Buffer stock schemes notes

Buffer stock schemes are applicable in

Comomodity (raw material) markets becayse their prices are ofton unstable.

1. Agricultuaral commodities- wheat, rice, coffee, cocoa-

-Volotile prices due to supply shifts caused by natural phenomena like weather.

2. industrial/mineral commodities- copper, rubber or tin.

-volatile prices due to changes in demand caused by rising and falling national incomes.

agricultural commodities

at the mercy of natural dangers like weather, insects or or disease.

- when conditions are excellent , agricultural commodities ofton have a bumper crop and abundant crop

industrial

changes in the world economy are likely to have a large impact on producers.

Both demand and supply side factors create instability in commodity markets.

difficult for producers to plan with uncertainity

instability can result in lower standards of living with negative consequences for prodcucers and the community.

these conditions may cause governemtns to intevene to protect prices from extreme fluctuations.

http://economicsonline.co.uk/Market%20failures%20graphs/Price+ceilings.png

Prices are allowed to fluctuate normaly when within the price band.

government intervention occurs when the free market pushes prices above the top price or below the bottom price.

bumper crop situation

in this case the buffer stock manager would need o buy uo excess supply and store it- has an oppurtunity cost

poor weather or pest problem

in this case the stock manager would release stock to bring price down.

Problems- only suitable for non perishable goods.

-storage

-improvements in technology that must be bought by governments.

-choosing the right price band is problematic.

- producers wll pressure the governemnt to make the price band high

commodity agreements

when different countries work togehrt to opperate buffer stock scheme

UNTAD in th 1960s

fail.