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Buffer stock scheme

What is it?

Buffer stock schemes seek to stabilize the market price of agricultural
products by buying up supplies of the product when harvests are
plentiful and selling stocks of the product onto the market when
supplies are low.

Notice that the price elasticity of supply…

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Helps farmers to maintain high prices
Can secure future supply.
Farming has positive externalities it helps to sustain rural communities
Stable prices prevent excess prices for consumers ­ helping consumer welfare

High administrative cost
Opportunity cost
The target price is often set too high due to political pressures…

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