Buffer Stock Agreement Meaning

On the other hand, the disadvantage of actions is that it can lead to the destruction of perishable goods. In theory, compensatory storage systems should be profitable, as they buy shares of the product when the price is low and sell them in the market when the price is high. However, in practice, they often do not work well. It is clear that perishable objects cannot be stored for long periods of time and can therefore be immediately excluded from compensating storage systems. The other problems are this: this proves to be an incentive for producers to produce more production and the excess success can be used by the public authorities as compensatory warehouses. Once the price is stabilized, it can encourage organizations that are in the market to increase the supply. Most compensating storage systems operate along the same rough lines: first, two prices are set, a floor and a ceiling (minimum and maximum price). If the price falls close to the base price (after the discovery of a new silver-rich vein, for example), the system operator (normally the government) begins to buy back the stock and make sure that the price does not fall again. If the price rises near the ceiling, the operator lowers the price by selling his stocks….

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