ADVANTAGES:
When supply increases due to a
 reduce large commodity price
increases and decreases to
help stabilise producer
incomes
 Greater certainty in the
market, leading to more
investment
 Ensure provision of
commodities for consumers
especially in years of poor
harvest
DISADVANTAGES:
 Consecutive good
harvests will put
financial pressure on
the government as they
have to keep
purchasing additional
stocks therefore is very
expensive especially if
the initial setting of the
minimum and
maximum price range is
too high - asymmetric
information between
producers and the
government agency
Scheme by the government It involves the government setting a
that reduces price fluctuations minimum and maximum price which
good harvest, prices may be in
(increases and decreases) and ensures that the price remains within this
danger of falling too low and so
stabilises the price of goods band despite sudden changes in factors
the government or agency buys
which stabilises producer that affect supply and demand.
up the excess supply of the
incomes.
good, adding to its stockpile.
When supply decreases due to
a poor harvest, prices may be in
danger of rising too high so the
Buffer Stock
government or agency sells
from its stockpile to prevent
this from happening.
Schemes
DISADVANTAGES:
 Long-run trend of increased productivity in the agricultural sector
creates a continuous pressure on the government agency to purchase
additional stocks.
 Significant costs associated with the storage and security of stockpiles
that may run out of room.
 Stocks may be perishable over a long period time and if destroyed
money is lost.
 Consecutive poor harvests lead to the government running out of
stocks to release to the market.