How closed is the North Korean economy? Not as closed as many people might think.
NPR Planet Money Blog recently broadcasted an episode on the Rice Panic of 2008. Triggered by India’s decision in October 2007 to ensure food security by banning the export of rice, the unfounded fear of a rice shortage spurred hoarding throughout Asia and in other parts of the world. In February and April of 2008, Vietnam and Thailand, two of the world’s largest rice producers, halted exports to deal with domestic shortages caused by the panic. With major rice exporters closing their doors, the crisis spiraled out of control, even affecting certain parts of the US where major stores had to impose rations on the sale of rice.
How did this affect the North Korean food market?
Given the reputation of North Korea, one might have expected the country’s food situation to have muddled along without great disturbance.
Au contraire, the global uncertainty and spike in rice prices nearly pushed North Korea back into a famine.
Between March and May of 2008, domestic price of both rice and corn shot up, more than doubling in cities like Cheongjin, Hamheung, and Wonsan. Even in Pyongyang, the rice price rose from KPW 1850 in March to KPW 3200 in May, a 73% increase. Rumors that rice price will rise as high as KPW 5000 led to hoarding in North Korea as in other panic-stricken countries in Asia.
The rising prices reflected decreased imports due to the rising cost of grain abroad and the freezing of shipments from traditional donors who were also hit hard by the panic. According to the UN FAO study, the shortfall in cereals for North Korea was calculated to be 1.66 million tons (for the year ending in October 2008), the largest deficit in seven years.
Marcus Noland and Stephan Haggard also attribute the 2008 crisis to the 2005 ban on private trade of grain and the reimposition of the public distribution system, which took away the channels and mechanisms of overcoming serious shortages of food. This left the people even more vulnerable to shocks from abroad.
That shock came in 2008 in the form of the Rice Panic that started in India.
[Although], it is highly unlikely that the US aid or the moderation of global food prices will entirely stave off hunger-related deaths… North Korean markets are surprisingly integrated with global markets; this is an important finding, showing that the North Korean economy is increasingly affected by external developments.
The global panic and shortage came to an end in mid-May 2008 when the announcement that Japan will sell its surplus rice reserve (a byproduct of its trade concessions to the US) to the Philippines instantly calmed the panic purchasing of rice. International prices immediately fell and stabilized.
Likewise, the situation in North Korea drastically improved in June of 2008.
According to Daily NK on June 23, 2008
As of June 17, the price of rice in major border cities of North Korea ranges between 2,100 won/kg and 2,500 won/kg. In fact, the price of rice dropped almost by half in the last one month.
There could not have been a better real world experiment to test the influence of the international market on North Korea.
Given this fine example of interconnectedness, the ties between North Korea’s domestic rice market and international rice prices ought to be more thoroughly studied.
More to come.