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A buffer stock system is a government plan used to stabilise prices in turbulent markets. During excellent harvests, stocks are purchased and stored to avoid costs from dropping below certain price levels or a specific goal range. These supplies are released during shortages to prevent a price rise above the specified levels or a target range. The concept of buffer stock came into existence during the Fourth Five-Year Plan (1969-74).
What Is the Goal of the Buffer Stock System?
The policy’s goal is to stabilise prices, provide an ongoing supply of commodities, and save farmers and producers from going out of business due to a sudden drop in prices.
The Advantages of Buffer Stock
Some of the benefits are:
It helps regulate the food supply and eliminates or reduces the likelihood of food shortages.
This strategy ensures price stability, which increases agricultural investment.
It reduces the likelihood of a rapid reduction in price levels, which can throw farmers out of business and even increase unemployment. It helps farmers keep their revenues stable by managing price levels.
The buffer stock system allows the government to make huge profits by buying equities and selling them during a shortage.
The Disadvantages of Buffer Stock
Some of the drawbacks are:
This method may need the government to collect more outstanding taxes to cover the expenses of over-purchasing.
Certain perishable items, such as milk and meat, cannot be held in a buffer stock system.
This plan may result in higher administrative charges.
Government agencies may not always have appropriate and precise information, making it difficult to determine if there is a surplus.
Tariffs on imports may be required to maintain the bare minimum pricing for food.
What Are the Types of Buffer Stocks?
There are two types of stocks:
Operational Stock: The operational stock is the stock that the government requires to fulfil the obligations of the welfare scheme and meet the monthly requirements.
Food Security Stock: The food security stock is the stock that the government requires to fulfil the obligations of the welfare scheme and meet the monthly procurement requirements.
Why Are Buffer Stocks Important?
Every buffer stock is designed with the same purpose. They serve the same function and guarantee the availability of adequate inventory to satisfy the demand and fulfil orders on schedule.
Operational stocks are used to satisfy the monthly distribution requirements of TPDS (Targeted Public Distribution Systems) and OWS (Other Welfare Schemes). Food security stocks/reserves help cover procurement shortfalls.
According to the current practice, the GOI categorises additional food stock as excess stock and liquidates it regularly through exports, open market sales, or increased allocations to states. Usually, the buffer stock levels are checked every five years.
On December 15, 2015, the government agreed to construct a 1.5 lakh-tonne buffer stock of pulses to regulate the volatility of pulse prices.
Was Buffer Stock an Initiative by the Government of India to Improve People’s Living Standards?
When there is surplus wheat and rice production, the FCI (Food Corporation of India) buys it from the farmer (from areas of abundant crop production). The FCI gives farmers a prepaid amount, which is the equivalent of the price of the crops. The price paid by the government to a farmer is called the Minimum Support Price.
The Minimum Support Price is declared by the government every year before the sowing season to incentivise (encouraging farmers to increase the production via monetary means) crop production. The crop bought by the government is then stored in granaries. The buffer stock system is an initiative by the government to help people living in deficit areas and provide them with proper food at low costs.
Conclusion
A buffer stock system is a government plan used to stabilise prices in turbulent markets. The buffer stock system allows the government to generate significant profits by purchasing stocks during times of surplus and selling them during times of scarcity. This strategy may need the government to collect more taxes to offset the costs of over-purchasing. The scheme aims to stabilise prices, provide a continuous supply of commodities, and prevent farmers and producers from going out of business due to a rapid reduction in costs.
