Buffer Stocks Schemes.pptx

Buffer Stocks Schemes

1. Economic of Buffer Stocks Schemes AS Economics

2. Buffer Stocks Students should be able to apply the concept of government intervention in the form of buffer stocks that seeks to stabilize prices and incomes in agricultural market. Syllabus Requirements

3. Many price stabilization schemes have collapsed or been withdrawn over the last twenty years Examples of buffer stocks schemes

4. Examples of former buffer stock schemes: Cotton Price Stabilization Board International Coffee Agreement International Tin Council Examples of buffer stocks schemes

5. Many farmers of primary commodities face the problems of volatile prices and incomes What is a buffer stock?

6. 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. What is a buffer stock?

7. Price support in a buffer stock

8. Price support in a buffer stock

9. Price support in a buffer stock

10. Should there be a large rise in supply due to better then expected yields of wheat at harvest time, the market supply of wheat will shift out putting downward pressure on the free market equilibrium price. The effects of a rise in supply

11. In this situation, the government will have to intervene once more in the market and buy up the surplus stock of wheat to prevent the price from falling. The effects of a rise in supply

12. Rising supply – more intervention

13. Setting up a buffer stock scheme requires a significant amount of start up capital, since money is needed to buy up the product when prices are low. There are also high administrative and storage costs to be considered. Problems with buffer stocks

14. The success of a buffer stock scheme however ultimately depends on the ability of those managing a scheme to correctly estimate the average price of the product over a period of time Problems with buffer stocks

15. If the target price is significantly above the correct average price then the organization will find itself buying more produce than it is selling and it will eventually run out of money. Problems with buffer stocks

16. Conversely if the target price is too low then the organization 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. Problems with buffer stocks

17. Price volatility: Rubber

18. Price volatility: Copper

19. Price volatility: Coffee

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