North Korean Economy Watch

Daily NK
Jin Hyuk Su
3/8/2010

Rice price inflation, a key indicator of the spiraling inflation which has beset the North Korean economy as a whole since the November, 2009 redenomination, shows no signs of slowing down, with the price in North Hamkyung Province reaching 1,500 won per kilo as of the 7th.

A source from North Hamkyung Province told The Daily NK the news by phone yesterday, saying, “In the Nammun jangmadang, in Hoiryeong, at around 2PM this afternoon, the rice price per kilogram was more than 1,500 won.”

He also reported, “I called a friend of mine who lives in the Songpyung-district of Chongjin, and he said that the rice price per kilogram in the Sabong jangmadang there had gone over 1,450 won.”

The source added, “Although the Hoiryeong food distribution situation is actually better than elsewhere because this is Kim Jong Suk’s home town, since the value of the new money is continuously deteriorating and the exchange rate has skyrocketed, the prices of all products, as well as rice, have continued to soar.”

The source also noted that promised food distribution had failed to materialize. According to his friend, when Kim Jong Il went to Kim Chaek Steel Mill in Chongjin on the 5th, he told them that food distribution would soon be released. But, that has yet to happen; “just words,” as the source put it.

He went on, “The value of the dollar is rising uncontrollably. Since the economy is in such a mess, the dollar’s value cannot stabilize, only fluctuate.”

“Residents in Hoiryeong and Chongjin expected that when Kim Jong Il came to their Province, maybe to the steel mills, food distribution would be released, but there have been no practical moves on that.”

Exchange rates have also been soaring erratically, the source reported; as of today one dollar is being traded for 1,750 won and one Yuan for 250 won.

With a kilo of rice now costing an unaffordable 1,500 won, residents are growing more and more incredulous, not to mention pessimistic, about the future; “Suicides are increasing,” the source asserted.

“Last year, elderly people committed suicide because they were pessimistic about their lives, but these days, more than a few young people are doing it too.”

According to Yonhap:

South Korea’s planned shipment of its first food aid to North Korea in years has hit a snag due to sourcing difficulties, an official said Saturday.

The South has been preparing to send 10,000 tons of corn to the impoverished neighbor since mid-January, right after Pyongyang accepted its aid offer made months earlier. The shipment would mark Seoul’s first food assistance to the North since President Lee Myung-bak took office in early 2008.

The government has since approved a 4 billion won (US$3.5 million) budget to fund the assistance and notified the North of a shipping route, based on a plan to buy corn in China and ship it directly to the North from there.

“Considering shipping costs, it would make the most sense to send Chinese corn” to the North, a government official said on customary condition of anonymity.

The official said, however, that the plan has faltered because of China’s “grain export quota,” which places restrictions on food exports in order to meet the country’s rising domestic demand.

The delay has raised concern that the planned aid may not be delivered by the time the North needs it the most — usually between March and May when food shortages in the country worsen — because it usually takes at least a month after the purchase is made for such to be delivered.

But the government official said that he believes the problem will be resolved soon, though he did not elaborate.

Read the full article here:
South Korea’s planned food aid for North Korea hits snag
Yonhap
3/6/2010

According to the Financial Times:

“The WFP can continue to support around 1.4m children and pregnant women with fortified foods until the end of June. However, new contributions are required now or the operation will come to a standstill in July. We are hopeful that donors will come forward with contributions, given the situation,” he told the Financial Times.

In 2008 the WFP hoped 6.2m people would receive such aid but found it increasingly hard to get donations. Annual aid to North Korea is equivalent to $4.50 (€3.30, £3) per person across the population. The average across other low-income countries is $37 per person.

The WFP has survived such funding crunches in the past, but UN officials fear donors have now become exasperated with North Korea, which expelled US non-governmental organisations last March. Pyongyang has severely restricted aid workers’ access, has demanded they give longer notice periods before rural visits and has barred teams from using their own Korean speakers.

Rocky relations with the US and South Korea after Pyongyang launched a long-range missile last April and tested an atomic warhead in May have further discouraged donations.

The US, once the leading food donor, has said it will not supply cereals until North Korea resumes proper monitoring, allowing aid agencies to track the final recipients.

North Korea’s harvests cannot feed all its people and in recent years the annual food deficit was about 1m tonnes. People are chronically malnourished and as many as 1m are believed to have died during famine in the 1990s.

It is hard to determine the scale of malnutrition but Kim Jong-il, the country’s dictator, made a very rare apology this year for failing to deliver “rice and meat stew” to the people. Food markets were thrown into disarray late last year by a currency redenomination but Mr Due, based in Pyongyang, said these seemed to be returning to normal.

Read the full article below:
Donor fatigue threatens aid for North Korea
Financial Times
Christian Oliver and Anna Fifield
3/3/2010

Choson Ilbo
2/26/2010

North Korea is still demanding rice and fertilizer in return for an inter-Korean summit, even as it keeps sending increasingly urgent messages to Seoul to bring such a summit about.

Since a secret meeting between South Korean Labor Minister Yim Tae-hee and Kim Yang-gon, the director of the North Korean Workers’ Party’s United Front Department, in Singapore in October, “North Korea has kept asking us for a huge amount of economic aid in return for arranging a meeting” between President Lee Myung-bak and North Korean leader Kim Jong-il, a South Korean government source said on Thursday.

But the North seems to have no interest in giving in to South Korean demands to put denuclearization and the repatriation of prisoners of war and abduction victims on the summit agenda. “The North basically wants economic gain in return for letting us make political use of an inter-Korean summit for the upcoming local elections” on June 2, the source said. “It seems that the North still feels nostalgic for the Sunshine Policy,” which netted it huge benefits over the past decade.

The first inter-Korean summit in 2000 was announced only three days before the general election and was bought through a secret payment of billions of won. The second summit in 2007 was announced two months before the presidential election. Since 2000, the North has received more than 300,000 tons of rice and the same amount of fertilizer almost every year worth more than W1 trillion (US$1=W1,163) a year.

In another secret meeting between South Korea’s Unification Ministry and the North Korean Workers’ Party’s United Front Department in November, the North again insisted on specifying humanitarian aid in an agreement to be signed at an inter-Korean summit.

A “tree planting campaign for North Korea” initiated recently by the Presidential Committee on Social Cohesion also reportedly went awry because the North demanded a huge aid of food in return for letting South Korea plant trees there.

Kim Jong-il is apparently not aware that Seoul is serious about ending this cash-for-summits policy. A South Korean government official with experience in inter-Korean talks said, “At secret meetings, each side often had its own way of interpreting agendas. Maybe North Korean delegates who are accustomed to the Sunshine Policy are trying to interpret the current government’s messages the way they did with past governments.”

It seems the North has attempted to earn economic aid worth W1 trillion by prevaricating over the issue of the POWs and abduction victims, offering to handle it like part of reunions of separated families, and discussing the nuclear issue only with the U.S. 

Whether the attitude will change remains to be seen. The North is now in a worse economic situation than before in the wake of a recent disastrous currency reform on top of international sanctions and a severe food shortage.

Prof. Cho Young-ki of Korea University said, “The North is in dire need of support from the outside including South Korea to stabilize the regime for a smooth transition of power” to Kim’s son Jong-un. “It is possible that the North will reluctantly accept our request depending on progress in the six-party nuclear talks.”

The government believes that a dramatic turning point in inter-Korean relations could be reached if the North makes “big decisions” in the nuclear or POW issues, according to Kim Tae-hyo, the presidential secretary for foreign strategies.

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.”

UPDATE 2: The Wall Street Journal’s Evan Ramstad published some analysis of the DPRK’s 2008 census data.  According to the article:

North Korea is getting bigger, older and less healthy, according to data from the country’s latest census, and its fabled million-man army might have fewer than 700,000 people.

The authoritarian government in December released results of the census conducted in 2008, saying its population had climbed to 24 million people from 21.2 million in the previous census in 1993.

More details have been published by the United Nations Population Fund, which helped North Korea conduct the census and sent five teams of observers to monitor it.

Even so, it’s difficult for outsiders, with so little access to the country, to be certain of the precision of North Korea’s data. For decades, the government has cut off the dissemination of most information about the country. The new census numbers provide a rare glimpse of official statistics.

The census reported that North Korea’s population grew at an annual average rate of 0.85% for the 15-year period, a time that included a devastating multiyear famine that analysts and foreign aid agencies estimate killed between one million and two million people.

A separate U.N. report published last year found that North Korea’s population has grown more slowly since 2005, at an annual rate of 0.4%. The global population has grown 1.2% annually since 2005, the U.N. report said.

North Korea’s census said the country’s population has proportionately fewer children and more middle-aged people than it did in 1993.

It also reported that people are less healthy.

Babies are more likely to die: The infant mortality rate climbed to 19.3 per 1,000 children in 2008 from 14.1 in 1993, though North Korea’s rate is still well below the world average, which a 2009 report by the U.N. agency put at 46 per 1,000 children.

North Koreans are living shorter lives—average life expectancy has fallen to 69.3 years from 72.7 in 1993.

As in many places, women live longer than men, with a gap of about seven years, compared with the world average of 4.4 years.

North Korea has 5.9 million households, with an average of 3.9 people in each, according to the census.

The typical home is 50 to 75 square meters in size (540 to 800 square feet). About 85% of homes have access to running water and about 55% have a flush toilet.

The census provided only a glimpse of the country’s economic structure, but even that produced some surprises. The occupation that provides the most employment—farming—has more women, 1.9 million, than men, 1.5 million.

The second-biggest occupation, working for the government or the military, employs 699,000 people. The census doesn’t break that group down further, but the figure suggests North Korea’s military isn’t as large as had been thought.

The military is often portrayed by outside military analysts and media as a force of one million people, mostly conscripts who are required to serve 10 years.

The third-largest employment sector by number of workers is education, followed by machinery manufacturing, textiles and coal mining. About 40,000 people work in computer, electronic or optical-product manufacturing.

North Korea hasn’t shared meaningful information about its economy or its financial system with the outside world since the early 1960s.

Outside estimates of its economic performance, most prominently an annual estimate by the South Korean central bank, the Bank of Korea, are filled with assumptions that even their authors say render them almost meaningless.

Read the full article here:
Pyongyang Reports an Aging, Less Healthy Population
Wall Street Journal
Evan Ramstad
2/20/2010

UPDATE 1: Oikono did some good work analyzing the census data here.  

ORIGINAL POST: Thanks to a responsive employee at the UNFPA, I obtained a summary of the DPRK’s census findings.  You can download the summary here.

Thanks to a reader I was able to obtain a copy of the entire census.  You can download it here.

Both documents have been added to the “DPRK Economic Statistics” Page.

Happy reading.

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

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.

According to the Choson Ilbo:

North Korea in late October informed the UN its food output this year was 5.01 million tons, it emerged on Tuesday. The yield included 2.34 million tons of rice, 1.7 million tons of corn, 560,000 tons of potatoes, 240,000 tons of wheat and barley and 150,000 tons of beans.

The figure represents an increase of 330,000 tons over the 4.68 million tons the North claimed last year. The original estimate was about 4 million tons.

North Korea’s rice harvest increased this year thanks to little harm from floods and droughts, according to North Korea sources. Corn output was poor due to cold-weather damage in the border region with China and Kangwon Province. “Kim Jong-il appears to have carried out the shock currency reform out of confidence that the food situation next year won’t be worse than expected,” speculated a source.

If it is not in urgent need of food aid, the North can afford to be tougher in its dealings with the South and the U.S. for the time being. But there is a chance that the North exaggerated the food output in a bid to demonstrate the success of a “150-day struggle” and a “100-day struggle” where people were swept off urban streets and forced into labor on the collective farms.

With 5.01 million tons of staples, the North would face little problem in feeding its population of 24 million for a year. Its late leader Kim Il-sung once said, “Daily food consumption is about 10,000 tons. If we had 5 million tons of grains a year, we would be able not only to dole out food rations but feed the people with sugar and candy.”

But the food shortage in the North arises not only from a chronic quantitative shortfall but also from uneven distribution and supply. The authorities place priority in food supply on the party and the military. The burgeoning merchant class can also manage. But the old, the weak and the urban poor, estimated at 10 to 20 percent of the population, are marginalized. “Organizations aiding North Korea also need to improve monitoring of distribution,” said a South Korean government official.

Meanwhile, the UN Food and Agriculture Organization said the grain output North Korea informed it of in mid-November was 3.53 million tons. A source said this was because potatoes and beans, which are included in ordinary grain yield estimates, were omitted. “The aim may be to get the maximum possible food aid from the international community,” the source speculated.

Previous posts citing DPRK agriculture statistics can be found here.

Previous posts about the DPRK’s agriculture policies and outcomes can be found here.

Previous posts about the DPRK’s food situation can be found here.

Read the full article here:
N.Korea’s Claims Food Output of 5 Million Tons
Choson Ilbo
12/23/2009