3.3 Buffer Stock Schemes

Question 1

Definition of buffer stock schemes

Answer 1

Buffer stock schemes is a government plan to stabilise price in volatile markets

Question 2

Buffer stocks aims to

Answer 2

1. Stabilise prices
2. Stabilise farm incomes
3. Ensure supply of food

Question 3

Buffer stocks stabilise prices (refer graph)

Answer 3

1. Times there are good harvest, the government buys up the surplus and store it
2. This leads to market price to increase back
3. Time there bad harvest, the government release buffer stocks in store in to the market, increasing the supply
4. Increasing supply can lead to decrease in price

Question 4

Buffer stocks stabilise farmer’s income

Answer 4

Same concept but with application of unitary YED

Question 5

Advantages of buffer stocks scheme

Answer 5

1. Overcome the problem of wide fluctuations in prices
2. More stability in. Income
3. Stability of income encourage producers to make long term plans (further invest in agriculture)
   - due to guaranteed income through this scheme

Question 6

Disadvantages of buffer stock scheme

Answer 6

1. It’s not easy for government too establish what the equilibrium price for the commodity market
2. Additional costs to operate buffer stock schemes
3. Problems of perishability of stocks