Buffer Stock

A buffer stock is a commodity held by a government to stabilize prices in a market.

Definition

A buffer stock is a commodity held by a government to stabilize prices in a market. Governments have commonly created buffer stocks of commodities such as oil, wool or grain. In a simple buffer stock system, when the price drops below the government’s target, the government buys up the commodity on the open market, raising the price, and accumulating a store of the item. When the price rises above the target price, the government ceases its buffer stock purchases.

A buffer stock may be used to aid producers or consumers. The job guarantee is an example of a buffer stock program, applied to labor.

Origin

Buffer stocks have been used in many agricultural societies, dating back to ancient China, Egypt and colonial Mexico. In more recent times, the United States has maintained buffer stocks in corn and petroleum. For corn, the United States Department of Agriculture held buffer stocks up through the 1970s. The United States still maintains a buffer stock of petroleum, known as the Strategic Petroleum Reserve.

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