Advantages and Disadvantages of Buffer Stocks

Written by dennis hartman
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Advantages and Disadvantages of Buffer Stocks
Buffer stocks are only possible when agricultural production is good. (field of future crop image by vadiko from Fotolia.com)

Buffer stocks are surplus agricultural products that a government buys in order to exercise control over the global market. By purchasing produce during an especially productive year, the government helps farmers maintain higher prices and also secures supply for the future if a season is less productive and there isn't enough to meet demand.

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Price Stability

One of the key benefits of buffer stocks is market stabilisation. Governments may vary the amount of produce they buy, helping to keep the supply relatively unchanged from one year to another. If demand stays the same, the price is also likely to neither rise nor fall. In addition, by releasing buffer stocks for sale when supply is low, governments help to moderate prices that unmet demand might otherwise drive up. This allows farmers to plan ahead and predict income based on production and market prices with greater accuracy.

Subsidies

Buffer stocks serve as a form of government subsidy for farmers. Rather than being forced to sell a large quantity of produce at a reduced price, farmers can sell to the government, which can afford to buy large quantities of agricultural produce at one time and save it. This helps keep farmers and agricultural conglomerates profitable and able to remain in business for the next season.

Production

Without buffer stocks, some farmers might be discouraged from producing large crops. This can happen when farmers attempt to keep supply low to force a higher price from buyers on the open market. By stepping in to buy up surplus stock, governments encourage farmers to be as productive as possible, without fear of driving prices down by overproducing. Increased production means more stock to be sold in the future or used in an emergency situation, such as a famine abroad.

Artificial Inflation

Buffer stocks artificially control inflation, adding to or subtracting from supply. The result is often that the market price is above the point at which supply meets demand. This means more money for farmers, but also higher prices for consumers. While this may be simply an inconvenience for food buyers in the developed world, the global market can drive prices to unaffordable levels for residents of developing nations.

Waste

The process of using buffer stocks requires governments to store large quantities of produce, often for a year or more. This means it is only suitable for crops that have a long-term storage life, but it can also lead to waste when several seasons pass without a shortage. The excess stock becomes unusable and is disposed of as waste.

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