Buffer stock

Mains Marks Booster     5th August 2023        
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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.
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