Economic Development - Do Buffer Stocks Work?
- A-Level, IB
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 8 Mar 2023
This revision video looks at the advantages and limitations of buffer stocks as a strategy to stabilise prices and support incomes for farmers in poorer countries.
A buffer stock scheme is a mechanism designed to stabilise the price and supply of a commodity, usually a raw material or agricultural product. It involves the creation of a stockpile, or buffer stock, of the commodity during times of high supply, which can be used to regulate the market during periods of low supply.
The buffer stock scheme operates by buying excess supply of the commodity when the market is oversupplied, and then releasing it (off-loading) into the market when supply falls short. This helps to prevent price fluctuations and ensures a steady supply of the commodity. The buffer stock can be owned and managed by the government, a central agency, or a group of producers or traders.
There are relatively few buffer stock schemes in operation in low and middle-income countries. Buffer stock schemes are vulnerable to political interference, with governments using the scheme to benefit certain groups or to achieve political goals. This can undermine the effectiveness of the scheme and lead to corruption. Even the best-planned buffer stock schemes can be affected by unforeseen market conditions, such as changes in weather patterns, global trade policies, or sudden shifts in demand. Many buffer stock schemes have collapsed because the agency operating it has run out of money. In the long run, there might be better alternatives available.