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Unit 1 MicroBuffer Stocks
Geoff Riley FRSAEton College and Tutor2u
Buffer Stocks – Do They Work?
Price volatility – can buffer stocks work?
Cocoa prices – vital for the economies of major producers & exporters
How might a buffer stock help to stabilise prices in the cocoa market?
Price of Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Protecting consumer
Protecting producer
Incentives!
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1Q1
Excess supply at this price
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
Demand with buffer stock purchases
Q1
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
Demand with purchases
Q1
Cost of buying up
stocks
The case for price stabilisation
Lower risk of food poverty & malnutrition – damaging to growth
and development
More stable incomes and profits for farmers – rural/urban econ balance
Helps promote macro stability e.g. Trade, Jobs, GDP, Living Standards
Buffer stock ought to be self-financing / profitable
Problems in using buffer stocks
Buffer stock may not be large enough to change world price
Frequent intervention price leads to rising surpluses
Costs of storage and falling quality of product
There might be better long run measures for farmers
Alternatives to buffer stocksInfrastructure Investment Diversification
Fair Trade Premiums Micro-Insurance for crops
Identifying alternatives is always a good way of evaluating in an AS micro paper
Sometimes the extract will hint at an alternative – use it (application), analyse it and possibly evaluate it
Buffer stock multiple choice question
Buffer stock multiple choice question
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