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What to make of the panic buying in Pyongyang and beyond

Sunday, May 10th, 2020

By: Benjamin Katzeff Silberstein

There’s been a few reports over the past few weeks about panic buying in Pyongyang, particularly of imported goods. The foremost reason appears to be the government’s restrictions of imports, aside from essential goods (whatever these are). A quick thought:

On the one hand, on a closer reading beyond the term “panic buying”, it’s apparent that we aren’t really talking about fundamental, daily necessities for the most part, but about imported items such as batteries and certain vegetables. When we monitor economic developments for social stability, such analyses tend to focus on items like rice and, at least in countries other than North Korea, fuel, and not least the stability of the currency. So it may not matter all that much if people in a northern province cannot buy lighters imported from China, or if Pyongyangites can’t buy imported pepper and other non-staple goods. (As you will see in one of the articles below, Daily NK has not heard reports of panic buying in Hyesan at all.)

At the same time, however, these imported goods are quite essential in the everyday lives of many people. We don’t know how much of imported goods the average person consumes, and I suspect it’d differ greatly between provinces. Since at least a significant proportion of the population consumes imported goods on a regular basis, these difficulties in acquiring items imported from China would in many cases cause great annoyance and, in others, disrupt production processes of firms and industries, although some exceptions are granted for “essential” items. Who determines what’s essential is likely hinges on political and economic clout, and it certainly won’t be the mom-and-pop-shops of the backstreet markets.

I’ve gathered a few related articles here. AP wrote about the topic on May 7th, 2020, with intelligence sources in Seoul confirming the news:

The NIS said it cannot rule out a virus outbreak in North Korea because traffic along the China-North Korea border was active before the North closed crossings in January to try to stop the spread of the virus, according to the lawmaker.

The NIS declined to confirm Kim’s comments in line with its practice of not commenting on information it provides to lawmakers. Kim did not discuss how the NIS obtained its information.

Last Friday, Kim Jong Un ended his 20-day public absence when he appeared at a ceremony marking the completion of a fertilizer factory near Pyongyang. His time away triggered rumors about his health and worries about the future of his country.

The NIS repeated a South Korean government assessment that Kim remained in charge of state affairs even during his absence. His visit to the factory was aimed at showing his resolve to address public livelihood problems and inject people with confidence, Kim Byung Kee cited the NIS as saying.

The NIS said the virus pandemic is hurting North Korea’s economy, mainly because of the border closure with China, its biggest trading partner and aid provider. China accounts for about 90% of North Korea’s external trade flow.

The trade volume between North Korea and China in the first quarter of this year was $230 million, a 55% decline from the same period last year. In March, the bilateral trade volume suffered a 91% drop, the NIS was quoted as saying.

This led to the prices of imported foodstuffs such as sugar and seasonings skyrocketing, Kim Byung Kee quoted the spy agency as saying. He said the NIS also told lawmakers that residents in Pyongyang, the capital, recently rushed to department stores and other shops to stock up on daily necessities and waited in long lines.

The NIS said prices in North Korea “are being stabilized a little bit” after authorities clamped down on people cornering the market, Kim said in a televised briefing.

(Source: “Seoul reports panic buying in N. Korea amid economic woes,” AP/Mainichi, May 7, 2020.)

NK News was one of the first outlets to cover the topic, in an article on April 22nd:

“Panic buying” sprees have been spotted taking place in some of Pyongyang’s stores and groceries since Monday, multiple informed sources told NK News, resulting in increasingly empty shelves and a growing shortage of key staples.

It’s unclear what’s led to the sudden surge in demand, with one source describing empty shelves and a sudden absence of staples like vegetables, flour, and sugar.

Locals have been buying “whatever is there,” one expat said, saying that “you can hardly get in” to some stores.

Both the expat and another person in Pyongyang said the surge was particularly notable on Wednesday.

Another source said large groups of locals were seen buying big amounts of mostly-imported products in some grocery stores, resulting in abrupt shortages.

(Source: Chad O’Carroll, “North Koreans “panic buying” at Pyongyang shops, sources say,” NK News, April 22nd, 2020.)

Daily NK, of course, has reported extensively on the topic, from both Pyongyang and the provinces. Imported goods are not only consumed in Pyongyang:

“The prices of Chinese goods have risen sharply in markets across the province, including the Yonbong and Wuiyon markets in Hyesan,” a Ryanggang Province-based source told Daily NK on Apr. 28.

According to the source, the price surge has mainly affected Chinese products, including daily necessities such as sugar, flour, and other cooking products.

For example, the price of Chinese seasoning has increased fourfold to a KPW 40,000 (around USD 6). Flour, rice and other grain prices have also increased. Two weeks ago, imported Chinese rice was being sold at KPW 4,400 per kilogram but is now being sold at KPW 5,500.

The price hikes have not just affected food. Chinese cigarettes have also increased in price: a box of Chinese-made Chang Baishan cigarette packs, for example, which used to cost KPW 12,000, is now KPW 17,000.

“Even Chinese lighters, which usually cost around KPW 700, have seen a price hike of nearly threefold and now cost KPW 2,000,” the Hyesan-based source added.

The main reason for these price surges is the halt in Sino-North Korean trade following the closure of the North Korean-Chinese border in late January. The effects of the steep fall in Sino-North Korean trade were made clear in recent data published by China’s General Administration of Customs. According to this data, Chinese-North Korean trade in March dropped by 91.3% compared to the same period last year to just USD 18.64 million.

“Just two weeks ago merchants were feeling more optimistic given the improved situation in China. Now, they’ve lowered their expectations quite a bit,” the Hyesan-based source told Daily NK, adding, “Prices are rising because business people are intentionally sitting on their stocks with the hope that prices will increase even more.”

[…]

Meanwhile, Daily NK is unaware of any reports of panic buying in Hyesan [emphasis added].

(Source: Kang Mi Jin, “Ryanggang Province witnesses price spikes,” Daily NK, April 30th, 2020.)

And, more recently, a report from Pyongyang:

“There are a lot of ordinary stores that have closed or are unable to sell anything because they have no stock left,” a Pyongyang-based source told Daily NK on Apr. 30. “Right now 100 grams of imported pepper costs KPW 40,000, 450 to 500 grams of MSG costs KPW 48,000 and sugar can’t be found at all.”

PRICE SPIKES

The prices of imported food items nearly doubled after Apr. 17, when the North Korean government announced restrictions on imported goods deemed “unnecessary” for the North Korean economy. Prices began to rise rapidly once more before the publishing of this article in Korean on May 1.

According to Daily NK’s Pyongyang source, the price of imported pepper was just KPW 8,000 per 100 grams before the announcement, but doubled to KPW 16,000 after the decision was released. Now, the price has reportedly risen to KPW 40,000.

“The price of watch batteries and other small batteries for common household appliances like remote controllers for TVs have tripled or quadrupled,” the source further reported. “The price of batteries had remained stable even after the announcement, but several days ago it started to rise suddenly. The spike is probably because so many people began hoarding them.”

Although the price of batteries has risen to an unprecedented degree, Pyongyang residents reportedly continue to buy them in bulk, in boxes of 50, and as much as 10 boxes at a time. The hoarding is likely due to concerns that the price will only continue to rise and that soon there may not be any batteries left to buy.

“Many of the electronics stores throughout the city have closed down,” the source said, adding, “Stores that still have stock have closed perhaps because of rumors that Chinese products will no longer enter the country.”

In short, the source’s report suggests that state-run electronics stores, which command 20% of the market, have no stock left, while privately-run stores that take up the remaining 80% of the market have closed up despite still having stock on hand.

Based on the source’s report, owners of privately-run stores may have closed down their shops with the intent to sell their goods at prices even higher than they are now. The owners are likely under the belief that the recent import restrictions announcement means that various electronics accessories will no longer enter the country from China for some time.

(Source: Ha Yoon Ah, “Pyongyangites continue to hoard as prices keep rising,” Daily NK, May 4th, 2020.)

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Rural provinces provide food and construction materials to Pyongyang General Hospital construction

Thursday, May 7th, 2020

By: Benjamin Katzeff Silberstein

To be fair, in theory, hospitals such as Pyongyang General Hospitals are supposed to provide care for rural residents with difficult medical problems too. That’s quite unlikely to happen, but still. It’ also essential to understand that this is how  the system is designed. North Korean media has publicized images of provincial localities “donating” construction materials for the hospital project. RFA:

North Korean residents are being forced to chip in with food aid for construction workers building a new hospital in Pyongyang, creating resentment among provincial residents who are not permitted to freely travel to the capital, sources in the country told RFA.

“Neighborhood watch units in each district of the province are holding meetings to discuss providing food to Pyongyang,” a resident of North Hamgyong province, who requested anonymity to speak freely, told RFA’s Korean Service.

“Regular events scheduled in March and April were all canceled [due to the coronavirus], but the neighborhood watch unit meetings go on as scheduled to solicit food aid for the construction workers in Pyongyang,” the source said.

Every neighborhood watch unit held such meetings on April 22, and the source attended one of them. “The meeting emphasized participation in the food aid campaign to complete the Pyongyang General Hospital as one of the nation’s top priorities,” the source said.

“As far as I know, these meetings to help out with Pyongyang’s food situation have been held in every neighborhood watch unit nationwide,” the source said.

According to the source, many of the provincial residents, who are themselves struggling to make ends meet due to COVID-19, resent that they are being asked to give to Pyongyang, a city where only the wealthy or well connected are granted permission to live.

“Some residents expressed their antipathy to the food aid request, asking why they must provide food for the Pyongyang General Hospital as it won’t even be usable by residents in the provinces,” the source said.

“In response, the neighborhood watch unit leaders argue that supporting the construction of the hospital is a top priority for the nation and has been ordered by the party amid a food situation that is bad all over the country,” said the source.

The watch leaders even went as far to say that the provincial people had it better than the privileged city-dwellers.

“They said that we have many ways to make money through our own businesses and side jobs, but Pyongyangers are tied to a very strict organizational lifestyle, so they have no means to get food or extra money,” the source said.

“In the end, the main point of the neighborhood watch meeting was that local residents should step up and feed Pyongyang because the situation in Pyongyang is difficult,” the source said.

Similar meetings were held in the North Hamgyong’s largest city Chongjin, according to another resident who also requested anonymity.

“[The meetings] are to force residents of the provinces, cities and counties all across the country to provide food aid for the construction workers at Pyongyang General Hospital,” the second source told RFA on April 28.

“The Supreme People’s Assembly is making each household give five kilograms (11 pounds) of rice or the equivalent in cash,” the second source said, adding, “The food situation is bad all over the place because of the coronavirus crisis, but I cannot understand how the people here in the provinces are supposed to feed Pyongyang.”

According to the second source, many of the residents were actually relieved when the coronavirus hit, because it meant they could get out of being mobilized for civic projects as happens every April.

“Just when we were relieved that there were no orders [to mobilize us] due to the coronavirus crisis, our moods soured when we were suddenly ordered to provide food for this construction site in Pyongyang.”

(Source and full article: Jieun Kim, Eugene Whong (transl.: Leejin Jun), “Rural North Koreans Forced to Provide Food Aid to Privileged Pyongyang,” Radio Free Asia, May 7th, 2020.)

For more on this, feel free to check out my recent 38 North article on health care in North Korea and the ongoing hospital construction.

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North Korean economy updates, April 21st, 2020: schools opening, market prices down

Tuesday, April 21st, 2020

By: Benjamin Katzeff Silberstein

Here’s a brief compilation of some recent developments in the North Korean economy, mainly relating to the COVID19-situation, as most economic developments in the world are at the moment.

In recent reports, rice prices are down on markets, and quite significantly so. The average market price declined by around 19 percent between March 20th and 28th. Obviously, there is a reporting time lag here, but that can’t be avoided. Rimjingang’s latest reported figures (much earlier) are different but tend in the same direction.

Gasoline prices remained almost entirely stabile over the same period, climbing by 0.3 percent. The entirety of the price increase happened in Pyongyang, interestingly enough. As is generally the case, prices in Sinuiju are significantly lower than in the rest of the country, likely due to its proximity to China and North Korea’s main refinery near the border.

At the same time, we shouldn’t be too quick to assume this trend toward price stability will continue. There are currently no signs that border traffic will resume anytime soon, and this is very troubling not least because items such as fertilizers are in dire need for the approaching planting season (as noted by both NCNK and Rimjingang). While the latter reports that China is now refusing to start trade back up again in fear of COVID19 cases entering the country, Daily NK reports that Chinese trucks are crossing the bridge from Sinuiju, presumably after offloading goods in North Korea. North Korea is constructing a fertilizer factory in Suncheon, but reportedly struggling for construction parts and equipment.

This week, North Korea re-opened some schools and universities, after the extended winter break implemented as a measure against the spread of COVID19. Here is a rather chipper and, in its own way, very interesting clip from what is presumably a twitter account run by the North Korean government.

Finally, in some non-COVID-news, the re-forestation campaign apparently continues in the country. Rodong Sinmun ran an article on Tuesday April 21st about sapling research at Kanggye University. (Here is a link though I’m not sure it works.) And Rodong claims that coal production in one of the country’s mines is increasing due to better inefficiency. We have no way of telling whether this is true, but North Korean media touting coal production given the way things currently stand is interesting. Perhaps a tacit way of acknowledging, and touting, what the latest UN Panel of Experts report claimed about the significant amounts of coal exported by North Korea despite the sanctions in place to prevent it from doing so.

 

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Weekly update, March 6th: the coronavirus and the North Korean economy

Thursday, March 5th, 2020

By: Benjamin Katzeff Silberstein

The coronavirus continues to dominate the news cycle and everyday life developments of people around the world, and North Korea is no exception.

The government is taking very, very serious measures to protect the country. Chinese residing in areas along the North Korean borders have been warned not to get too close, or risk being shot at by North Korean border guards. I cannot recall anything similar to this in the past few decades of Sino-Korean relations and border conditions. Reuters:

Residents of the Chinese cities of Jian and Baishan were warned that people who get too close to the border might be shot, according to three people who received the notice, which was reviewed by Reuters.

“We’re told that we may get killed if we get too close to the border area,” said one restaurant owner in Jian, which is separated from North Korea by the Yalu River, declining to be identified given the sensitivity of the matter.

Residents are prohibited from fishing, grazing livestock or throwing rubbish near the river, according to the notice issued this week.

Strict controls are in force domestically as well. I wrote about price divergences between cities a few days ago, a potential sign that North Korea’s internal controls are severely limiting movement between provinces in the country. While this is likely a good thing from a virus prevention point of view, it’s very problematic for North Korean consumers. It may even be a bigger one than the closure of many of the goods transport routes over the Chinese border.

Aside from goods from different provinces not reaching markets in other localities and limiting supply, there’s a broader question looming. What happens with these goods? In China, as restaurants see demand drop to catastrophic lows, ingredients lay idle and rot. North Korea has limited electricity supply and refrigeration is not common in homes, and likely not with market traders in large parts of the country either. When people stock up on goods, they most likely choose those that will not perish easily, such as rice. And what happens with unsold, fresh goods? Are they sold at below-market value, causing losses for farmers down the supply chain, or perhaps in some cases not sold at all because they can’t be transported to the right markets?

North Korea’s quarantine situation is also interesting. State media has said that 7,000 people are under “medical monitoring”, whatever that means, and 3,920 under quarantine. For the quarantine figure, that’s 0.00015 persons per capita (assuming a population of 25 million). By comparison, Denmark has 0.00004 people per capita under quarantine. This is perhaps not surprising as Denmark is a wealthy country, far away from China with good testing  and monitoring capacities. Still, it underscores the point that 3,920 people under quarantine is certainly not nothing. To some extent, authorities may be over-vigilant, but there’s likely a foundation there somewhere.

More to come next week, surely.

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North Korea and the coronavirus: why internal controls may be working

Tuesday, February 25th, 2020

By: Benjamin Katzeff Silberstein

At this point, it seems unlikely that not a single case of the coronavirus would have reached North Korea, despite government media claims. The border to China is quite porous even when controls are tight, and the provinces bordering North Korea had seen, as of last week, some 200 cases. The government has ordered schools shut for one month starting five days ago, on February 20th. Unsurprisingly, it has taken special care to protect Pyongyang from the virus, and face mask distribution goes first to the one percent.

The economic effects of all this are very troubling. As this blog has previously noted, markets and society overall seem to be taking the border closure much more seriously than sanctions, and have reacted with much more anxiety than when new rounds of sanctions measures have been levied by the international community in the past. Prices have climbed quite drastically, as we shall look at in some detail in this post. They have risen by much more in Hyesan than in the rest of the country, which tells us something interesting about the government’s internal controls. That differences in market prices are increasing could be a sign that internal controls on travel across provincial boundaries are being enforced quite effectively. When traders cannot as effectively move their goods to where demand is the highest, prices will increase. One also has to bear in mind that Hyesan is very dependent on trade with China to begin with, and we should therefore expect prices there to increase disproportionately.

(My apologies for the awkward look of the graphs — please click for full size!)

In normal times too, prices tend to be higher in Hyesan than in other cities. But usually not by that much. Notice what happens around  January, though: prices skyrocket all over the country but they do so by much more in Hyesan.

This is particularly evident when we look at price differences. Normally, prices are between 5–10 percent higher in Hyesan than in both Pyongyang and Sinuiju. Since the border closure, however, they have gone beyond 20 percent over both cities, according to price observations from the past few weeks. 
Again, the border closure to China may be a central part of the explanation. But rice itself isn’t typically a good that North Korea relies so much on Chinese imports for. We don’t know the precise proportions, but likely, most rice consumed in North Korea in an ordinary year is grown within the country. A likely conclusion is, therefore, that the closure of provincial borders within North Korea is being enforced with some efficiency, making it much more difficult for market traders to transport goods such as rice between different markets in the country. This adds to the already stark economic difficulties from the closure of the border to China. Many other prices have risen drastically as well: gas prices in Hyesan are now 46 percent higher than in late December of last year, and 38 percent higher in the country as a whole. The government has attempted, reportedly with some success, to institute price controls on the markets, but as the story goes with such state attempts in general, they are unlikely to last as black markets arise to respond to shortages.

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Almost a year after the alarm bells: following up North Korea’s food crisis (and an aid success story?)

Thursday, February 20th, 2020

By Benjamin Katzeff Silberstein

There exists two very radically different narratives on North Korea’s food situation and harvest of last year. The strangest pat of the story is that the state, likely through its different arms, are able to hold both stories at once. The first was the one trumpeted out by the North Korean government and international aid agencies last year (as well as some scholars), that North Korea was facing a famine. The second one is from Kim Jong-un’s plenum speech in late December, where he claimed that North Korea’s harvest was the largest one “on record“.

The Red Cross (IFRC) released an assessment report last month, and though it leaves many questions unanswered, it’s a fascinating and much more detailed read than most assessments of North Korea’s food situation over the past two years. I list some of the highlights below.

First, the most remarkable finding of the report is perhaps how big of a difference aid and support to irrigation can make. I have previously written that the most likely reason the food situation turned out better than expected is that China stepped in with aid. This still seems to be the most plausible scenario, but it is also possible that aid came not in the form of food deliveries, but in equipment and fuel for irrigation, most likely it was a mix of both. If the report is to be believed, and I see no reason to doubt its veracity and methodological grounding, we can extrapolate that improving irrigation can more than double harvests in certain environments. The table below comes from page 5 of IFRC, “DPR Korea: Drought and Food Insecurity Final Report DREF Operation n° MDRKP013,” 17 January, 2020, http://adore.ifrc.org/Download.aspx?FileId=286144, accessed February 20, 2020:

(Note: mt/ha = metric ton/hectare. Click to enlarge.) 

As the table shows, expected versus actual harvests of early crops more than doubled in three of the communities surveyed. One farmer interviewed in the report says that thanks to the IFRC water pumps, their harvest was the best in a decade in the end, and not the worst, as the international community first projected. The total cost of the operation was the equivalent of less than $250,000 for a strong impact on communities holding 34,414 people. Scale that up by 100 and we have $25 million for measures that could drastically help around 3.5 million people. And so on and so forth. Of course, this isn’t a precise or grounded calculation by any means, but it does give a sense of the proportions at hand. $25 million is a third of what North Korea spent on tobacco imports from China last year. Remedying difficult farming conditions isn’t necessarily all that expensive, but can be very, very effective. (Before drawing any certain conclusions from this, do be sure to read the report. It highlights the specific conditions of the localities in question.) It is often said that North Korea’s geographical features make it naturally inhospitable to agriculture and food production, but efficiency and capacity could be vastly improved through investments in agricultural infrastructure.

Second, even with the improvements that came after the initial food crisis alarm bells, none of them make it even remotely likely that Kim Jong-un’s claim of the “best harvest on record” was true. The report highlights some of the difficult weather conditions the country faced in 2018 and 2019. For example:

The agricultural production this yea r(2019) in DPRK was seriously impacted by the after-effects of the droughts that have occurred consecutively over the past 5 years.The situation was worsened by th elittle snowfall last winter and almost no rainfall in the 1st quarter of this year. The unusually low levels of precipitation continued in April and May,combined with higher than usual temperatures. As a result, the water levels in the reservoirs are much lower than normal. These conditions have remained the same during the summer months.

(Source: p. 3 of the report.)

Third, the report raises several intriguing questions about the IFRC in North Korea. To the best of my understanding, the IFRC has a chapter in North Korea but like all organizations in the country, it is for all intents and purposes a government entity. The report references its personnel several times — ” DPRK RCS has a good volunteer network established in these areas” (p. 2), “the team also coordinated with and consulted the Red Cross branches, local authorities, and the State Hydro-Meteorological Agency” (p. 2), “workshop…with community people” (p. 8), et cetera — and it would be very interesting to learn more about how the organization functions on the ground, how its staff are recruited, what “volunteer” actually means, et cetera.

Notwithstanding the questions that reports such as this one give rise to, they are crucial resources for knowledge on North Korean agriculture and food production.

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Rice prices in North Korea have risen by more than a quarter in two months. Why?

Thursday, June 27th, 2019

By: Benjamin Katzeff Silberstein

Looking at the latest figures from Daily NK’s market price data index, there are a few interesting developments to note.

First, rice prices have gone up quite a bit over the past few weeks. This in itself not dramatic or unusual. After all, rices prices tend to climb during the lean season closest to the next harvest, between May and September (roughly). But if the climb continues, that could be the markets finally catching up to the supply shortages. (Though, as I’ve written about numerous times, we can’t read the calm of the market prices as a refutal of the food shortage claims. It’s more complicated than that.)

Average market price in North Korea, late June 2018–2019. Source: Daily NK.

As the graph shows, the latest price observation (June 25, 2019) is slightly higher than the closest equivalent from last year (June 26, 2018). It’s not by very much – a price difference of 227 won isn’t what I would call significant – but still, prices may continue to climb from now and onward. We just don’t know.

More significant and interesting, however, is that prices have climbed by quite a bit and quite quickly over the last couple of months. On April 30th, Daily NK reported an average market price of 4070 won per kg. On June 25, 2019, that same price was 5140. That’s an increase of 26 percent in less two months.

In the grand scheme of things, it’s not a massively high price. But the quick increase is notable, and it’ll be important to keep an eye on the future price trajectory to see if it’s part of a longer trend.

Average rice prices on markets in three North Korean cities, July 2017–late June, 2019. Data source: Daily NK.

Note that the price hump to the left is from September 2017, and prices tend to be higher later in the fall.

Second, corn prices have also climbed during the same period. Corn, it can reasonably be assumed, is an inferior substitute good for rice – in other words, its less popular cousin. When rice gets more expensive, people should logically buy more corn. Corn prices have also climbed in the past few weeks, but not to historically significant highs.

Average corn prices on markets in three North Korean cities, July 2017–late June, 2019. Data source: Daily NK.

Third, pork prices have declined quite steeply over the last two months. Not to historical lows, at least not yet, but still.

Average price of pork, three North Korean cities, late June 2018–2019. Data source: Daily NK.

If one wanted to fit this into a broader narrative of food shortages, here’s how it could be done: if people need to spend more of their income on staple foods such as rice, they have less to spend on more luxurious foods such as pork. Subsequently, prices should decline.

Fourth, gas prices, too, have dropped, and very steeply, over the past few weeks. This price drop is most likely caused by seasonal factors (which makes sense given the summer weather), since the same drop occurred last year too. But it could also be that China has increased supply with the improvement of relations with North Korea. In any case, it does look like gas prices are back in their normal range, and a drop this steep over time certainly makes things easier for a wide range of economic sectors in the country.

Average gas price, three North Korean cities: July 2017–late June, 2019. Data source: Daily NK.

In sum, the higher rice price may be part of a longer-term trend, and it shouldn’t be surprising if the seasonally normal increase of the summer and fall months ends up being higher than usual. As of now, it’s not a dramatic increase, but for those many North Korean consumers already living on thin margins, it may be quite problematic.

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North Korea’s harvest numbers: what “food production” really means

Monday, March 11th, 2019

By Benjamin Katzeff Silberstein

I wrote about the confusing harvest numbers this past Friday, and I’ve been able to find little new information to make things clearer. Basically, the problem is that talking about “food production” is too vague, since that can mean a lot of different things. In the standard World Food Program/FAO crop assessments, there are usually two numbers quoted: one estimate for total production of food,  and one for “milled cereal equivalent”, a standardized measurement used to translate the varying nutritional contents of different crops into a standardized weight measure.* (See below for a more detailed explanation.) Basically, the “milled cereal equivalent” figure tends to be significantly smaller, by about 20 percent or so, than the original, total food production figure.

Since we don’t actually know exactly which number is being thrown around in analyses of the current harvest, I’ve calculated a possible milled-equivalent harvest figure, using the average difference between milled and unmilled for the years where I have the two different numbers from the WFP/FAO crop assessments. None of the historical estimates I’ve found correspond with the harvest numbers for previous years in the 2019 UN Needs and Priorities Plan. Crop production figures are usually given in terms of “marketing years”, not in calendar years. For simplicity’s sake, I denote each year by the second half of the marketing year, when most consumption will occur. So “2019” is the 2018/2019 marketing year, “2018” is the 2017/2018 marketing year, et cetera.

The following shows the scenario where the 4.95 million tonnes production figure is the “unmilled” cereal equivalent measure. Based on the average difference between milled and unmilled for the years where I’ve had data available from UN institutions (0.85 million tonnes), I’ve added and subtracted to complete the figures where necessary. This is not an exact, scientific way of looking at the harvest numbers. For exact accuracy, I’d need to calculate the milled cereal equivalent of each crop, something I don’t have time to do right now. This may well make the figure even lower. (Hazel Smith’s figure, for reference, is 3.2 million tonnes.) But the following does, at the very least, give a sense of the proportions at hand. And it makes the numbers look different from my initial assessment.

Food production, million tonnes (unmilled) Food production, million tonnes (milled)
2009.00 4.20 3.30
2010.00 5.17 4.32
2011.00 5.33 4.50
2012.00 5.50 4.66
2013.00 5.80 4.90
2014.00 5.98 5.03
2015.00 5.93 5.08
2016.00 5.92 5.07
2017.00 6.03 5.23
2018.00 5.75 5.00
2019.00 4.95 4.10

Table 1. Figures are sourced from various assessments by the WFP and FAO; contact me for exact sourcing on specific figures. 

Graphically, the trend in food production in milled terms, i.e. the lower-end, more realistic figure of how much food is available for consumption, using the above assumption for the 2019-figure, looks like this:

Graph 1. Estimate food production in North Korea, million tonnes, in milled cereal equivalent terms.

In short, this does give a rather grim and highly problematic food situation, putting the quantity of the harvest at 4.10 million tonnes. It puts North Korea back to a state of food production prior to 2010–2011, when harvest started to climb. And now, North Korea receives far less aid than it did a decade ago. Plus, its imports will only amount to 200,000 tons, the government seems to be saying, a similar amount to what it procured in imports and humanitarian aid in 2016/2017, when the harvest was much larger.

For long, this is how low North Korean harvests were. Only a few years ago, this would have looked like a rather solid harvest. Looking back in the future, it might turn out that the past few years of food production growth, since around 2011, was an abnormally good period of time. None of this means that this food situation is anything but poor.

To me, among the figures I’ve been able to find, it’s the only one that make sense in the context of the statement from UN representatives that this harvest was the worst “in a decade”. Hopefully things will become clearer over the coming days and weeks, as more information may be published, in which case I’ll update this post.

In sum, the actual food available in North Korea is, in all likelihood, much lower than the 4.95 million tonnes-figure quoted by the UN and the North Korean government. As the following graph shows, even using the North Korean government’s figures, the drop from last year doesn’t appear all that massive. But on closer inspection, the actual quantity of food available may be significantly lower than the figure the North Korean government states, as I’ve tried to show in this post.

Graph 2. Food production in North Korea, from the UN’s “2019 Needs and Priorities” report on North Korea.

Finally, a note on the issue of the markets and the public distribution system. I maintain that it’s impossible to get a sense of total food availability and circulation in North Korea as a whole, without taking the markets into account. According to most studies we have, the majority of North Korea’s population rely on these markets, rather than the public distribution system, for their sustenance.

But one has to acknowledge that just like the UN and North Korean government figures may not reflect the whole situation accurately, there may be a fair bit of bias in the data on the prevalence of the markets too. Most of this data comes from surveys done with defectors in South Korea. They overwhelmingly tend to come from the northern provinces of the country, closer to China, where market trade has traditionally been more prolific. Most sources for news from inside North Korea are based in the northern parts of the country, where one can get access to Chinese cell phone network coverage.

There’s likely another form of bias present in these surveys, too. Most people who are reliant on the PDS for their sustenance are likely underrepresented among defectors. People in state administration and security organs, for example, are less likely to leave North Korea, though that of course happens too. And in any case, we’re talking about a quite large demographic of people, whose livelihoods would be significantly impacted by cut rations. Such cuts are already happening, Daily NK reports, with some professional groups receiving only 60 percent of  what they otherwise would. The PDS may have changed shape and function quite drastically since the early 2000s, but it may also be more important to the North Korean public than the currently available survey data and reports from inside the country tells us.

Conclusion

North Korea’s food situation, though not at famine-time levels, does appear to be dire. The figures, in combination with reports from inside the country, gives serious cause for concern. Government numbers may not tell the full story since they likely underestimate the role of the markets. Nonetheless, things do look serious. The government could easily alleviate the situation by changing its spending priorities and policies. Chances are that it won’t.

Footnote:

*I’m borrowing here a footnote from a 38 North piece by the late scholar Randall Ireson, whose archive of articles remain one of the best sources for information on North Korean agriculture:

The FAO has consistently used grain equivalent (GE) values for the major crops to compensate for varying moisture and energy content. Thus, husked rice (GE) is .66 of the paddy weight, potatoes (GE) are .25 of the fresh weight, and soybean (GE) is 1.2 times the dry weight because of the high oil and thus calorie content.

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North Korea’s economic situation, going into Hanoi: a roundup of the data

Thursday, February 21st, 2019

By Benjamin Katzeff Silberstein

The Hanoi summit is under a week away, Daily NK recently put out new market price data, and I’ve finally had time to update my dataset. There seems like no better time than the present to take a look at some of the numbers we have available for the North Korean economy, thanks to outlets such as Daily NK and Asia Press/Rimjingang.

Currency

Let’s start with the exchange rate. A few weeks ago, the (North Korean) won depreciated quite significantly against the USD, which I wrote about here. At 8,500 won/1usd, the USD-exchange rate on the markets hit its highest point since the inception of “maximum pressure”. The graph below is shows the average market exchange rate in three North Korean cities for won-to-USD.

Graph 1. Average won-USD exchange rate on markets in three North Korean cities, spring of 2017–February 2019. Data source: Daily NK.

As the graph shows, the won rebounded somewhat after the initial spike in early January. According to the latest data point, the exchange rate stands at 8190 won, still somewhat higher than the average for the period, 8136, but barely.

What could have caused this spike? One possibility is that the government has started to soak up more foreign currency from the market, because the state’s foreign currency coffers are waning. After all, given the vast trade deficit, the continued necessity of spending hard currency on things like fuel (bought at higher prices through illicit channels to a greater extent) and other factors, it would make a great deal of sense. Currencies fluctuate all over the globe, sometimes based even on loose rumors that fuel expectations. One anonymous reader who often travels to North Korea for work heard from Korean colleagues that accounting conditions for firms had gotten stricter, likely because the government wants to be able to source more foreign currency from the general public.

It is also noteworthy that while the Daily NK price index reports that the USD-exchange rate has gone back to more normal levels, the Rimjingang index remains at very high levels. Its latest report (February 8th) has the USD at 8,500, and on January  10th, it registered 8,743 won, a remarkably high figure that the Daily NK index hasn’t been near since early 2015. The difference between the two may simple come from the figures being sourced from different regions, or the like. North Korea’s markets still hold a great deal of opportunity for arbitrage, not least because of the country’s poor infrastructure.

So, it does seem like there may be some unusual pressure on the won against the dollar. What it comes from is less clear, but the state demanding more hard currency from the semi-private sector and others may be one important factor. In any case, we shouldn’t be surprised if the trend continues, unless sanctions ease soon.

At the same time, while the RMB has appreciated against the won over the past few weeks, it hasn’t really gone outside the span of what’s been normal over the past few years.

Graph 2. Average exchange rate for won to RMB, average of three North Korean cities, late 2015–early 2019. Data source: Daily NK.

The average exchange rate for RMB since the start of Daily NK’s data series in late 2015 is 1228 won. The latest available observation gives 1241 won/RMB, and the RMB has appreciated against the won over the past few weeks. The Rimjingang data, here, too, gives a higher FX-rate for RMB than Daily NK, at 1250 won. Their index, too, shows the FX-rate for RMB going up over the past few weeks, but not to levels out of the ordinary. Still, if the won continues to depreciate against both the dollar and the RMB, it may be a sign of a more persistent foreign currency shortage.

Food prices

Rice prices remain as stabile as ever, in fact, even more so than this time last year. They continue to hoover between 4,500–5,000, with the latest observation being at 4,783.

Graph 3. Average rice price for three North Korean cities, spring of 2017–early 2019. Data source: Daily NK.

This should not necessarily be taken to mean that North Korea’s current food situation is not problematic. Even with increasing harvests in the past few years, it’s always been fragile. The past year’s drought reportedly took a toll on the harvest. Though market prices aren’t suggestive of any shortages as of yet, that could change in the months ahead. The latest harvest was likely lower than those of several previous years and difficulties in importing fertilizer may have contributed, but the dry weather was the main factor.

Even with a slightly lower harvest than in previous years, it seems that structural changes in agricultural management has improved agricultural productivity to such an extent that food safety isn’t severely threatened even with a reduced harvest.

Gasoline

Gas prices appear to have stabilized around a sanctions equilibrium, of sorts, since a few months back. The past year hasn’t seen any spikes near those of the winter in 2017, when prices went above 25,000 won per kg. For the past year, the price has mostly hovered between 13,000 and 15,000 won per kg. The last observation available from Daily NK, is at 15,200 won per kg. This is slightly higher than the average of the past 12-month period, 13,500 won per kg. A more recent report from Rimjingang puts prices at 13,750 won per kg, so perhaps prices have declined over the past few weeks.

What’s likely happened is that China has settled on a comfortable level of enforcement of the oil transfers cap, for now. (For a detailed look at fuel prices in North Korea and Chinese sanctions enforcement, see this special report.)

Graph 4. Average gasoline price, three North Korean cities, early 2018–winter 2019. Data source: Daily NK.

There is lots to be said about gas prices and their impact on the economy, but for now, it looks like supply of gasoline in North Korea is restricted, but stabile.

Hard currency reserves

I unfortunately don’t have any data to present on this issue, but it’s too important not to mention. We don’t know how large North Korea’s foreign currency reserves are, but all throughout “maximum pressure”, people have been speculating that they’ll soon run out. One South Korean lawmaker said in early 2018 that by October that year, North Korea would be out of hard currency. That clearly didn’t happen.

The lack of stabile foreign currency income may still be a problem for the regime, as mentioned above. It’s hard to imagine how it couldn’t be a huge headache. Look at the following graph for example, showing North Korea’s trade (im)balance with China, throughout 2017 and the first few months of 2018.

Graph 5. North Korea’s trade balance with China, in $1,000 terms. Data source: KITA.

Let’s assume that China is simply letting North Korea run a trade deficit, with only some vague future promise of payment in the form of cheap contracts for coal and minerals. Or, let’s say that China is even just sending North Korea a bunch of stuff without requiring any form of payment whatsoever. It seems highly unlikely to me that even a government like China would support the full extent of these imports. Even if North Korea is only paying in hard currency for a relatively small proportion of what it imports from China, that’s still a lot of money that’s just leaving the vaults, with virtually nothing coming in to replenish them. How long can this go on for? Probably longer than many estimated at the onset of “maximum pressure”, but certainly not forever.

Summary

In sum, judging by the numbers, North Korea’s domestic economic conditions appear stabile but quite difficult. No sense of widespread, general crisis is visible in the data. Nonetheless, the regime is likely under a great deal of stress concerning the economy. How much is hard to tell, but definitely enough for some form of sanctions relief and/or economic cooperation to be high on their agenda for Hanoi.

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Could Xi Jinping give Kim Jong-un fuel deliveries for his 35th birthday?

Wednesday, January 9th, 2019

By: Benjamin Katzeff Silberstein

At the present time of writing, Kim Jong-un is still in China, though some signs suggest his train may have taken off back to North Korea. Kim spent is 35th birthday in Beijing, and visited a high-tech factory zone and other sites relevant to his economic and industrial policy focus.

But what did Xi Jinping give Kim for his 35th birthday?

If the past is any indicator, Xi’s present may have been sanctions relief in the form of increased fuel deliveries. The data suggests that this is precisely what happened after Kim’s third visit to China last summer, on June 19th of 2018. Consider the following graph, from a forthcoming working paper:

Average gasoline and diesel prices on markets in three North Korean cities, January–August 2018. Data source: Daily NK price index. Graph: Benjamin Katzeff Silberstein/North Korean Economy Watch.

(If the image is too small, click it to see a larger size.)

Look closely at the dip in the blue line, in the right-hand side of the graph. This shows a significant drop — 50 percent! — in average gas prices on markets in three North Korean cities. This price drop came right at the time of Kim’s third visit.

Coincidence? Could be.

Market prices, however, tend to move for a reason, and there are no obvious factors that can explain this particular price drop. Other than Kim’s visit, that is. This is, of course, circumstantial speculation, but it makes a great deal of sense. China may have simply upped fuel deliveries to North Korea as a show of good faith prior to Kim’s visit, or after a direct request from Kim.

Should Kim have asked Xi for similar sanctions relief during this visit, it wouldn’t be all that surprising. It’s also worth noting that exchange rate for both US dollars and Chinese renminbi have gone up quite significantly on North Korea’s markets in the past few weeks, as I noted a couple of days ago, hinting that the economy may be under some distress. North Korea may not be under any general economic crisis as a result of the sanctions, but things surely aren’t looking great.

We should know when the next price update from Daily NK or other sources comes in, and just because Kim seems to have gotten sanctions relief at one point after a meeting with Xi doesn’t mean it’s a given for every single occasion. But it is reasonable to expect that Kim did get something from the trip. It did, after all, coincide with his birthday.

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