Archive for the ‘Price liberalization’ Category

North Korea on the Precipice of Famine

Tuesday, May 6th, 2008

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

Download the paper here: haggard_noland_weeks_pb.pdf

Abstract:

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

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North Korea stoic in the face of famine

Sunday, May 4th, 2008

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

From his article:

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

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

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

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

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

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

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

1. Low harvest numbers

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

2. Drop in aid from South Korea

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

3. International food prices rising

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

4. Cold shoulder from China

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

So what is Lankov’s prediction?

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

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

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

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

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Food situation in Ryanggang Province

Saturday, April 26th, 2008

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

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

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

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

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

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

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

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

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

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Pyongyang’s newest market…

Friday, April 25th, 2008

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

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

pyongyang-market.JPG

Click on the image to view full size.

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Market activity flourishes in the DPRK

Thursday, April 24th, 2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-21-1
4/21/2008

The March issue of “Rimjingang”, a magazine publishing stories on life inside North Korea as reported by defectors and those still inside the DPRK, contains an eye-opening report on activities in North Korea’s markets.

Since 2003, North Korean authorities have legalized DPRK markets throughout the country. The previously existing farmers’ markets were remodeled into ‘combined’ general markets and all traders were permitted to sell their wares. After the legislation was passed, even in Pyongyang general markets emerged in each neighborhood.

According to the magazine, more than 60 markets have been set up, with each market housing around 50 traders. The use of mannequins at clothing stores and attractive price tags used to catch the eye of the shopper are in force. These days, it is not even surprising to hear cassette players extolling the virtues of a particular vendor’s goods. Sellers here do not speak abruptly to customers as they might in a State-run store. In markets, one can hear respectful language used even to children. These are not ideas taught by the labor bureau, but rather independent ideas put to use by the sellers.

Stalls selling a variety of seafood can also be found in a number of markets. Mackerel, squid and flatfish from the East Sea are among the surprisingly fresh products on display. This seafood is not on display courtesy of the North Korean government, but rather is delivered by private entrepreneurs running refrigerated trucks from the coast to Pyongyang. According to the magazine, a number of delivery services are in operation, providing goods to the highest level of North Korean society.

Around Pyongyang, a number of flower sellers have also popped up in the capitalist markets. It is custom to give flowers whenever there is an event in honor of Kim Il-sung or Kim Jong-il; but these days it is also popular for couples to give each other flowers as gifts. Even before the emergence of these markets, there was nothing that couldn’t be found in Pyongyang as long as someone had the money to purchase it.

Currently, women under the age of 39 are prohibited from working in markets, and efforts to extend this restriction to women under 49 have raised tension with many women trading in the markets. ‘Good Friends’, an organization aiding North Korea, has reported that recently thousands of women have organized in protest against security forces in the farmers’ market in Chungjin.

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UN update on North Korea’s food situation

Wednesday, April 16th, 2008

From Bloomberg

The country has a grain shortfall of 1.66 million metric tons this year, the United Nations agency said in a statement today, citing figures from the Food and Agriculture Organization. The shortfall was the highest since 2001, it said.

“It takes a third of a month’s salary just to buy a few days’ worth of rice,” Jean-Pierre de Margerie, the WFP’s country representative in North Korea, said in the statement. The situation is “not yet” on the scale of the 1990s famine but “yellow lights have to be flashed,” he added in an interview.

The Asian nation’s food deficit may exacerbate a global grain crisis that has driven prices of wheat and rice to records, stoking inflation and sparking civil unrest. International Monetary Fund Managing Director Dominique Strauss-Kahn said April 12 that “hundreds of thousands” may starve worldwide.

Prices of staple foods in the North Korean capital have doubled over the past year following floods last August that reduced agricultural output, the WFP statement said. Last year’s harvest was a quarter less than that gathered in 2006, it said.

The WFP assists about 1.1 million North Koreans at present, while 6.5 million people suffer from “food insecurity,” it said. That “figure can be expected to rise if action is not taken,” the statement said.

Even in normal years North Korea has a deficit of 800,000 to 1 million tons of grain, de Margerie said in today’s interview.

The gap is greater this year because of the flooding and as external assistance has fallen since 2005, when North Korea declared that it could do without humanitarian aid, he said.

People will “resort to any means they can to cope” from growing food at home and trading in the country’s private markets to skipping meals, as many did for long periods in the mid-to-late 1990s leading to high malnutrition rates, de Margerie said.  (Bloomberg)

From Time (AP):

The North’s annual food deficit is expected to nearly double from 2007 to 1.83 million tons, according to U.N. projections.

Reflecting the situation, prices for key staples at food markets have also doubled to reach their highest level since 2004, the World Food Program said. Although the communist North provides some food rations to its people, those who can resort to markets to help make up for lacking state handouts.

The WFP also called on the North to allow aid groups to operate more freely in the country. Countries giving food distributed by the WFP require monitoring by aid workers to ensure that those most in need are being fed.  (Time )

Read the full articles here:
North Korea Faces Food Crisis, UN Agency Warns
Bloomberg
Bradley Martin
4/16/2008

UN: North Korea Faces Food Crisis
Time
Burt Herman
4/16/2008

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Muted birthday celebration

Tuesday, April 15th, 2008

Rumors of food shortages in North Korea seem to be popping up everywhere (even on this website), so now any change in Pyongyang’s standard operating procedure is interpreted in the media as a direct result of this condition.  Changes in regime behavior might be related to food shortages, but then again, we are talking about the DPRK, and we don’t really know how or why many decisions are made.

The latest North Korean “Kremlinology” comes from Yonhap:

With neither foreign artists singing in praise of Kim, who is dubbed the “Sun of mankind” by the communist state, nor the standard massive gymnastic display performed by about 100,000 people on show, North Koreans started the two-day holiday in a low-key manner.

The North traditionally spends a lot on celebrating one of the nation’s biggest holidays on a grand scale, inviting many foreign musicians and art groups to perform in the “April Friendship Art Festival” that marks the birthday of the nation’s founder and unveiling large public monuments.

Pyongyang, however, has scaled down the previously annual event to a biennual in what analysts said is a measure to save badly needed foreign currency because of worsening hardships facing the country.

and as for Arirang…

The Koryo Tours website claims that Arirang will take place from August to the end of September.  This could change, but it is 2-4 weeks shorter than the last couple of years (although those were interrupted by floods!).

Read the full story here:
N. Korea marks late leader’s birthday amid economic hardship
Yonhap
Shim Sun-ah
4/15/2008

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Good Friends publishes price data

Tuesday, April 15th, 2008

North Korea Today No. 119 Apr 2008
End of March, Price of Rice and Maize Reaches Highest Level in History

prices.JPG

(click on image for more legible version)

The price of foodstuffs is increasing at an incredible pace. On March 30th, for the first time in the country, the price of rice went over the 2,000won per kilogram mark and was traded for 2,050won in the city of Nampo. In the case of maize, the situation is even more extreme. The rumors that the price of maize would go over 1,000won in April became a reality and was being sold for 1,000won in places like Pyongyang, Chungjin, and Hamheung, while in Nampo, it was being traded for 1,050won. In other outlying regions, maize was still being traded at high prices ranging from 900won-950won. Only in areas like Onsung, Hoeryung, and some border areas in North Hamgyong Province was rice being traded at the comparatively low price of 1,600won for rice and 650-750won for maize.

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When food and politics collide

Sunday, April 13th, 2008

News of the DPRK’s food shortages began to surface several weeks ago when Good Friends reported:

North Korea’s chronic food shortage has worsened to affect even some of the country’s elite citizens in the capital, a South Korean aid group said Thursday.

The communist nation has not given rice rations to medium- and lower-level officials living in Pyongyang this month after cutting the rations by 60 percent in February, the Good Friends aid agency said in its regular newsletter.

Pyongyang citizens are considered the most well-off in the isolated, impoverished country, where the government controls most means of production and operates a centralized ration system. Only those deemed most loyal to Kim Jong Il’s regime are allowed to live in the capital.

The food situation is more serious in rural areas, with residents in many regions in the country’s South Hwanghae province living without food rations since November, the aid group said. (AP)

Why was this the case?

Floods last August ruined part of the main yearly harvest, creating a 25 percent shortfall in the food supply and putting 6 million people in need, according to the U.N. World Food Program.

Over the winter, drought damaged the wheat and barley crop, according to a recent report in the official North Korean media. That crop normally tides people over during the summer “lean season” until the fall harvest.

North Korea’s ability to buy food, meanwhile, has plunged, as the cost of rice and wheat on the global market has jumped to record highs, up 50 percent in the past six months.

China also appears to have tightened its food squeeze on North Korea for domestic reasons. In order to meet local demand and control inflation, Beijing slapped a 22 percent tariff on grain exports to the North. (Washington Post)

So North Korea’s domestic agricultural production has fallen and so have commercial food imports (international inflation, OECD government subsidies for bio-fuels, and increasing fuel prices have combined to raise the prices of commodities such as rice and pork up to 70% in the course of a year). 

Compounding this problem, however, agricultural aid from North Korea’s two most reliable benefactors (China and South Korea) has dried up.

[China] has quietly slashed food aid to North Korea, according to figures compiled by the World Food Program. Deliveries plummeted from 440,000 metric tons in 2005 to 207,000 tons in 2006. Last year there was a slight increase in aid, but it remained far below the levels of the past decade. (Washington Post)

And strained relations with the new Lee government in South Korea have not helped:

The South typically sends about 500,000 tonnes of rice and 300,000 tonnes of fertiliser a year. None has been sent this year and without the fertiliser, North Korea is almost certain to see a fall of several tens of tonnes in its harvest (Reuters)

So what will be the mitigating factors that prevent another humanitarian emergency?

“The reason for the mass starvation that occurred in late 90s is that North Korea faced natural disasters without expanding the market’s capability to substitute for the broken planned economy capability, and so the damage to North Korean citizens was inevitably large.”

“The market in North Korea has expanded in the last 10 years. The supply and demand structure of daily necessities, including food items, has been formed.”

“Because the market capacity has expanded, the possibility of a mass-scale starvation occurring is no longer high. In actuality, the change in food prices is being monitored at the market.”

-Dong Yong Seung, the Samsung Economic Research Institute’s Economic Security Team Chief, speaking at the 19th Expert Forum sponsored by the Peace Foundation (Daily NK)

Mr. Dong’s analysis addresses the improved efficiency of DRPK’s market supply chains but does not address the effects of an adverse supply shock. 

The UN seems ready to help, although it has not been asked:

Institutionally, mechanisms are in place in North Korea to ring the international alarm bell before hunger turns into mass starvation. The World Food Program monitors nutrition in 50 counties, and the Kim government has become expert in asking for help.

“The North Koreans know that they are facing a difficult situation and have made it increasingly clear in the past few weeks that they will need outside assistance to meet their growing needs,” the U.N. official said, asking not to be identified because of the sensitivity of the issue.

North Korea, which even with a good harvest still falls about 1 million tonnes, or around 20 percent, short of what it needs to feed its people, relies heavily on aid from China, South Korea and U.N. aid agencies to fill the gap.

The UN official said it was clear from a variety of sources that the food security situation was worsening in North Korea and that it needed to be addressed.

Last month Kwon Tae-jin, an expert on the North’s agriculture sector at the South’s Korea Rural Economic Institute told Reuters that if South Korea and other nations did not send food aid, the North would be faced with a food crisis worse than the one in the 90s.

The U.N. Food and Agriculture Organisation said in late March it sees the North having a shortfall of about 1.66 million tonnes in cereals for the year ending in October 2008.

The North will start to feel the shortage the hardest in the coming months when its meagre stocks of food, already depleted by flooding that hit the country last year, dry up and before the start of its potato harvest in June and July. (Washington Post)

The UNWFP, however, will be under pressure from its donors to monitor food aid and make sure it is not diverted to non-emergency uses.  Under these conditions, it is not likely that they will be asked to provide much aid until a catastrophy is already underway.  So with the UN out of the picture, who is best positioned to prevent the reemergence of a humanitarian crisis in North Korea today? China.  

Despite China’s own food probelms, however, it is always likely to capitulate, at least in part, to North Korea’s emergency requests.  China does not want to deal with another North Korean famine, particularly during the Olympic season, and they certainly do not want to deal with any political instability that could result. 

Yonhap reports that the DPRK has asked the Chinese for 150,000 tons of corn this year.  Chinas says they will give 50,000 tons–and that is just initially. (Yonhap)

UPDATE 4/14/2008: I still have not seen any reports in the media of Noth Korea seeking suport from Russia.

UPDATE 6/9/2008: China increases grain export quota to North Korea to 150,000 tons

(more…)

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North Korea home brews…

Wednesday, April 9th, 2008

Where do North Koreans get their alcohol?  The Daily NK has the scoop:

North Korean citizens started producing/distributing home-brewed liquor in 1987 after the prohibition of the production and sale of liquor in North Korea was lifted. 

Liquor made in the home of an average North Korean citizen consists of ingredients such as corn or rice and malt. The yeast cultivated from rice powder is combined with porridge prepared from the powder and fermented in a vat. After 12~14 days, the rice porridge and the yeast will produce a chemical reaction and will turn into a thick porridge, which is called “liquor porridge” in North Korea.

Refrigerating the steam from the cultivated liquor porridge and turning it into fluid produces liquor. North Korean citizens enjoy over 40% of alcohol content-liquor and approximately 800ml of liquor is produced from a kilogram of corn. A bottle of liquor (500 ml) is close to the price of a kilogram of corn, so selling liquor made from this produce can bring in a small profit.

Read the full story here:
North Korea’s Inspection of Home-Brewed Wine by the Party
Daily NK
Jung Kwon Ho
4/9/2008

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