The concept of building essential commodities' buffer stock is a demand-driven policy aimed at countering price volatility and ensuring economic stability. This approach has emerged as an important recommendation by the economic restructuring committee of the interim government. Sources reveal that the Task Force on economy and development, formed by the government as part of wide-ranging reforms, has suggested bolstering reserves of essential goods like diesel, fertilisers, and edible oils. The goal is to mitigate unusual price hikes that contribute to inflation and destabilise market.
A buffer stock scheme, often implemented as intervention storage, is a price stabilisation mechanism in which surplus commodities are purchased and stored for future use during shortages. This approach applies to individual commodity markets or an entire economy. In essence, a buffer stock is a reserve supply of goods or commodities held by the government or a designated authority. Its primary objective is to stabilise prices and manage supply-demand fluctuations in the market, acting as a cushion against uncertainties. By regulating commodity quantities, buffer stocks help maintain stable prices, ensuring consistent availability of essential goods while mitigating adverse effects on consumers and producers alike.
Most buffer stock schemes operate on a straightforward principle: setting a floor price (minimum) and a ceiling price (maximum) for commodities. When prices drop close to the floor, the scheme operator-usually the government-buys up stock to prevent further decline. Conversely, when prices approach the ceiling, the operator sells from the stockpile to suppress further increases. During the interim periods, the commodities must be stored, preserved, or in extreme cases, destroyed to maintain market balance.
For instance, if a basket of commodities is stored, price stabilisation can extend to the overall price level, reducing inflationary pressures. Single-price buffer stock schemes, like the "ever-normal granary," operate by maintaining a fixed price. This term "ever-normal granary" introduced into American agropolitical discourse by Henry A. Wallace during the 1930s, refers to storing surplus during high-yield years for use during low-yield periods.
Buffer stock schemes contribute to economic stability by addressing market imbalances. Their primary action of price stabilisation often intertwines with broader objectives, such as promoting domestic industries. For example, setting a minimum price above the equilibrium point guarantees producers a baseline income, encouraging higher production levels. This surplus can then be stored as a buffer stock. Additionally, price stability attracts firms to enter the market, enhancing supply and competition.
The advantages of buffer stock schemes include food security and economic predictability. However, these benefits come with significant challenges. One notable downside is the risk of large stockpiles, which can result in wastage of commodities, especially those that are perishable. Moreover, operating these schemes is costly, requiring substantial infrastructure and investment. The costs include storage facilities, maintenance, and the financial resources to buy and sell commodities as needed. Another drawback, according to economists, is that these schemes can make domestic food more expensive for international buyers, potentially affecting export competitiveness.
In the context of Bangladesh, the implementation of buffer stock schemes could play a transformative role as a market intervention mechanism. Price volatility in essential commodities is a recurring issue, often causing distress to both consumers and producers. Items such as fertilizers, edible oils, onions, potatoes, and lentils are particularly vulnerable to price fluctuations. These fluctuations not only disrupt market stability but also significantly impact the livelihoods of farmers and the purchasing power of consumers.
However, implementing buffer stock schemes in Bangladesh presents unique challenges. Many essential commodities, such as onions, potatoes, and lentils are perishable and require advanced storage solutions to maintain quality over extended periods. Current storage infrastructure in Bangladesh is not equipped to handle the large-scale preservation of perishable goods, highlighting a critical area for development.
Given the economic restructuring committee's emphasis on buffer stock, a thorough evaluation of its feasibility is essential. Policymakers must assess the technical, logistical, and financial aspects of building and maintaining buffer stocks. These will involve following steps:
Storage Infrastructure: Adequate storage facilities, particularly cold storage for perishable items, are critical. Modernising existing storage infrastructure and incorporating advanced technologies can minimise spoilage and ensure long-term viability.
Financial Resources: Establishing and maintaining buffer stocks requires significant investment. The government must allocate sufficient funds and explore partnerships with private-sector stakeholders to share the financial burden.
Policy Framework: Clear guidelines on procurement, storage, and distribution must be established to ensure efficiency and transparency. Additionally, policies should address the potential impact on domestic and international markets.
Market Monitoring: A robust system for monitoring market trends and demand-supply dynamics is necessary to determine when to buy or release stock. This will help optimize the scheme's effectiveness and reduce wastage.
Stakeholder Collaboration: Effective coordination between government agencies, farmers, and private sector players is crucial. Farmers, in particular, should be incentivised to participate in buffer stock schemes through fair pricing and support mechanisms.
The idea of building buffer stocks represents a proactive approach to addressing price volatility and ensuring market stability. For Bangladesh, this policy could serve as a vital tool in mitigating the adverse effects of supply-demand imbalances, particularly in the context of essential goods. However, success of such a scheme hinges on addressing the aforementioned challenges.
© 2025 - All Rights with The Financial Express
