What is meant by buffer stock?

: a stock of a basic commodity (such as tin) acquired (as by a cartel) in a period of low or unstable prices and distributed in a period of high prices to stabilize the market.

What is buffer stock class 10?

Buffer Stock – It is the stock of food grains, particularly wheat and rice, which the government procures through the Food Corporation of India (FCI). The FCI purchases these cereals directly from the farmers of those states where they are in surplus.

What are advantages of buffer stock?

Advantages of buffer stocks Price stability encourages more investment in agriculture. Farming can have positive externalities e.g. helps rural communities. A drop in price could cause a negative multiplier effect within rural areas. Target prices help prevent excess prices for consumers and help reduce food inflation.

How does buffer stock scheme work?

A scheme established and funded by the Government to control prices in key markets (e.g. soft commodities). The scheme works by actively buying and selling the goods produced in the market, so that market prices are stabilised. This policy is used in markets that suffer from volatile prices.

Why do we need to use buffer stocks?

This is largely due to the volatility in the market supply of agricultural products coupled with the fact that demand and supply are price inelastic. One way to smooth out the fluctuations in prices is to operate price support schemes through the use of buffer stocks.

When does the government release the buffer stock?

Similarly, when the availability of the product is poor, and below average, the government starts releasing the buffer stock, which prevents the price from rising above average. This prevents fluctuations in price and maintains balance in the demand-supply cycle. #2. Single pricing method:

How does a buffer stock scheme reduce volatility?

This is a topic that can require some tricky diagrams to show how a price stabilisation scheme can reduce the volatility of market prices. But once you have these diagrams well understood, buffer stock programmes offer great opportunities for evaluation. We have included a slide on some of the alternatives to direct price support.

Can a buffer stock scheme run out of cash?

Clearly, perishable items cannot be stored for long periods of time and can therefore be immediately ruled out of buffer stock schemes. Other problems are: Cost of buying excess supply can cause a buffer stock scheme to run out of cash.