Optimal commodity price stabilization as a multi-period spatial equilibrium problem: A supernetwork approach with public buffer stocks

• We present a supernetwork model for agricultural commodity price stabilization.
• A nonlinear programming formulation models the spatial-equilibrium problem.
• The equilibrium problem is solved through the gradient projection method.
• Different policy alternatives including storage, lack thereof, and price bands are investigated.
• Storage mechanisms are found to be superior price stabilizing techniques.

This paper addresses the seasonal agricultural commodity price stabilization problem both with and without price bands using a spatial and temporal supernetwork framework. The problem is formulated as an extension of the classic spatial price equilibrium problem and solved with the gradient projection algorithm. Results from the model support the use of interseasonal storage mechanisms and confirm that the use of price bands is less effective as it lowers total society surplus while providing inaccurate signaling and therefore dampening market perceptions of product scarcity or excess. An illustrative numerical example provides a comparison between policy alternatives.