buy excess stock when the harvest is plentiful and sell their excesses when harvests are poor so as to keep the price at a reasonable level at all times. This is called a Buffer stock scheme.
Buffer Stock Scheme is a government plan to stabilise prices in unstable markets. Prices for agricultural products are often unstable because, supply can vary due to the weather, demand is inelastic, or supply is fixed in the short term. So the Buffer Stock aims to than stabilise prices and ensure supplies.
Many agricultural goods are perishable so they cannot be stockpiled for an adequate amount of time to make the buffer stock scheme work. Run out of money. Maybe the government runs out of money to keep buying up stocks of commodities after bumper harvests. Run out of stockpiles.
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When the price is low further stocks of the commodity are bought)4. The marginal social benefits (incremental benefit of an activity as viewed by the society and expressed as the sum of marginal external benefit and marginal private benefit)5 of implementing a buffer stock scheme would be price stability, and economic growth.