Food and economics update roundup

The price of rice fell once again this month – from KPW 6950 to 5600 in Pyongyang, KPW 7000 to 5700 in Sinuiju, KPW 6850 to 6300 in Hyesan. This drastic decline in prices mirrors what happened in January-February of this year when prices fell 16.4% in Pyongyang and then shot up 17.9% in the following month. Given no fundamental changes in North Korea’s agricultural policies and with the approach of the summer rain, we at DPRK Food Policy Blog do not believe that current price levels can be maintained.

As noted earlier, we still observe a relative stability of rice prices in Hyesan compared to those in Pyongyang and Sinuiju. The reason for this is still unclear, but we would like to forward the view that its physical and economic distance from Pyongyang must affect this in one way or another.

Meanwhile, clear efforts are being made by the North Korean state to increase agricultural yields. Yonhap reported that

According to the report by the Korea Rural Economic Institute (KREI), Pyongyang bought 29,791 tons of chemical fertilizers from its neighbor, up 3.6 fold from the 6,530 tons it imported for the same three month period in 2012… It said for March alone, the country brought in 28,725 tons of fertilizer.

KREI researchers forwarded two views on what this increase could mean. First, the early import of fertilizer from China shows commitment in increasing agricultural output; second, something could be wrong with North Korea’s own domestic fertilizer production.

North Korea is certainly importing more grain than they did last year as well,

The latest findings based on data provided by Korea International Trade Association, meanwhile, showed the North importing 54,178 tons of grain from China in the first quarter, an increase of 31.6 percent from the year before.

suggesting perhaps that the country is facing a significant shortage.

According to DailyNK, the high volume of fertilizer imports from China will continue as mineral exporters have been instructed by the state to import fertilizers. The cost of fertilizer stands at 12 Yuan for 50 kg before tariffs – given the country’s per annum need of 1.55 million tons and its production capacity of 450,000 tons, (using the most crude calculation) North Korean exporters will need to acquire 264 million yuans to fulfill its annual need if Pyongyang receives no external assistance, imports only from China, and wants to maintain an even balance of payments.

Interestingly, DailyNK source suggests that North Korea is placing greater emphasis on importing fertilizers over grains, perhaps supporting the speculation of KREI that the state is set on increasing domestic yields.

Meanwhile, trading between China and North Korea has run into rougher grounds as the Bank of China cut ties with “a key North Korean bank.” Although the bank was left unnamed by the NY Times, it is clear that it was a significant player in cross-border trade as the move by China was intended to express Beijing’s cooperation in the efforts of the international community.

This move by China comes at an awkward time.

If North Korea’s increased import of fertilizers indicates Pyongyang’s desire to increase domestic output, then it is also possible that the country is preparing to undertake agricultural reforms that were shelved last year. However, if the financing of the inputs needed to successfully implement the plans become more difficult, then this could further delay its start.

At the same time, in their succinct roundup of the analysis of the June 28 directive, Witness to Transformation highlights Randy Ireson’s 5 benchmarks for real change in North Korea:

  1. Eliminate the dual price structure altogether; doing away with artificially low prices may seem inhumane to the urban consumer, but the PDS doesn’t deliver anyway and higher prices in the short-run will lower them in the long-run through increased supply.
  2. Allow farmers and middlemen to trade in grains.
  3. Set production quotas at the work team or even sub-work team level; as noted, this provides the most high-powered incentives.
  4. Allow sub-work teams to make their own management decisions: crop choice, fuel, fertilizer, labor and so on.
  5. Allow sub-work teams to procure additional inputs on the market; higher incomes do not only feed back into consumption, but also to investment.

None of these are goals that are defined nor guaranteed under the June 28 policy – in fact, given the nature of the current Pyongyang-centered economy, none of these are remote possibilities.

This brings up the important question of whether a doomed reform policy should even be implemented before Kim Jong-un is able to bring Pyongyang-elites in line without having to engage in payoffs that are probably contributing to inflation and continued concentration of resources in the capital.

Perhaps a political solution is needed before an economic one.


About Yong Kwon

I develop trade advocacy strategies for a DC-based consulting firm. Studied economic history at the London School of Economics, and can be found on twitter at @ykwon88
This entry was posted in Rice and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s