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DONG Yong-Sueng

Rice Prices Shed Light on Economic Reform

DONG Yong-Sueng

May 23, 2007

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Free markets can now be found practically anywhere in North Korea, including Pyongyang itself. These markets are moving beyond satisfying demand for previously unavailable foreign goods and encroaching on state outlets. At the same time, they are providing a bigger window to how the North's fragile economy is operating at an official and unofficial level.

In the northwest border city of Sinuiji, a transportation terminus on the Yalu River, a cornucopia of goods are brought across a bridge connected to China and are scooped up by North Korean merchants operating as quasi-collectives. The goods are then transported from Sinuiji, a designated special economic zone, to local markets across the country. Prices, of course, are naturally shaped by transactions between wholesalers, retailers and consumers.

This spring the price of rice, North Korea's most important food item, has moved in a surprising direction. Normally, at this time of year, rice prices increase due to real or anticipated shortages before the next harvest. In recent years, the increase has been as much as 10-20 percent. But in April, rice prices dropped.

The catalyst was impending shipments of rice from South Korea following the February six-party agreement on dismantling Pyongyang's nuclear program. Rice sellers must have concluded that it would be undesirable to hold rice because North Korean authorities would likely limit rice on the free markets after receiving 40,000 tons of rice from the South. Rice is the most sought after commodity at free markets and is perhaps the most sensitive item in a national food supply that is never far from severe shortages, if not famine. With the greater supply and potential threat to their distribution channels, the enterprising rice traders apparently decided to compromise their profitability to avoid the risk of being stuck with excess inventory.

The developments in the rice market suggest a handful of important changes in the North Korean economy, which is reluctantly being opened to cope with the nation's internal deficiencies and external isolation.

First, the free-market rice trade system is has become more sophisticated and intelligent about market forces. Second, the distinction between the black market and the official economy may now be blurring. Before, there was virtually no intersection between official and unofficial economies. Now, they may be increasingly complementary, with the official state distribution system indirectly linked to the free market. Finally, this connection between the official and unofficial economies may not be accompanied by corruption as in the past, but may simply be taken for granted.

Although the free markets have taken on a greater presence, it is probably too soon to say their role will expand even more. Surely, the general public increasingly accepts markets as necessary for their survival. Still, there is the risk of authorities of squeezing the unofficial supply chain by tightening border inspections, banning the direct use of foreign currencies and taking other preemptive steps.

Recently, Pak Pong-ju, former premier of North Korea, and someone thought to be an economic reformer, was dismissed without explanation. He may have been a casualty of an ongoing high-level debate in Pyongyang over market economy liberation and the state's traditional centrally planned economy.

Some analysts believe North Korean leader Kim Jong-il wants to emulate neighboring China in opening up a backward economy. If so, the potential for the market economy to eventually overtake the state economy would likely have profound effects on Pyongyang's external diplomatic and well as economic relations.

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