In North Korea, markets grew independently in the lee of the collapse of the Public Distribution System in the mid 90s, finally acquiring post-facto legitimacy via the July 1st Economic Management Improvement Measure of 2002. Without a scrap of state help, rice from Haeju found its way to Chongjin, where the finest squid caught in the East Sea was bought and taken to consumers in Pyongyang.
The system is in place. However, it is state meddling and connected supply shortages that limit growth and cause inflationary spirals.
Except for certain foodstuffs, most of the products on sale in these markets come in from China. Therefore, domestic production is only a minor, albeit important, variable; Chinese Yuan exchange rates and foreign trade volumes are the basic determinants of price. As a bona fide capitalist system, it is the activities of the authorities, industry (enterprises, cooperative farms and wholesalers) and consumers (the main agents of economic activity) who largely decide market prices.
In North Korea, corn and rice are the basic indicators used to determine inflation. In the ideal world rice would be the main staple food, as it is in the South; therefore, this is held up as the price standard. When rice prices rise, this leads to rising living costs overall, influencing the price of agricultural, fisheries and industrial products.
Rice also acts as a substitute unit of value. Values are often calculated based on the value of rice at the time. This is not only true in terms of market transactions; it is also employed when calculating monthly rent, and when using private lodgings as guesthouses. Indeed, people sometimes simply pay their dues in rice.
▲ Cause of Inflation: North Korean Authorities
The most extreme rice price shock was felt at the time of the currency redenomination in November 2009, when prices doubled in a matter of days. Even last year when the authorities announced the June 28th Policy, the price of rice in markets rose immediately by 50%. This proves beyond doubt that the North Korean authorities are the biggest source of price instability. In essence, rice sellers worried about supply shocks caused by policy decisions withdraw supplies from the market, and prices rise.
Unsurprisingly given recent history, frequent market controls and policy failures incite anxiety in economic actors at the grassroots level. Economic measures lead to skyrocketing inflation. Music to the ears of the neoliberal school, in North Korea it truly is the state meddling that upsets the economic applecart.
▲ Rice Farmers and Wholesalers Decide Supply Volumes
The main suppliers of rice to North Korean markets are foreign currency-earning enterprises importing cheaply produced rice from China, food smugglers, wholesalers who buy rice from domestic cooperative farms and sell it in the markets, and individual farmers who bring rice to market. These suppliers closely observe overall rice supply and demand trends, review state policy and day-to-day exchange rates, and then decide the supply volume that best serves their core interests (namely, making a profit).
When the authorities bring their heavy hand to bear on this state of affairs, however, foreign currency-earning organs reduce imports from China, and lower volumes enter markets. For example, if the authorities make a brief return to state distribution (which occurs for political purposes from time to time) or traders anticipate a glut (such as when aid flows seem likely to resume), rice suppliers flood the market to grab a profit, and prices rapidly decline. In the second half of last month, prices in Pyongyang and Shinuiji fell back substantially, by as much as 2,000 won.
One group of people with a big influence on nationwide rice supplies (and prices) are the wholesalers known as “runners” who travel the country buying rice from domestic farmers and foreign currency-earning organs to supply to markets. They know far more about the nationwide situation than anyone else, and it is through their dissemination of market data that farm managers and enterprise cadres learn how to act.
A source from the northerly border city of Hyesan told Daily NK on the 5th, “North Korean farms do not receive any of the operational support from the authorities that they need, so they keep a portion of their rice yield each year. In February, when preparations for the year’s farming begin, farms sell their rice stocks to runners, and with that money they purchase fuel and plastic film.”
The source added, “Because the farms are planning to sell their rice, they want to know not only the local market situation but also that of markets in other regions. Mind you, foreign currency-earning enterprises also import bulk rice and sell it to runners, so they are no less interested in rice price trends.”
