Buffer Stock Schemes Flashcards
Prices of that products fluctuate more than prices of manufactured products
Wheat, cotton, cocoa, rubber, tea and coffee
What do buffer stock schemes aim to do
Stabilise the market price of agricultural products
How do buffer stocks schemes seek to stabilise the market price of agricultural products
- buying up supplies when harvests are plentiful
- selling stock onto the market when supplies are low
In theory what are buffer stock schemes
Profit making - as they buy up stocks when the price is low and sell them when the price is high
How do the schemes theoretically work
Not well- many schemes have collapsed in the past
What do buffer stock schemes only work effectively for
Storable commodities
PED for the commodities in the SR
Low- because of the time it takes for producers to supply new quantities of wheat to the market
What is a buffer stock scheme main aim
To stabilise prices in volatile markets
Advantages of a successful buffer-stock scheme
- stable prices (maintain farmer’s incomes)
- stability enables capital investment in agriculture
- positive externalities of farming
- stable prices prevent excess prices for consumers
Problems with buffer stock schemes
- perishable items cannot be stored for long periods of time
- may run out of cash to buy
- guaranteed minimum price might = over-production and rising surpluses
- buffer stock schemes require high levels of capital to start
- high administrative and storage costs
What does the success of a buffer stock scheme depend on
The ability of those managing a scheme to correctly estimate the average price of the product over a period of time (it determines the maximum and minimum price boundaries)
What happens if the target price is significantly above the correct average price
Then the organisation will buy more produce than it is selling and it will eventually run out of money (price of the product will then crash)
What happens if the target price is too low
The organisation will often find the price rising above the boundary- it will end up selling more than it is buying and will eventually run out of stocks
Alternatives to buffer stock systems
- investment in irrigation
- policies to reduce dependency on one particular crop
- mobile technology for farmers
- micro insurance policies for poorer farmers
