Buffer stock is designed to distribute food grains at a lower cost than market value, also known as issue cost, in areas of food insecurity and among the less fortunate segments of society. In times of frequent disaster, buffer stock is also helpful for providing food to people under adverse conditions.
A buffer stock is a structure or strategy that periodically buys and holds onto good harvest stocks to prevent costs from falling below a target reach (or value level) and distributes stocks during bad harvests to prevent costs from exceeding a target reach (or cost level). This eliminates the variance of a particular harvest in progress, with the intention that the costs may remain constant.
To prevent ranchers from suffering unduly from having to produce more, the government purchases the yields from them through MSP during times of surplus creation. Amid the shortage, the government gradually releases support stocks to protect consumers’ interests and enable them to meet their dietary needs at reasonable prices.
Basic Evaluation of Buffer Stocks in India
Unassuming obtainment: Because of the government’s growing responsibilities, FCI needs to buy a lot of grain from the market and has become a buyer when all other options have been exhausted. For instance, the government ended up purchasing more than 30% of the desirable excess wheat in 2016–17.
One Device Serves Numerous Goals: Conflicts arise when the same tool is used to achieve the dual objectives of providing ranchers with a profit and providing the acquired food grains to the underprivileged at heavily financed costs. This suggests that there is a significant discrepancy between the purchase price and the issue cost, which will increase the sponsorship expense.
Acquisition Prices have become Support Prices: Savings on procurement expenses for maintaining the support stock have essentially become expenses for purchasing whatever amount the rancher offers for sale. Ranchers therefore lose out when there is a shortage, and markets are unable to function optimally to restore the balance between supply and demand in the event of an overabundance. Additionally, the quantity purchased exceeds the FCI storage cap and causes unjustified damage to the grains that were obtained.
Increasing Expense of Operation: The two main categories of expenses under grain are appropriation costs (which are related to the distribution and allocation of grains to various states and UTs under various food-based government assistance programs) and obtaining costs, which include the combined cost of grain and acquisition odds and ends. FCI creates a cushion conveying costs—which include storage, stock maintenance, and other expenses—to maintain necessary stocks. This cost is referred to as the “yearly pace of cradle conveying cost.”
Accepted Nationalization of the Grain Market: Very little grain is available for the open market because the public authority has obtained more than 75% of the attractive excess. Much of the customer assistance provided by the endowment is eliminated as a result of the lower market supply, which creates a vertical tension on open market costs. Furthermore, state government obstacles and the Essential Wares Act and APMC Act hurt the price of Indian grain’s seriousness in the global market.
Why Buffer Stock is Created by the Government?
- Support stock is the government-obtained food grain stock that is acquired through the Food Corporation of India (FCI). and primarily wheat and rice are purchased.
- With this support stock, the government distributes food grains to more disadvantaged groups in society at a price below market value, also known as the issue cost.
- Cushion stocks are useful in combating the problem of food shortages during adverse weather patterns and disasters.
- The government announces the Minimum Support Price (MSP) before the commencement of the planting season to provide farmers with incentives to increase crop creation.
- When the FCI purchases food grains from farmers who have excess production, they do so at a pre-specified cost.
- The pre-reported value that is given to the farmers is referred to as the Minimum Support Price (MSP).
- The problems with food shortages that arise from frequent disasters like droughts, floods, earthquakes, and so on can be resolved with buffer stock.
- By offering food grains at a discount to market price, buffer stock helps the less fortunate segments of society meet their nutritional needs. We call this the Issue Price.
Buffer Stock Policy of India
In the Fourth Long-Term Plan (1969–1974), the concept was introduced, and FCI was required to maintain a support load of food grains for the Government of India to meet the monthly arrival of food grains for supply through the Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS) to meet crisis circumstances arising out of startling catastrophes like harvest disappointment, cataclysmic events, and so on. Additionally, market mediation was to be used to expand supply in the event of food grain shortage creation, so that the open market costs get directed.
The degree of stock in the focal pool that is sufficient to meet food grains’ functional needs, such as those for circulation under the Targeted Public Circulation System (TPDS), Other Welfare Schemes (OWS), and exigencies at any given time, is referred to as food grain loading standards. Buffer Norms and Strategic Reserves were the previous names for this concept. The PM-led Cabinet Committee on Economic Affairs (CCEA) sets the cushion standards every quarter, that is, on the first of April, July, October, and January of each fiscal year. January 2015 saw an update to the Cradle Standards.
A vital stock of 30 lakh lots of wheat and 20 lakh lots of rice is also maintained, despite the cradle standards. The name of this stock is Food Grain Stocking Norms. The Cabinet Advisory Group on Economic Affairs (CCEA) has supported the idea that, in the unlikely event that a load of food grains exceeds the updated support standard, the Department of Food and Public Distribution will offload excess stock in the homegrown market through an open deal or trade.
The 2015 reexamination of the food grain buffer standards in the focal pool took place. In an attempt to rein in cost fluctuations, the government decided in 2015 to create a cradle load of 1.5 lakh lots of heartbeats. For cradle stock, NAFED, SFAC, and FCI will obtain beats. Food supplies above the minimum necessary for subsistence are referred to as “Abundance Stock,” and the government may exchange them through commerce, open market agreements, or additional state allocations.
Conclusion
Governments created buffer stocks as essential tools to control food prices and guarantee that food is affordable for the most disadvantaged members of society. Despite being meant to reduce shortages, obstacles like exorbitant acquisition costs and market distortions still exist. To reduce economic imbalances and maximize buffer stock efficiency, effective management and regular reviews are crucial.