North Korean Economy Watch

Institute for Far Eastern Studies
NK Brief No. 10-2-24-1
2/24/00

Suffering from severe food shortages, North Korean authorities ordered that markets be opened unconditionally, and that there be absolutely no crack-down on the sale of foodstuffs within the markets. This is according to a report issued on February 18 by the North Korean human rights organization ‘Good Friends’.

Good Friends’ newsletter revealed, “After examining a report on food shortages and the conditions of residents in each region throughout the country by the Office of Economic Policy Review, the Central Committee of the Korean Workers’ Party issued an ‘Order for Absolutely No Regulation Regarding Foodstuffs’ to each law enforcement office.” The order stated that until central distribution is running smoothly, all markets are to be reopened as they were prior to recent government crack-downs, and that under no circumstances were authorities to try to regulate food sales.

Furthermore, it reported that “the People’s Security Bureau also received the Central Committee’s order, and passed on a special instruction to each regional security office ordering agents not to crack down on markets for anything other than illegal goods, and not to regulate food sales, in particular.” Local authorities were also ordered not to engage in altercations with market traders and not to intervene or interfere in fights between traders working within the markets.

According to Good Friends, “Central Party authorities set the price of one kilogram of rice at 24~25 Won, corn at 9 Won/Kg, and corn noodles at 10 Won in an attempt to stabilize the daily lives of people, but the lack of central distribution made the attempt meaningless.”

A North Korean public health official relayed to Good Friends that a report released by central authorities on January 22 stated that there were more than 47 thousand cases of tuberculosis in the North, but that more than half were unable to receive treatment in a hospital, and that “the rise in the number of deaths due to starvation among the most indigent was due to TB patients being unable to eat and subsequently dying after catching a cold or the flu.”

In mid-January, Kim Jong Il called a meeting of Party administrative director (and brother-in-law) Jang Sung-taek and other high-level authorities in order to ease the side-effects of last year’s currency reform. A North Korean source relayed to Daily NK on February 17 that at the meeting, it had been decided that authorities would issue emergency rations to residents facing the threat of starvation.

According to this order, the Office of Food Procurement has been tasked with distribution of the emergency food; neighborhood units receive 5 kg of food daily, while offices receive between 5~15 kg, depending on the number of employees. Neighborhood unit directors or factory supervisors are responsible for assessing the food needs of their neighbors or employees, and prioritize food distribution to those households at risk of starvation.

Until the end of January, currency reform measures that banned the sale of food and drove prices up drove a significant number of households to starvation. However, since the emergency rations measure began to be enforced on February 1, there have been no reports of large-scale famine.

According to the Choson Ilbo:

North Korea is believed to have been given 300,000 tons of food either on credit or as aid last year, mostly from China, the Unification Ministry told the National Assembly’s Foreign Affairs, Trade and Unification Committee on Tuesday. That is enough to feed the entire population of North Korea for a month.

The UN Food and Agriculture Organization on Monday said North Korea faces a shortage of 1.25 million tons of food, but that did not take into account the amount provided by China and other countries. Unification Ministry Hyun In-taek said, “North Korea has been suffering from problems in food supply and distribution since its currency reform and has been taking measures to deal with the situation.”

Read the full article here:
N.Korea Took 300,000 Tons of Food Aid Last Year
Choson Ilbo
2/24/2010

Daily NK
Jung Kwon Ho
2/22/2010

In late January, Kim Jong Il held a meeting of his highest officials, including Jang Sung Taek, Director of the Ministry of Administration of the Party, aiming to find ways to alleviate the negative side effects of November’s currency redenomination. In the meeting, the group apparently agreed to release emergency supplies of rice to those on the brink of starvation.

According to a Daily NK source, “Following the meeting, which he chaired, Kim Jong Il handed down a handwritten decree to the chief secretaries of all provinces on January 20 in which it was stated, ‘Preventing anyone from starving to death is your obligation.’”

Chief Secretaries of Provincial Committees of the Party, the recipients of the decree, handed on the threat to their subordinates, warning provincial cadres, “You will resign if anyone starves to death, because this was a direct instruction from the General.”

In the decree, the three most vulnerable provinces were named as Yangkang, South Hamkyung, and Kangwon Provinces, so the officials governing those provinces are understandably nervous. They are the provinces where most casualties occurred during the March of Tribulation, and they remain the most food insecure.

Under the decree, the Ministry of Procurement and Food Policy makes daily deliveries of 5kg of relief rice to each people’s unit and 5-15kg to each factory and enterprise. Chairpersons of people’s units and managers of factories are required to observe the circumstances of the people under their control and provide those in the greatest danger of starvation with relief rice first.

In late January, quite a number of households were reportedly facing starvation due to the aftermath of the currency redenomination; notably sky high prices coupled to strict market regulations. However, there have been no reports of starvation since relief rice deliveries began on February 1.

Alongside the chairpersons of People’s Units, cadres working for local government offices are required to cross-check whether or not starvation is occurring. In theory, they are reprimanded if they do not report the situation truthfully.

Upon hearing the news, a defector in Seoul commented, “It seems that the people will not lie still and suffer that dire situation. Kim Jong Il may have done this because he senses a crisis situation this time.”

February 16 is Kim Jong Il’s official birthday and the second most important national holiday in the DPRK. I will let you guess the first.  The celebration actiities were predictable: fireworks, synchronized swimming, public pledges of loyalty, dancing, and of course the Kimjongilia flower show. The usual.

KCNA, however, pointed out one new tradition of which I was unaware:

Turtle Dishes Begin to Be Served
Pyongyang, February 13 (KCNA) — Okryu Restaurant in Pyongyang has begun serving dishes made of snapping turtle on the occasion of the birthday of leader Kim Jong Il, February 16.

One can be treated in the restaurant with various kinds of turtle dishes such as turtle soup, raw dishes made of turtle heart, liver or spawn, steamed or fried turtle and turtle porridge.

Liquors of famous brands including Pyongyang Soju brewed at the Taedonggang Foodstuff Factory are adding to the taste of the dishes.

The dishes are associated with leader Kim Jong Il’s loving care for improving the people’s diet as required by a thriving nation.

He gave meticulous instructions as to turtle breeding and cookery, hoping that turtle dishes, good for health, would be served well to the people at restaurants.

Refurbished Okryu Restaurant, famous for Pyongyang cold noodles, took the lead in making preparations to successfully realizing the leader’s wish.

Its employees built a habitat in order to raise turtles on a large scale.

They completed a unique cookery for diversified turtle dishes to suit the Korean people’s taste through several sampling parties.

Along with turtle food the restaurant also delights customers with caviar and other rare dishes.

It has a plan to include bullfrog, salmon and other high-grade dishes in its menu.

The Okryu Restaurant is located here.

The Daily NK offers some unofficial news about Kim Jong il’s birthday holiday:

While the North Korean media praises Kim Jong Il’s greatness on his 68th birthday, the common citizens are having a quiet time, suffering under a growing food crisis.

This year’s Lunar New Year holiday fell around Kim Jong Il’s birthday, so sources report that the authorities gave the people time off from the 14th for three days. However, special distribution for the holiday was patchy this year, differing in quantity from province to province.

One source from Musan, North Hamkyung Province reported, “Even though we are facing the General (Kim Jong Il)’s birthday, there is no liquor being distributed. Just for cadres and soldiers, a 500ml bottle of liquor and a kilogram of pork are being supplied.”

The source added that general food prices are fluctuating. “Rice prices in the jangmadang are different all the time. On the 15th, over 450 won, but in the afternoon it went down to 400 won. And, now it is up to almost 500 won.”

“There are a number of people who are starving. Even though the jangmadang is open, these people cannot purchase rice due to its high price. However, liquor sellers are seemingly able to earn money because people need it for memorial ceremonies for their ancestors.”

A source from Yangkang Province reported the situation there, “The authorities have provided us with four days of mixed rice and corn. There has been no other special distribution, except cookies for children from their schools. However, even though people have received food distribution, the price of rice is up around 500 won.”

Only in Hoiryeong have residents received as much as Pyongyang citizens. They got one bottle of liquor and one day’s rice, according to a source in the city.

Links to previous birthday posts can be found here.

According to Yonhap:

North Korea’s food shortage is expected to further worsen this year, as the communist state’s grain output in 2009 is believed to have fallen from the previous year, a government official in Seoul said Wednesday.

The North is estimated to have produced 4.1 million tons of grain last year, a drop of about 200,000 tons compared to 2008, the Unification Ministry official said on condition of anonymity.

Read the full article here:
Food shortage worsens in N. Korea: official
Yonhap
2/10/2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-02-09-1
2/9/2010

According to a report from the webzine Daily NK, authorities in the North posted notices at the entrances of all markets across the country in the afternoon of February 4, setting state-wide standard prices for 100 different goods. The prices went into effect the next day. The notice reportedly stated, “In the case of foods not being sold at state-set prices, the state will confiscate all goods.”

The list of 100 items for which prices were set includes rice and corn, indicating that the government is allowing the sale of food items in markets (some of the prices can be seen in the table below). It appears, however, that the state-set prices are causing disruptions in the markets due to the significant difference between Pyongyang’s pricing and the actual prices for which goods in the markets are being sold.

Currently, rice is selling for 350 won/Kg, more than 100 won more than state prices. Corn, costing 180 won/Kg, is trading at 50 won more than the government is demanding. In addition, cooking oil and pork are selling for 1,000 won, 300-400 won more than state-mandated prices. Sources in the North report that, while market traders put on the appearance of adhering to the state’s regulation, many continue to trade at prices dictated by the markets.

Most previous attempts by North Korean authorities to clamp down on markets have failed, making it unlikely that this attempt to mandate prices will have any real impact. Actually, authorities have mandated ‘market price caps’ and regulated prices since the North’s economic adjustment measures taken on July 1, 2002. The government has also banned the sale of grains and other food, but this has not helped the North reach its policy goals and, in fact, has done little but stimulate black market activities. Furthermore, one reason for the recent and significant rise in inflation is the lack of policy for improving the supply sector at a time when currency reforms led to a sudden jump in the purchasing power of farmers and laborers. This adds weight to the argument that these latest price controls will not be maintained with any consistency.

GOODS PRICE (DPRK Won)
Rice (kg)  240
Corn (kg)  130
Pork (kg)  700
Beans (kg)  160
Cooking Oil (bottle) 600
Toothbrush  25
Toothpaste  50
Soap  50
Laundry Detergent 25
Athletic Shoes 500
Toilet Paper 50
Workbook  25-55
Lighter  70
Dress Shoes 1,300
Flashlight  500
Battery  100
Children’s Clothes 1,500
Children’s Padded Clothing 5,000
Socks  350
Apples (kg) 250
Egg  21

Marcus Noland wrote an op-ed for the BBC which is posted on the Peterson Institute web page.  There are some differences in the two (the BBC piece is shorter), so you can read whichever you prefer.  Below, however, I have posted the graphs from the Peterson Institute web page with some commentary:

This chart indicates the market for rice was surprisingly efficient before the currency conversion.  Over a two year window, the observed price seems remarkably stable (although the scale of the graph makes it hard to see the the actual level of price volatility).  Still, it seems fair to say that North Korean rice producers, vendors, and smugglers are quick to spot and eliminate regional price differentials through arbitrage. The supply of rice must also be highly highly elastic.  If the North Korean economy was experiencing inflationary pressures in this time, productivity gains and competition would have to have kept the nominal price essentially flat and caused the real price of rice to fall!

The price of corn is somewhat more volatile and I would be interested in hearing theories as to why this is. 

This chart is surprising as well. We see a highly stable US Dollar/DPRK won black market exchange rate (though again, the scale of the graph makes it difficult to determine just how stable).  Although the DPRK has not published its monetary policy goals (as far as I am aware), I think it is fair to say that the North Koreans practice exchange rate targeting. Most likely the target is not the US dollar, but the Chinese yuan–which trades at a nearly constant level with the US dollar.  Since China is the DPRK’s largest trading partner, it would make sense that the authorities would aim for exchange rate stability.  This would suggest, however, that the DPRK’s monetary authorities are well aware of the black market value of their currency and have the tools to  affect the exchange rate (i.e. lots of RMB reserves to sell on the black market).  I am not sure how plausible this is, but I am not sure how else we can explain this level of exchange rate stability.

Institute for Far Eastern Studies (IFES)
NK Brief No.10-02-03-1
2/3/2010

In order to meet this year’s economic goals, North Korean authorities are calling on the people to launch an “all-out offensive”. Day after day, North Korea media outlets are calling for “continuing reform” and “continuing improvements,” even introducing a new motivational song titled, “It’s a war of attack.”

The slogan “all-out offensive” is designed to encourage the people of North Korea to pour all efforts into attaining the best results in each area of the economy. It is not uncommon for the North to use military terms such as this to motivate its citizens for non-military mobilization drives.

According to the (North) Korean Central News Agency (KCNA), the front page of the January 29 issue of the Rodong Sinmun carried an editorial titled, “Raise the fighting spirit of 10 million soldiers, and advance the all-out fighting spirit of this year,” while the second page of the same paper carried a political commentary titled, “Let’s practically demonstrate.”

The editorial called on citizens of the North to work toward improving the standard of living and improving the lives of the people, and stressed, “The on-going ideological campaign is an all-out offensive for remarkably increasing the speed of the advance for effecting a great surge with the might of the perfect unity of the leader and all the service personnel and people and a charge for giving fullest play to their mental power so that events adding luster to the era of Songun may take place one after another,” and, “The on-going general offensive is sure to triumph when all the people live and struggle as the brave, staunch and devoted vanguard in the advance for effecting a great surge.” On January 20 and 22, the same paper had run similar articles, calling for the “spirit of victors” and “marching forward as quickly as possible.”

That North Korean authorities have gone so far as to launch the song “It’s a war of attack” gives the impression that there is an air of urgency surrounding these ongoing efforts to mobilize the people. Also reflecting this urgency is the fact that this year, Kim Jong Il has carried out more public activities than during January 2009. As of January 26, Kim Jong Il had made 14 public appearances. This was 56% more than the first month of last year, during which Kim had made the most visits since launching the 1st Kim Jong Il regime in 1998.

Of those 14 appearances, 7 were on-site inspections of enterprises and other economic sites, while only 6 visits were military-related. The remaining visit was to the central court; There were no meetings with foreign dignitaries or other foreign diplomacy-related activities. One military-related visit of interest was to a self-sufficient pig farm run by the army. January’s visit was Kim’s third to the farm, where he advised managers to “raise more pigs and provide more pork and pork products to the soldiers,” an indirect reference to the seriousness of food shortages among the North’s military.

The particular regulations that seem to have been eased: the 10-day rule and price controls on rice.  No word on whether this easing is short-term or long-term in nature. 

From the Daily NK:

In an attempt to avert a food crisis and stem popular discontent, the North Korean authorities have reportedly bowed to pressure and started lifting market regulations across the country.

The decision, which apparently came into force at the start of February, may seem to be an abrupt one, yet it is largely inevitable. A food crisis has seemed to be on the cards for a while, while acts of violence against security officials have been occurring with increasing frequency and discontent among the people has been rising rapidly since the currency redenomination at the end of November.

An inside source reported the news to The Daily NK on Tuesday, saying, “Since February 1st, in Yangkang and Hamkyung Provinces, jangmadang regulations have been completely lifted. The price of rice, which had been more than 400 won, has now stabilized at between 250 and 300 won.”

The source added, “It is a good thing that the jangmadang is open. We were worried about a coming crisis as the rice price has been soaring and we have not been given any wages. That said, the people are watching the authorities’ next move, so they are still reticent to trade.”

Some foresee that, since the authorities have still not released state-designated price for rice in the jangmadang, they may be planning to allow it to just float with the market.

It is still unclear if the February 1st decree completely opened the market as it used to be or is just a temporary solution to avert a possible food crisis. Inside sources say they plan to wait and see.

Regardless, now that the jangmadang is open, exchange rates seem to be stabilizing as well. The dollar exchange rate, which was around 400 won, has fallen back to nearer 300 won in just two days.

Read the full story here:
Ban on Markets lifted
Daily NK
Jung Kwon Ho
2/3/2010

According to the Telegraph:

Rodong Sinmun, the official newspaper of the ruling Communist Party, said Kim’s immediate ambition is to end his people’s dependence on corn for subsistence and to feed them rice and wheat products instead.

“I’m the most heartbroken by the fact that our people are still living on corn,” he was quoted as saying. “What I must do now is to feed them white rice, bread and noodles generously.”

The paper did not disclose when or where Kim’s remarks were made or how he intended to improve the diet of North Koreans, who have for years suffered food shortages and even starvation.

Kim also urged North Koreans to keep a vow made to his father, the late president Kim Il-Sung, to build a nation whose people do not even eat corn.

Last month Kim described “white rice and meat soups” as a long-cherished dream for North Koreans while admitting to failing to deliver an acceptable standard of living for the communist nation’s people.

North Korea has suffered severe food shortages since a famine in the 1990s killed hundreds of thousands people. At the time it was reported that parts of the population had resorted to eating grass.

A shock currency revaluation on Nov 30 reportedly played havoc on distribution networks, aggravating food shortages and sparking inflation.

Read the full article below:
Kim Jong-il admits being ‘heartbroken’ over diet of North Koreans
Telegraph
2/1/2010