Government buffer stocks can reduce prices during shortages

Priyanka Saurabh *

Open market sales of wheat and gram have helped curb rising inflation in cereals and pulses. It is prudent to extend buffer stocks to other staple food items amid rising climate-driven supply shocks and price volatility. Buffer stocks should be expanded to include oilseeds, vegetables, and even milk powder in addition to rice, wheat, and select pulses to mitigate price rises.

It is advocated to increase procurement during surplus years to build adequate buffer stocks for future market stabilization. Buffer stocking can reduce price volatility influenced by climate change-induced agricultural uncertainties, benefiting both consumers and producers.

Buffer stocks are reserves of essential commodities that are maintained to manage fluctuations in supply and demand. Introduced during the Fourth Five-Year Plan (1969-74) in India, they ensure food security, economic stability and price control.

For example, buffer stocks of rice and wheat maintained by the Food Corporation of India ensure the continued availability of these key commodities during adverse conditions, thereby supporting food security and price stability.

Buffer stocking can be a means of preventing excessive volatility in food prices, similar to the RBI’s foreign exchange reserves against the currency market. An increase in climate-driven price volatility – which ultimately helps neither consumers nor producers – only strengthens the case for a food buffer policy.

Buffer stocks are released during periods of shortage to boost supply and stabilize prices, thereby ensuring availability. For example: During the onion price surge in 2019, the Indian government released buffer stocks to boost supply, control prices, and curb inflation, to ensure that onions remained affordable.

Maintaining buffer stocks allows the government to prevent a steep rise in prices during supply shortages, thereby balancing market demand. For example: In 2020, the government released pulses from buffer stocks to stabilize prices, ensuring that pulses remained available and affordable despite a decrease in production.

Buffer stocks help smooth out extreme price fluctuations by regulating the supply and demand dynamics in the market. Buffer stocks reduce inflation by increasing supply to the market during shortages, thereby preventing excessive price increases. For example: The release of wheat and rice stocks in 2021 helped control rising food inflation in India, ensuring that staple cereals remained affordable for consumers.

Buffer stocks assist farmers by ensuring stable markets, preventing price falls due to excess supply, and providing price stability. For example: The government purchased excess milk and converted it into skimmed milk powder (SMP) to stabilize milk prices for farmers, preventing financial losses due to excess supply.

Buffer stocks ensure continued access to essential food items, thereby promoting national food security and stability. For example, during the pandemic, essential commodities were distributed to ensure the availability of food for the poor, preventing hunger and ensuring food security.

Buffer stocks cushion economic shocks by stabilizing prices and maintaining market equilibrium, thereby contributing to economic stability. For example: the release of buffer stocks during the 2018 drought in Maharashtra helped stabilize prices and support economic stability, preventing an economic crisis in the region.

Buffer stocks mitigate the impact on food availability due to climate-induced supply shocks, thereby increasing climate resilience. By procuring excess produce during surplus years, buffer stocks provide farmers with a stable market and fair prices, thereby contributing to rural economic stability.

Buffer stocks ensure the smooth functioning of welfare schemes, which are critical for economic stability by supporting vulnerable populations and maintaining social stability. For example: The Pradhan Mantri Garib Kalyan Anna Yojana (PMGKY) relied on buffer stocks to distribute food to the poor during the COVID-19 pandemic, thereby ensuring economic and social stability by preventing hunger and deprivation.

As India faces increasing volatility and economic challenges due to climate change, government-controlled buffer stocks will play a critical role in stabilizing prices and supporting economic stability.

By ensuring consistent supply, reducing inflation, and supporting welfare schemes, these buffer stocks will enhance food security and economic resilience, and promote sustainable growth and a stable economic environment in the future.

There is a need to diversify buffer stocks beyond traditional commodities such as rice and wheat to include a wider range of essential commodities such as oilseeds, vegetables, and milk powder. This expansion will help better manage price increases and supply shocks across various sectors.