North Korean Economy Watch

The Daily NK reports food prices are falling in North Korea on news that international aid is due to arrive—proving that although the politics might not make much sense, the economic actors are rational: 

The price of rice in Pyongyang ha[d] risen to 3,000 won per 1kg, but since late May, the high-quality polished rice has been around 2,500 won, the medium quality rice around 2,400 won and unpolished brown rice around 2,300 won. Wild rice imported from Northeast Asia has been around 2,300 won. [Which was the price in April].

The price of corn is still around 1,500 won. Rice is not lacking in the jangmadang [markets], but corn has been. The reason for that is that last year, there was a rumor that planting soy and making tofu is lucrative, so everyone planted soy instead of corn.”

UPDATE: The article does not suggest that the food situation is getting better.  People are also economizing their consumption which mutes demand to some degree (eating two meals a day for instance). 

Read this very interesting article here:
Doing Business Is a Battle
Daily NK 
Jung Kwon Ho
6/18/2008

Good Friends reports (via Yonhap) that China recently increased its yearly grain export quota to North Korea from 50,000 to 150,000 tons to help ease the DPRK’s food shortage.  China initially restricted food exports because of its rising domestic food prices.

North Korea’s corn imports from China rose 1,523 percent to 27,600 tons in February this year alone from the same period last year, according to statistics released recently by the Chinese authorities.

Read the full story here:
China softens food export ban to help alleviate N.K. food shortage: aid group
Yonhap
6/9/2008

Institute for Far Eastern Studies (IFES)
5/6/2008

Even North Korea’s North and South Hwanghae Provinces, an area known as the DPRK’s ‘Ricebowl’, now appears to be suffering severe rice shortages, with prices at the end of last month hitting 4,000~4,500 DPRK Won per kg, more than three times the cost of a kilogram of rice last February, according to a June 5 report by Good Friends, a human rights group focusing its efforts on North Korea.

According to Good Friends’ latest newsletter, prices across South Hwanghae Province all rose to 4,500 DPRK Won on May 30, and at the same time, prices in South Hwanghae rose to over 4,000 DPRK Won per kg. In Sariwon, North Hwanghae Province, rice was 1,350 DPRK Won/kg in February, rose to 1,700 DPRK Won/kg in March, climbed again to 2,200 DPRK Won/kg in April, then shot up to 2,500 DPRK Won/kg on the 10 th of last month, 3,500 DPRK Won on the 25 th, and 4,200 DPRK Won on the 30 th. As the average monthly wage of a North Korean laborer is thought to be around 3,000 DPRK Won, rice selling at 4,000 DPRK Won/kg is well out of reach.

Corn prices in the Sariwon region at the end of last month was 1,950 DPRK Won/kg, 270 percent higher than the 720 Won prices seen in February, and the newsletter reported that prices throughout North and South Hwanghae Province were generally 1,950-2000 DPRK Won/kg. In particular, the newsletter stressed that at one military base in the Hwanghae area, rations have run so short that officers with children under the age of 12 will be ordered to send their families to their parents’ or in-law’s house until rations are reissued in November.

The newsletter drives the point home by pointing out, “These officers that send their families will take their meals on base…this is the first time since the ‘arduous march’ that there has been an order to send families [away] because of this kind of ration shortage.”

From The Economist:

Originally designed to promote business-to-business contacts, the trade fair, along with a companion event in the autumn, has become one of the few opportunities for North Koreans—or, more accurately, a few thousand residents of the capital—to buy, or gawk at, foreign merchandise. More than 100 Chinese companies, together with some from Taiwan, Indonesia, Britain and North Korea itself, offered up everything from T-shirts to heavy machinery. Cutting-edge technology it wasn’t. Duvets, refrigerators, flat-screen televisions, DVD players, cooking pots and cosmetics were the most popular items. More than 15 units of one of the show’s most expensive items, a $1,200 refrigerator from Haier, a Chinese company, were snapped up. Counterfeit iPods were also popular, even if downloading is illegal.

In pursuit of the country’s goal of becoming a net exporter, around 40 local enterprises also displayed their wares, including medicines, oil paintings, machinery, spectacles and a polarised-light device that the makers claimed could cure any disease. But it was the imports that galvanised people’s inner shopper. A billboard at the entrance trumpeted the slogan “Building an Independent National Economy” and included numerous photographs of Kim Jong Il and his father inspecting farms and factories, a reminder to visitors of the all-embracing love and compassion of the Kim family. As the shopfest ended, however, some North Koreans refused to leave, demanding that the event’s organiser allow them to continue their buying spree. The dear leader’s love apparently wasn’t enough.

For a different perspective, read this post by Dr. Petrov.

Read the article here:
North Korea’s new rich
How the other 0.0000001% live
The Economist
5/29/2008

As with the famine that struck the DPRK in the 1990’s, known as the “Arduous March,” the North Korean government is again blaming the weather for the food shortage. 

From Reuters:

North Korea’s farm sector will take a hit due to cold weather and low precipitation this planting season, its official media said on Wednesday, after experts had warned the destitute state could be heading toward famine.

“The current spring weather has a bad effect on agriculture in the Democratic People’s Republic of Korea (North Korea),” its official KCNA news agency reported.

“The abnormal weather has seriously affected the growth of maize crops on a vast acreage of fields, cultivation of rice-seedlings and the striking of roots of rice-seedlings in the west coastal areas, the granary,” KCNA reported. 

From the Associated Press (via the IHT):

North Korea’s average high temperature in May has been about 3 degrees Celsius (5.4 degrees Fahrenheit) lower than in previous years, with temperatures in northern parts of the nation dipping below the freezing point, the official Korean Central News Agency said.

It is true that the weather is a factor, but these effects can be mitigated by better policy solutions.  Cracking down on local markets and chasing after entrepreneurs certainly does not help either.

According to Glyn Ford, member of the European Parliament:

[T]he Vice-Chair of the State Planning Comission said when I met him, “Agricultural reforms proved better than fertilizer at raising productivity.”

Read the full articles here:
Food-short N.Korea says farms hit by bad weather
Reuters
5/28/2008

North Korea says cold weather seriously affecting farming
Associated Press (via Herald Tribune)
5/28/2008

With the likelihood that food is coming into short supply in North Korea, the authorities and individuals alike have implemented strategies to minimize the adverse effects.

I am keeping a running list of official and civil responses here as they appear in the media.

1. The DPRK supposedly ended rations for mid-level cadres (party and state employees), though food can still be purchased in markets. Unless the government is hoarding its grain supplies, this probably has the effect of improving food distribution (transferring food stocks outside Pyongyang), though not to the satisfaction of those who were used to receiving it for “free.”

2. The DPRK asked China for food aid. (Requested 150,000: tons of corn. Received: 50,000 tons on their first ask)

3. Propaganda extolling people not to waste food has been distributed to workers.

4. The DPRK has started cracking down on liquor production/sale.

5. Lets grow potatoes!

6. Distributing food stocks to military families from military warehouses.  This will hopefully take some of the pressure off the price of grains in the markets.

7. Solicit food aid from the US.

8. Officials begin to demand more bribes!

9.  The KPA halts military exercises to assist in farming.

10.  Propaganda campaign to educate the population about alternative foods (Good Friends via OneFreeKorea)

11. China increases food export quota

Peterson Institute for International Economics Working Paper
May 2008
Stephan Haggard, University of California, San Diego
Marcus Noland, Peterson Institute for International Economics
Erik Weeks, Peterson Institute for International Economics

Download the paper here: haggard_noland_weeks_pb.pdf

Abstract:

North Korea is on the brink of famine. As detailed [in this policy brief], the margin of error between required grain and available supply has virtually disappeared. Local food prices are skyrocketing even faster than world prices. Aid relationships have been soured and the regime’s control-oriented policy responses are exacerbating distress.  Hunger-related deaths are nearly inevitable and a dynamic is being put in place that will carry the crisis into 2009, even if as expected, the US announces that it is sending 500,000MT in return for a signed nuclear declaration.
 
The US can provide aid in ways that maximize its humanitarian impact while limiting the degree to which aid simply serves to bolster the regime.  We know that aid is diverted.  Yet given the fragmented nature of markets in North Korea, diverted aid often finds its way into markets in the catchment area where it is delivered.  Geographically targeting aid to the most adversely affected regions and providing it in forms such as barley and millet that are not preferred by the elite can increase the ameliorative impact of assistance.  The Bush Administration has taken up the first part of this equation–requiring that most of its contribution to the World Food Program be targeted at the worst affected regions–but it could do more on the second part: providing aid in forms less preferred for elite consumption. It can also encourage others such as South Korea to follow suit.
 
The US should also exercise quiet leadership with respect to the refugee question as well. The Chinese government’s practice of returning North Korean refugees may reflect a natural self-protective response against the threat of a flood of migrants and even the breakdown of the North Korean regime; it was, after all, the notorious “hole in the fence” that helped precipitate the collapse of the Eastern European regimes. But the policy of returning refugees does not conform with China’s obligations under the refugee treaty and does not in the end serve the country’s underlying political objectives either; it simply serves to cutoff another escape valve, however small, that has contributed to taking pressure off of a rapidly deteriorating situation.

Andrei Lankov is the first in the media to construct a narrative which details the series of decisions that have led to North Korea’s current food crunch.

From his article:

Merely a year ago, North Korean leaders were optimistic. The good harvest of 2005 persuaded them that food shortages were behind them, and that North Korean agriculture had begun to recover. The 2005 harvest was merely 4.6 million tons, well below the 5.2 million tons which are necessary to keep the entire population alive. Still, it was clearly an improvement.

Lankov’s assertion that 5.2 million tons of grain are needed to sustain the DPRK population comes from the UN.  Recent work by Marcus Noland estimates that this number is closer to 4.6, although exact figuress are not possible because the actual size of the DPRK population is unknown.

In addition, for a decade South Korean administrations have maintained their Sunshine policy of unilateral concessions and unconditional food aid. Since 2000, about 450,000 tonnes of food have bee delivered to North Korean granaries from the South every year, free of charge. Its distribution was almost unmonitored. Pyongyang leaders came to believe that such aid would continue for the foreseeable future. Additionally, increasing Chinese involvement with North Korea, while not necessarily welcomed by Pyongyang, was seen as a sign that additional food would be coming – and Chinese shipments were roughly equal to those of South Korea. Finally, the basic agreement with the US on the nuclear issue was perceived in Pyongyang as a sign of Washington’s willingness to pay generously for rather minor concessions.

As noted by many besides Lankov (here), this good fortune prompted the DPRK government to reimpose elements of the planned economy which failed long ago: 

In 2005, authorities claimed that the public distribution system would be completely revived, and banned private trade in grain. This ban was generally ignored and eventually failed, but subsequent moves were more successful. In late 2006, authorities banned male vendors from the country’s marketplaces. In 2007, women under 50 years old were also prohibited from engaging in business in markets. The assumption is that every able-bodied North Korean should go where he or she belongs, specifically to the state-run factories of the Stalinist economy.

The government also staged some campaigns against semi-legal private businesses that had been tacitly tolerated since the late 1990s. After 2005, authorities successfully cracked down on the trafficking, smuggling and illegal labor migration occurring on the border with China. There was also a remarkable increase in the volume of anti-market rhetoric in the official Pyongyang propaganda.

The economic problems they were attempting to achieve at home through these policies, however, were only the first of several shocks to hit the DPRK economy in the last year: 

1. Low harvest numbers

First of all, the 2007 harvest was a failure. It was estimated at only 3.8 million tons, well short of the critical 5.2 million ton benchmark [and Noland’s 4.6 benchmark]. As usual, floods were officially blamed (as if the impoverished North does not share the same small peninsula with the prosperous South, where no signs of food shortage have been seen in decades).

2. Drop in aid from South Korea

The presidential elections of December 2007 led to a change of leadership in Seoul. The new government, led by right-of-the-center pragmatist Lee Myong-bak, said that the era of unconditional concessions to the North was over.

3. International food prices rising

The situation was aggravated by the explosive rise of international food prices. The North Korean press has reported the trend widely obviously in an attempt to,place the blame for the current crisis on factors clearly beyond the government’s control. On April 20, Nodong Sinmun, the major official daily newspaper, ran an article that described food supply difficulties worldwide and mentioned a dramatic increase on food custom duties in “certain countries”.

4. Cold shoulder from China

The worldwide price hike means that the amount of food coming to North Korea via foreign aid channels is likely to decrease. China, preoccupied with the Summer Olympic Games in August, and increasingly annoyed by North Korean antics, is not too willing to help the North out of its trouble which, as some people in Beijing believe, were brought on Pyongyang by its own stubborn resistance to the Chinese reform model.

So what is Lankov’s prediction?

In North Korea, the domestic food situation is deteriorating fast. The sudden hike in food prices seems to be a sign of deepening crisis. There were reports about farmers who refuse to toil the state-owned fields, stating that they are too weak to work (but still willing to work on their private plots). There are rumors of villagers starving to death even though observers believe the food shortage has not yet developed into a famine. If the shortage of fertilizer damages this year’s harvest, a famine may develop by the end of this year.

The political consequences are unclear. Knowledge about the situation inside North Korea remains grossly inadequate. If the past is an indication, however, nothing of great political significance will happen if a few thousand fresh graves appear in the hills of North Hamgyong province. In all probability, Kim Jong-il’s government will use its time-tested tactics: the political elite and the best units of the army will receive full rations; the residents of major cities, police and common soldiers will get barely enough to survive; and the “politically unreliable”, largely villagers from the remote northwest, will be left to their sorry fate.

There is hope the government will momentarily halt its counter-offensive against free market economics, and will ease its border controls to allow more people to China – but even such moderate measures are unlikely. Isolated revolts are possible, but the government seems to be supremely confident. After all, the disorganized, isolated population, deprived of any opportunities to organize or even communicate between themselves, is not capable of challenging the system.

Read the full story here:
North Korea stoic in the face of famine
Asia Times
Andrei Lankov
4/30/2008

According to the Daily NK, many mid-level civil servants who used to receive enough rations to live on have now resorted to trading in the markets with the civilians.

“Since April, the government has only been giving out provisions to the head of each department of the People’s Safety Agency in Hyesan, Yangkang Province. As for the remaining staff, only 15-days worth of one-serving provisions have been supplied. The discontent among the agents of the People’s Safety Agency over the discrimination is quite significant.”

“With conditions worstening, those who have not been engaging in sales until now—the Provincial People’s Committee or the Municipal Committee leaders and average schoolteachers, doctors and their families—have been coming out to the alleyway markets. They do not even have a street-stand in a jangmadang, so they sit illegally in the alleyways, but the People’s Safety agents in charge of regulating the jangmadang have been reluctant to take action against them because they know who these people are.”

Is anyone starving?  Thankfully, it seems not yet..

In response to the question as to whether people have begun to starve to death as a result of the food shortage, the sources confirmed, “We have not reached that point yet.”

Our contact in Yangkang Province said, “During the ‘March of Starvation’, we did not even have brewers’ grains to eat, but now, people feed that to the pigs. It is true that living conditions have become a bit more difficult with the rise in food prices, but it has not reached the point of starvation.”

The Hoiryeong source also said, “With the significant rise in food price, the quality and the amount of rice have fallen quite a bit, but people have not been starving for days at a time. People who previously consumed only rice are now mixing rice and corn 50/50, and those in more dire situations eat 30/70 or 20/80.”  

The food situation in Ryanggang is probably better then most of the country on average due to its proximity to the Chinese border.

The full story can be read here:
The Price of Rice Has Risen, But Not to the Point of Starvation
Daily NK
4/22/2008
Lee Sung Jin

As North Korean Economy Watch readers are aware, this site hosts the most authoritative mapping of North Korea on Google Earth (click here to download).  Google Earth recently updated its North Korea imagery requiring me to update a colossal amount of information.  This update (version 10) will be released by the end of May.

Growing influence of entrepreneurs
While updating information on Google Earth, one has a chance to compare how things have changed over the course of a few years.  One of the interesting changes in Pyongyang is the emergence of a new market about 5 blocks east of the Tower of the Juche Idea (pictured below).  It seems to have replaced an older market formerly located on the city’s outskirts at the end of the trolley line.  In the past, street markets (or “jangmadang”) like this have been held on the outskirts of the city.  This new, more convenient location (near peoples’ homes) is a testament to the growing importance of these markets, and their budding entrepreneurs, in meeting the needs of the North Korean people.  

Click on the image to view full size.