Posts Tagged ‘markets’

Famine, Amartya Sen, and the Markets of North Korea

Monday, May 20th, 2019

By Benjamin Katzeff Silberstein

The market factor in North Korea’s current food crisis* sometimes seems unclear. Some have talked about the market compensating for what the state doesn’t provide in the event of a food shortage. But the WFP’s methodology should cover for that. They don’t only calculate collective farms yields specifically, but arable land and production in general. Their estimates may (it’s not entirely clear) be based on data for total farmland available provided by the state, and there are some types of plots that wouldn’t be covered in that case. But WFP uses satellite imagery to verify official information on production figures (see p. 5 of their rapid food security assessment for North Korea).

We don’t know how big a proportion of the total amount of food produced in North Korea is sold on the markets, and how much is distributed through state and semi-state channels such as enterprises and factories, which are sometimes partially operated privately. In any case, when they measure total harvests, this likely, at the very least, includes most sources for the food that’s sold on markets. So a drop in total production still means lower market supply.

So why are markets still so important to understand food security, and why is it a problem that WFP cannot access them freely? Rest assured, this is not for a lack of trying. From pp. 6–8 (my emphasis added):

The assessment team also experienced challenges in accessing markets and acquiring market-related data. However, the team was not able to visit farmers’ markets during the field visit. While authorization was granted at national level to visit farmer’s markets, county authorities informed that they were not able to receive any foreign delegation on the day. Market visits are highly recommended to fill this information gap in future assessments. Finally, the team could only gather limited information on people’s incomes and expenditures during the household surveys.

Again, WFP’s conclusions are still highly relevant and meaningful. But as they themselves recognize, markets are crucial for understanding the microeconomic conditions on the ground in North Korea.

The most important reason, perhaps, is that distribution of food is just as important as food production for food security. As Amartya Sen has shown, food security is often more about who has an “entitlement” to food than about precisely how much food is around. This is where North Korea’s markets come in. Total production is an important metric to be sure, but to really understand how food is distributed, and who gets to eat, we have to also understand precisely how the markets work. We need to understand who uses them and how much they’re able to buy. Prices tell us something about overall supply (though as I have argued, probably not the full story).

Especially in a country like North Korea, where access to food and sustenance is a political matter, distribution (or entitlements) is more than total food production for food security. The markets are a crucial mechanism for distribution in North Korea. As long as WFP isn’t allowed to survey them, and to do more extensive household surveys freely in the country, we won’t truly know what food security looks like.

 

*We still don’t know that there is a crisis at hand, although the food situation appears very poor.

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North Korea and taxation: some possible causes

Friday, March 18th, 2016

By Benjamin Katzeff Silberstein

As this blog noted yesterday, South Korean daily Joongang Ilbo claims that the North Korean government may formally reintroduce a tax system before May this year, when a Worker’s Party convention will be held.

The goal, according to Joongang’s source, is primarily to formalize the private economy further. The latest UNSC sanctions are forcing the government to seek out more sources of revenue, and the growing private economy is seen as a resource that can still be tapped further.

Moreover, the source says, the state is planning to expand trading permits for private merchants, both on the formal markets and in private business in general. Under the new system, the state would essentially let merchants get access to land, water and electricity in exchange for a fee, much like in other countries where the state holds a monopoly on goods that often fall into the category of natural monopolies.

This is all interesting for several reasons. First, since the notion of North Korea as a tax free society might appear puzzling to some, it is worth taking a look at why the government decided to abolish taxes in the first place.

Ironically, had Joongang waited a few weeks before publishing the news, they would have hit the 42nd anniversary of the decision to make North Korea formally tax free. For it was on March 21st in 1974, at the Third Session of the Fifth Supreme People’s Assembly that Kim Il Sung officially announced that taxes were abolished. According to a KCNA-piece published in 2009, highlighting the occasion, the decision was taken as a step towards full socialism and framed in a historical context.

Taxation was a vestige of the past: the Japanese colonial power had instituted a “predatory” tax system that Kim Il-sung had vowed already in the 1930s that he would get rid of.  (The Choson Dynasty (1392-1910), too, of course, had a tax system that could at times well be called predatory, but the KCNA piece does not mention this).

The ideological rationale, of course, is that under socialism, you don’t need taxation because private property has been abolished. In North Korea, collectivization of agriculture, for example, occurred only gradually. According to KCNA, agricultural taxes-in-kind were fully abolished by 1966. Given recent policy changes where farmers supposedly now get to keep a more significant share of their production than before, one could argue that taxation has in effect already been brought back to agriculture, and that the tax-in-kind-rate is around 70 percent.

So why could the government want to bring back taxation? Aside from the reasons given by the Joongang article, one could speculate about a possible connection with the remarks cited by KCNA earlier this year about party officials “seeking privileges, misuse of authority, abuse of power and bureaucratism manifested in the party” (February 4th, 2016).

Corruption is often an integral part of everyday life for anyone involved in business in a country that lacks a functioning rule of law. Corruption is known to be strongly institutionalized in North Korea, and when news of discontent come out of North Korea, it often has to do with arbitrary rule changes and regulations regarding market trading and business. A formalized tax system doesn’t itself guarantee a transparent set of rules and regulations, or that these rules are followed. But it is an almost necessary prerequisite.

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The UNSC sanctions and the North Korean economy

Friday, March 11th, 2016

By Benjamin Katzeff Silberstein

In the past few days, Daily NK has carried a number of interesting reports on how the latest round of UNSC sanctions have impacted the domestic economy in North Korea. Below, I’ve gathered a compendium of sorts. I’ll continue updating it as more stories surface.

Only a short while after the sanctions were announced, trucks carrying mineral exports were blocked from entering China. Some businesspeople were apparently surprised at China’s relatively forceful implementation of the sanctions, given that little impact had been seen from past sanctions:

Chinese authorities began prohibiting mineral exports from North Korea on March 1st in a move not strictly related to the passing of UN Security Council Resolution 2270, which outlines sanctions against North Korea. North Korean authorities and foreign-earning currency enterprises tied to the military did not see this move coming and expressed embarrassment and shock.

In a telephone conversation with the Daily NK on March 4, a source from North Pyongan Province said, “Beginning on March 1, mineral exports such as coal and ore have not been allowed to pass through Chinese customs into China. Trucks loaded with mineral deposits have been idly waiting in front of Chinese customs near Dandong. The foreign trading companies are simply waiting for instructions from the higher authorities.”

Full story:
Trucks loaded with mineral exports blocked from entering China
Seol Song Ah
Daily NK
2016-03-07

A few days later, Daily NK reported that “panic” had begun to set in, not just among high-level businesspeople and traders involved in the mineral extraction industry, but also among market vendors who worry that they won’t be able to buy products for import from China:

“The news that the UN resolution containing sanctions against North Korea passed unanimously is spreading like wildfire through [domestic] cell phones. People in the North had little interest in sanctions in the past, but these days they are expressing concern that ‘this time things are going to be different,’” a source in South Pyongan Province reported to Daily NK on March 7.

A source in North Hamgyong Province corroborated this news, reporting the same developments on the ground in that region.

“Sinuiju is known as the gateway to China and the ultimate symbol of friendly relations between our two nations. That’s why news of its closure to mineral exports is causing dismay,” she explained, adding that a rumor has also taken off that international customs offices in other border towns such as North Hamgyong’s Rajin and Hoeryong will be shuttered.

Further anxiety is being stoked by the fact that trusted allies such as China and Russia are participating in the sanctions and the fact that residents are getting detailed information about the resolution’s specific clauses.

“People are further concerned because things have apparently changed significantly since China helped the country to overcome the difficulties during the ‘Arduous March,’ [famine] in the mid 1990s. People from all over the country are concerned that China might shut the border down totally. If that happens, it will become difficult for everyone to make a living,” the source indicated.

“Wholesalers and market vendors are feeling the most vulnerable to the UN sanctions. Their greatest fear is that they won’t be able to buy products. Merchants who have been selling Chinese products at cheap prices are expecting a cost increase and have momentarily discontinued sales.”

Full story:
Panic sets in as sanctions specifics circulate 
Daily NK
Choi Song Min
2016-03-08

Not just mineral exports to China have taken a hit. Food products specialties like hairy crab, frequently imported to cities like Yanji in China from North Korea’s northern fishing cities like Rajin, are now being sold at domestic markets instead:

“These days items that were previously hard to find because they were earmarked for export are suddenly emerging at the markets,” a source from North Hamgyong Province told Daily NK on Thursday. “The price haven’t gone down enough yet, so you don’t see too many people actually buying them. But you do see flocks of curious people coming out to the markets to see all the delicacies for sale.”

She added, “High-end marine goods like roe, sea urchin eggs, hairy crab, and jumbo shrimp and produce like pine nuts, bracken, and salted pine mushrooms were once considered to be strictly for export, but now they’re easy to find. The number of such products, referred to as ‘sent back goods,’ at Sunam Market and other markets around Chongjin is growing by the day.”

Additional sources in both North and South Hwanghae Provinces reported the same developments in those regions.

Despite the sanctions that have already kicked in, products from China are still flowing into North Korea. however, the goods sold in bulk to China–minerals like coal, marine products, etc.– have nowhere to go and are therefore making their way back into the country.

Full story:
Would-be food exports to China popping up in jangmadang
Choi Song Min
Daily NK
2016-03-11

Politically, too, the topic of sanctions has become highly sensitive. According to reports by Daily NK, surveillance authorities have increased their focus on certain groups that they deem as more likely than others to speak out about the added pressures from the sanctions:

The boost in surveillance is interpreted as a move by the regime to nip in the bud any rumblings of political unrest engendered by members of society more likely to speak out about the pressure squeezing North Korea. Those tracing the lines of the circumstances leading to this pressure, namely a volley of sanctions lobbed at North Korea by the international community in response to its nuclear test and rocket launch, are a threat to the regime’s authoritarian grip over the population.

A source with the Ministry of People’s Security [MPS, or North Korea’s equivalent of a police force] informed Daily NK on March 8 that internal orders came down at the beginning of March for the MPS to survey and track the recent movements of those anyone ascribed to the “wavering” cohort. Two separate sources in the same province verified this information, but Daily NK has not yet confirmed if the same orders are in effect in other provinces.

Full story:
MPS steps up surveillance to suppress potential ‘pot stirrers’
Kang Mi Jin
Daily NK
2016-03-11

(UPDATE 2016-02-18): a couple of days ago, Daily NK published another piece on this topic. They note that market prices have remained relatively stable, and that many people don’t seem to treat this sanctions round as anything out of the ordinary:

Market prices in North Korea have remained relatively stable despite stronger sanctions enforced by the international community, including China, as well as greater limitations on market operationsdue to nationwide preparation for Pyongyang’s May Party Congress.

Multiple Daily NK sources within the country have confirmed that rice prices in Pyongyang, South Pyongan Province’s Sinuiju, and Ryanggang Province’s Hyesan are trading at 5,100 KPW, 5,150 KPW, and 5,080 KPW per kilogram, respectively, similar to levels before sanctions were stepped up (5,100 KPW, 5,100 KPW, 5,260 KPW).

This is also the case on the foreign exchange front, with 1 USD trading for 8,150 KPW in Pyongyang, 8,200 KPW in Sinuiju, and 8,170 KPW in Hyesan, showing some signs of strengthening for the local currency from pre-sanction rates (Pyongyang 8,200 KPW, Sinuiju·Hyesan 8,290 KPW).

“There had been concern we would see fewer goods in the market because of UN sanctions, but in reality, there hasn’t been much difference,” a source from North Pyongan Province told Daily NK in a telephone conversation on Sunday. “The state is placing restrictions on opening hours for the market for the ‘70-day battle’ (mobilization for the Party Congress), but the markets have remained lively, and there’s not much change in terms of market prices.”

Further confirming trends previously reported by Daily NK last week, an additional source in North Hamgyong Province reported yesterday that some people had stocked up food worried about sanctions from the UN, but that this hasn’t led to a violent gyration in prices. “Actually, in some regions, we’re seeing prices of certain products drop,” he noted.

This price stability seen in the marketplace, in spite of the sanctions having kicked in earlier this month, can be attributed to the fact that most products are still trading as they would have save one of the North’s main export items: minerals.

The simple reality that people have experienced similar times before is also at play. “In the past, people who had stockpiled food during other sanctions discovered that after the political climate evened out a bit they were unable to get their money’s worth for everything they bought. This is why we’re seeing less of it,” a source from Ryanggang Province explained. “Initially there was a little bit of noise, but in general people are remaining calm.”

Full article:
Market prices so far showing resilience against sanctions
Daily NK
Kang Mi Jin
2016-03-14

Also, Marcus Noland recently launched a “Black Market Contest” at the Witness to Transformation blog, letting readers bet on what will happen with the unofficial exchange rate as a result of the sanctions:

The exchange rate issue has re-emerged with the imposition of sanctions. My colleague Steph Haggard leans toward the view that the imposition of a broader set of sanctions, particularly with respect to mining, together with enhanced Chinese enforcement will generate a balance of payments cum financial crisis with uncertain implications for political stability. I am more skeptical of both the additional coverage and the likely Chinese rigor in enforcement.

But this is an empirical issue. If the sanctions bite, then one would expect to see their effects manifested in the black market rate on the won. So we decided to offer up this conundrum to the wisdom of the crowd, or at least of our readership, in this Witness to Transformation Black Market Contest. Yes, you can ply your wits against North Korean loan sharks and black market traders. Or maybe the North Korean monetary authorities. Here’s how it works.

Steph thinks that within two months, evidence of the impact of sanctions should begin to emerge. So the object of the contest is to guess the black market won-dollar rate two months hence. Since the sanctions resolution passed 2 March, we will use the first DailyNK average rate applying to the post-2 May period as the reference. So you have the next month to analyze trade data, contact spies in Dandong, or call in favors in Switzerland to inform your estimate. Whoever guesses closest to the May black market rate wins. In the event of a tie, whoever submitted their entry first wins.

Please list your estimate in the comments section below. The entry period closes 15 April.

Full article:
Witness to Transformation Black Market Contest
Witness to Transformation blog
Marcus Noland
2016-03-16

(UPDATE 2016-05-02): DailyNK continues to cover domestic prices in the context of the sanctions. In late April, vegetable prices rose, but rice prices remain notably stabile:

Despite these high prices, movements on the rice and foreign currency front have remained relatively stable, leading people to believe the spike in vegetables will be short lived.

“Vegetables are not export items and therefore their prices are determined by domestic supply and demand,” the Pyongyang-based source noted. “However strong the sanctions may be, rice prices have nonetheless remained the same and, under these conditions, not many will choose to eat expensive cabbages over rice,” the source added, suggesting that prices are likely to return to normal as the markets readjust for supply and demand.

Full article here:
Vegetable prices spikes, rice remains stabile 
Daily NK
Kang Mi Jin
2016-04-28

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How the North Korean media describes a market

Tuesday, August 25th, 2015

By Benjamin Katzeff Silberstein

A recent brief from IFES (08-07-2015) details how an article in the North Korean newspaper Tongil Ilbo describes sales at Kwangbok market in Pyongyang (emphasis added):

According to the Tongil Ilbo, there are now a number of local products sold at Pyongyang’s Kwangbok Area Supermarket, which was built in October 1991. “By achieving the informatization and computerization of all business activities, from warehousing to the sale of goods, the Kwangbok Area Supermarket guarantees accuracy and speed in its service. It is a commercial service center managed to guarantee the maximum convenience of its customers,” North Korea’s independent newspaper reported on July 11, 2015.

It explained that the Kwangbok Area Supermarket, which has a total floor area of 12,700 m2, sells household products, electronics, general textile products, and grocery products such as confectioneries on every floor. In addition, each North Korean brand is sold in the relevant department, including brands such as ‘Ryongmasan,’ ‘Kuryonggang,’ ‘Kumkop,’ ‘Hwawon,’ ‘Mirae,’ ‘Songchon,’ and ‘Bommaji.’

Located on the first floor, the grocery department displays local products produced by factories like the Pyongyang Flour Processing Factory, the Kumsong Food Factory, and the Kumkop General Foodstuff Factory for Sportspersons. “People like to purchase locally-produced products […] In the future public service networks like the Kwangbok Area Supermarket will emerge in other places as well,” the newspaper reported.

Kim Song Won, manager of the Kwangbok Area Supermarket, commented, “With the unprecedented growth of the country’s self-sustaining economic foundation, there is greater demand among the people for variety and quality in their products […] Accordingly, we are bringing in many domestic products and are working to provide services so that customers can purchase products that they like.”

Several things in this report are interesting to note. For example, while I am not sure that the market-oriented language is itself anything new in North Korean media lingo, the emphasis is striking. It is consumer preference that matters. Variety is considered important, not just the quality of the products. Again, Kim Il-sung too I believe talked about the importance of quality, but here it’s a matter of producing what people like, rather than what they need.

Read the full text:

IFES Kyungnam

Surge in Local Product Sales at Kwangbok Area Supermarket

08-07-2015

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