buffer stock

Question 1

Buffer stock

Answer 1

Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks of the product onto the market when supplies are low.

Question 2

Prices for agricultural products are often volatile because

Answer 2

• Supply can vary due to the weather.
• Demand is inelastic
• Supply is fixed in the short term

Question 3

Buffer stock advantages

Answer 3

1. Stable prices help maintain farmers incomes. A rapid drop in prices can make farmers go out of business.
2. Price stability enables investment in agriculture.
3. Farming can have positive externalities e.g. helps rural communities

Question 4

Buffer stock disadvantages

Answer 4

1. Cost of buying excess supply could become quite high
2. Minimum prices and buffer stocks could encourage over supply as farmers know any surplus will be bought.
3. Government subsidy to farmers may encourage inefficiency amongst farmers. There may be less incentive to cut costs and respond to market pressures
4. regulatory capture