Buffer stock

Buffer stock refers to a reserve of a commodity that is used to offset price fluctuations and unforeseen emergencies. Buffer stock is generally maintained for essential commodities and necessities like food grains, pulses etc.

The concept of a buffer stock was first introduced during the 4th Five Year Plan (1969-74) and a buffer stock of 5 million tonnes of food grains was envisaged. The buffer stock figures are normally reviewed after every 5 years.

Buffer stock of food grains in the Central Pool is maintained by the Government of India (GOI)/Central Government for:

• Meeting the prescribed minimum buffer stock norms for food security
• Monthly release of food grains for supply through Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS)
• Meeting emergency situations arising out of unexpected crop failure, natural disasters, etc.
• Price stabilisation or market intervention to augment supply so as to help moderate the open market prices.

Advantages of buffer stocks

• Stable prices help maintain farmers’ incomes. A rapid drop in prices can make farmers go out of business, which leads to structural unemployment.
• Investment in agriculture due to stable income of farmers.
• Positive externalities e.g., helps rural communities. A drop in price could cause a negative multiplier effect within rural areas.
• Prevent excess prices for consumers and help reduce food inflation.
• It helps to maintain food supplies and avoid shortages.
• Government making profit- If it buys during a glut and sells during a shortage, it can make a profit.
• Food security - fulfill the goal of providing food grains to every citizen.

Problems of buffer stocks

• Fiscal burden- Cost of buying excess supply could become quite high for the government and may require higher taxes.
• Environmental impacts-It could even encourage excess use of chemicals to maximise yields 
• High cost of maintenance - such as logistics, storage and administrative cost.
• Issues of leakages - it is sometimes diverted to black marketing, ghost beneficiaries.
• Some goods cannot be stored in buffer stocks, e.g., fresh milk, meat etc.
• Inefficient storage management - Warehouse are not technically updated, malpractices, corruption at field level.
• Trade distorting practices - many of the countries think that procurement and maintaining buffer stock would distort market.

Way forward

A 6 member committee formed i.e., Shanta Kumar committee for improving operational efficiency of FCI and maintaining storages.

• Adopting DBT - So that MSP and food subsidy amount can be directly transfers into the account of beneficiaries.
• Reduction in no of beneficiaries - under NFSA from 67-40%
• Private participation - to procure and store grains.
• Transfer of procurement - to the states which have higher capacity e.g. Maharashtra ,UP etc.
• Abolition of levy rice and allow mills to sell in market.
• Greater flexibility to FCI - for procuring and dealing with operational stocks.