Time to Resurrect Buffer Stocks?

Abstract

SummaryVolatile food prices create problems for consumers and farmers the world over. Buffer stocks offer a way out. A buffer stock is a quantity of grain owned by the government which sets a price band via a maximum price and a minimum price for grain. By buying and selling grain from the buffer stock on the open market, the government can keep the domestic price within its desired price band and thus avoid unstable prices. A buffer stock does not require the government to forecast the future price of grain and is entirely compatible with a market economy; the government is effectively exploiting the forces of supply and demand to influence the market price. A buffer stock is also compatible with free international trade. In using a buffer stock to stabilise its domestic price of grain, a government helps to stabilise the world price. In contrast, a government which resorts to trade measures to stabilise its domestic price can cause the world price to become less stable. In this article it is argued that all countries – rich and poor alike – would do their consumers, their farmers and the world as a whole a favour if they were to set up buffer stocks.