Buffer stock refers to a reserve of a commodity that is used to stabilize price fluctuations and unforeseen emergencies. The concept of buffer stock was first introduced during the 4th Five Year Plan (1969-74)
In India, buffer stocking of food grains is conceptually seen as a method to deliver strategic food and agricultural domestic support policies. Through these, the government caters multiple objectives such as providing famine relief, ensuring food security to consumers and providing production incentives to farmers.
Commodities are bought when there is a surplus in the economy, stored, and are then sold from these stores when there are economic shortages in the economy.
Buffer Stock: Objectives
Price stabilization: Buffer stock aims to stabilize the prices of food grains, by regulating their supply in the market. Government intervenes in the market during periods of production fluctuations, natural disasters, or price volatility.
Food security: Maintaining buffer stocks ensures a sufficient supply of food grains to meet the nutritional needs of the population and prevent food shortages. Government releases minimum buffer stock norms to ensure food security. It mitigate the adverse effects of production failures, natural calamities, or unforeseen events on the availability and prices of essential commodities.
Welfare scheme: Government utilizes this buffer stock to disperse the food grains to more vulnerable segments of the general public through public distribution system, at lower than the market value which is otherwise called the issue cost.
Increase farmers income: To give motivation to the farmers to produce more crop, the Government proclaims the Minimum Support Price (MSP) before the start of the planting season.
Buffer Stock: Challenges
- There are multiple cost involved in the procurement of buffer stock by FCI, which include handling expenses, storage cost, normal loss, administrative cost, rural development cess.
- MSP is being also increased by government which is raising the overall cost of procurement. Food subsidy bill is continuously increasing the burden of buffer stock cost.
- Minimum prices and buffer stocks could encourage oversupply as farmers know any surplus will be bought.
- It could even encourage excess use of chemicals to maximise yields because farmers know any excess supply can be sold – even if the market doesn’t want it.
- Skewed cropping patterns are detected, where only the crops supported by government policies are cultivated. This has both environmental costs and nutritional costs.
- Agriculture is a globalised market. If some countries form a buffer stock scheme and buy excess supply, they may find that other countries ‘free-ride’ on their efforts to keep prices high and undercut them.
Buffer Stock: Current Norms
The cabinet committee on Economic Affairs fixes the minimum buffer norms on quarterly basis: i.e as on 1st April, 1st July, 1st October and 1st January of every financial year.
It is estimated that as on 1st of April 2023, approximately 113 LMT wheat and 236 LMT rice will be available in the central pool after meeting all the requirements, against the buffer norms of 75 LMT of wheat and 136 LMT of rice. (PIB)
Central pool includes operational stocks and strategic reserves. Operational stocks meet monthly requirement under TPDS. Strategic reserves/food security stocks meet any shortfalls in future procurement.