buffer stock

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Buffer Stock Scheme

A practice in which a large investor, especially a government, buys large quantities of commodities during periods of high supply and stores them so they do not trade or circulate. The investor then sells them when supply is low. This is done to stabilize the price by roughly equalizing supply regardless of other factors. This practice was first used in China more than 2,600 years ago. It is most common with agricultural products. The usefulness of the scheme is controversial.

buffer stock

  1. a reserve of a particular COMMODITY or product held by some appointed body (often a government agency) which is used as part of a support mechanism to stabilize its price at some agreed level. If current production exceeds current demand, surplus output is bought up and held in reserve (otherwise excess supply would force the price down). Similarly, if current production cannot meet current demand then stock is released onto the market (otherwise excess demand would force prices up). Buffer stocks are used, for example, in connection with the operation of an INTERNATIONAL COMMODITY AGREEMENT.

buffer stock

a stock of a COMMODITY (copper, wheat, etc.) that is held by a trade body or government as a means of regulating the price of that commodity. An ‘official’ price for the commodity is established, and if the open-market price falls below this because there is excess supply at the fixed price, then the authorities will buy the surplus and add it to the buffer stock in order to force the price back up. By contrast, if the open-market price rises above the fixed price because there is an excess demand at the fixed price, then the authorities will sell some of their buffer stock in order to bring the price down. Through this mechanism the price of the commodity can be stabilized over time, avoiding erratic, short-term fluctuations in price.

Thus this mechanism attempts to avoid erratic short-term fluctuations in price. If the official price is set at too high a level, however, this will encourage over-supply in the long term and expensively accumulating stocks; while if the official price is set at too low a level, this will discourage supply in the long term and lead to shortages. See INTERNATIONAL COMMODITY AGREEMENT, PRICE SUPPORT, COMMON AGRICULTURE POLICY.

References in periodicals archive ?
In case the prices fall below MSP, pulses for buffer stock will be procured at MSP under Price Support Scheme of Department of Agriculture, Cooperation and Farmers Welfare.
Speaking to Khaleej Times, Al Ghurair felt that it is vital for the GCC to encourage public-private partnership in building up strategic food reserves and buffer stocks as per capita food consumption in the region is forecast to reach 971.
Build and maintain a buffer stock of food-grains to facilitate government operations; and to supply vulnerable classes with food grains at below market prices; to avoid localized and widespread famine and open under-nutrition; these objectives should be consistent and help achieve broader economic goals; sustained overall economic growth with stability growing per capita consumption of food grains; check year-to-year fluctuations in food grins availability; self-sufficiency in food grains so that imports can be minimized and eventually eliminated.
A spokesman said: "The Government does maintain a buffer stock of certain essential medicines that can be released in emergencies.
The additional storage will create a buffer stock that can be utilised to smooth out the price variations in imported raw sugar.
The Sultanate now has rice buffer stock enough to meet two years' consumption, sugar for another three years and ample reserves of cooking oil.
Power companies are expected to keep a buffer stock to face such a situation," he added.
To account for any potential disruption in BT supply, we believe our use of buffer stock and adjustments to our near term material mix will enable us to mitigate potential supply disruptions to our customer base.
3000 square meters of buffer stock allows for quick delivery, saving cost and time for clients.
Building infrastructure, and provision of irrigation facilities for ensuring growth and stabilization of food production, and creation of buffer stock of foodgrains and its fair distribution were recommended for reducing the probability of a famine.
We have reduced the amount of buffer stock we hold in the warehouse because our deliveries have become more accurate and drivers are hitting delivery times more frequently.
Due to kanban's high visibility and predictability, intermediate tiers and buffer stock in customer and manufacturer supply chains can be eliminated.