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 ?
The NFA also imports rice if local procurement fails to augment its buffer stock.
The region needs to be prepared by building up strategic food reserves and buffer stocks.
On Tuesday, the Bharatiya Janata Party had lashed out at Pawar saying Pawar had released buffer stock ahead of Maharashtra Assembly elections to bring down prices eyeing upon grabbing more votes.
There are no delays waiting for a replacement device to be shipped or configured, no need to maintain a buffer stock of devices in-house and virtually no disruption for users.
Following a visit to the plant in France where compatibility between IT systems was checked, Kingswinford-based FDB Distribution was selected to set up a buffer stock to provide warehousing, logistics fulfilment and distribution.
In the warehouse, product accumulates immediately prior to inspection work stations, and from there, a reversible transfer unit feeds them via short conveyors each side, to effectively provide buffer stock for two operators on either side.
This paper uses the structural vector autoregressive approach to assess the significance of buffer stock money under alternative real shocks in the U.
Operations of the buffer stock are actually guided by the movements of the five-day average DMIP in relation to the commonly called `may-buy' and `must-buy' and `may-sell' and `must-sell' bands.
These stylized facts imply that either the production-smoothing, buffer stock model is incorrect,(1) or there are other factors that prevent empirical confirmation of the smoothing effect.
Under the new system, the stock policy will be to concentrate buffer stock at the export warehouse near the production factories, keeping only small buffer stocks at the sales companies' warehouses.