An advantage of a buffer stock scheme is that it can moderate large price fluctuations in a given commodity market, providing greater assurance of long-run supply at a cost at which production will remain profitable. In the case of a food stock like grain, buffer stocks can moderate price-gouging by oligopolists in case of a bad harvest. Ancient Egyptian state granaries as well as the Chinese imperial granaries, for example, would load up on grain when prices were low, and then sell into the market when grain was scarce to keep prices down. Food price stability led to greater political stability.
In a manufacturing industry characterized by increasing returns to scale, securing a stable supply of essential commodity inputs through a buffer stock scheme can give a firm a price advantage to achieve additional market share and potentially knock out competitive rivals when high commodity prices are negatively impacting them.
A potential downside to these market interventions is that they distort prices and thereby disrupt the essential price-signaling function of markets that tells producers what to produce and in what quantities. This can lead to the misallocation of capital and potentially drive producers to leave or enter a market based on the distorted price, reducing market efficiency.