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 ?
'If we have a bigger buffer stock, we're establishing the supply of rice and we're preventing speculative activities,' he further said.
Following COA's recommendation, the DepEd said it would now maintain only 0.05 percent, not 2 percent, of the 7-percent buffer stock of learning materials in their warehouses.
The NFA's buffer stock is expected to rise in the coming months as it expressed its intention to continue buying unhusked rice from farmers even during the lean months of July to September.
The CCEA's move to increase buffer stock to 4 million tonnes from 3 million tonnes as of June comes in the wake of a record domestic sugar production of 33 million tonnes expected in sugar season 2018-19 (SS 2017-18: 32.3 million tonnes), surpassing Brazil as the largest producer for the first time in 16 years.
Thank you Mr Speaker, the ECOWAS strategic food reserves are kept in Tamale and Yendi in Ghana here, and if you know how buffer stocks are run, they are run in order to manage the food reserves such that we respond to emergency situations, and to also minimise the cost of storage of the produce.
Centre plans potato and onion buffer stock to check price rise
The buffer stock approach to money demand, as developed by Carr and Darby [1981], argues that agents are willing to hold a proportion of unanticipated increases in money supply in a short-run buffer [Cuthbertson and Taylor, 1986].
However, the DMIP entered the `may-buy' zone, at the beginning of August (and subsequently the `must-buy' zone), thus clearing the path for the buffer stock manager to intervene and buy rubber.
The first step in this direction has been to pull buffer stocks back to the central warehouse.
Two, while security is one concern in buffer stock management, the cost aspect is another.
In its annual audit report, the Commission on Audit (COA) said the FSP was designed to provide the agency with, among other things, rice buffer stock, and to implement the farmer assistance program by buying palay from farmers.