The objective of this study is to estimate and analyze the likely substitution effects on various grains once the price of flour is readjusted to better conform to the prevailing market conditions of 1972.
This study first compares the prices of different grains in Korea before and after the readjustment of the price of flour in 1972, and then analyzes the patterns in grain price fluctuations as well as how consumers will substitute rice and barley for flour and how much of each type of staple grain they will substitute. After estimating the price of rice necessary to counterbalance the readjusted price of flour, this study also estimates the price of barley that will likely result in 1974, and finally estimates how the readjustment of the flour price and the increase in the price of fertilizers will increase barley output.
The assumptions made at the beginning of this study are as follows. The prices of rice and barley were set at KRW 12,000 and KRW 5,300, respectively. The price of flour is USD 221 at import, and therefore can be readjusted to KRW 2,761 per dae, or about 22 kilograms. With the grain prices readjusted thus, annual flour consumption would likely drop by 556,000 metric tons, while annual rice and barley consumption would likely increase by 277,000 metric tons and 187,000 metric tons, respectively. Moreover, Korea’s dependency on imported grains is likely to rise as the total consumption of staple grains would likely decrease by 92,000 metric tons. Given the dietary needs of Koreans, rice is the most often substituted grain, while the price of barley is relatively low. This pattern is expected to increase the demand for barley in the long run, especially for use as fodder and also as the base for the production of unrefined Korean rice/barley wine.
Based on this analysis, we can infer that the Korean government will have three policy options from which to choose: (1) importing 300,000 additional tons of rice (at a cost of USD 200 million); (2) maintaining the current price of flour and/or doubling the price of barley (incurring a further fiscal deficit of KRW 80 billion to KRW 100 billion); or (3) raising the price of rice by 40 percent (which is likely to pressure wholesale distributors to raise their prices by five percent and increase the production cost by 10 percent).
밀가루값 현실화에 따른 곡종간소비대체효과분석(Analysis of the substitution effects on grains in relation to readjustment of the flour price)
|Series Title; No||정책연구시리즈 / 74-1|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Industry and Technology < Agriculture|
|Holding||KDI; KDI School|