Price Volatility and World Rice Trade

North Korea’s nominal rice price took a huge dip in late January/early February as prices in Pyongyang fell KPW 1100 to KPW 5600, KPW 1500 to KPW 5500 in Sinuiju, and KPW 100 to KPW 6500 in Hyesan. These figures represent the lowest prices North Koreans have seen since July 2012. The prices rebounded this month to KPW 6600 in Pyongyang, KPW 6700 in Sinuiju, and KPW 6600 in Hyesan, but still remain below early January prices in all three cities.

As we established on our previous article, North Korea appeared highly susceptible to changes in the international price of grain during the rice panic of 2008.

However, significant changes in domestic rice prices in the last few months did not correlate with a similar change in international food prices. According to the UN Food and Agriculture Organization (FAO) report, the international rice price index fell from 244 in October 2012 (with 2002-04 prices=100) to 236 in January 2013. During the same time period, North Korea’s domestic rice prices have increased between 6.45% (Hyesan) and 14.75% (Sinuiju). This inverse relationship continued in February as the FAO Rice Price Index rose to 239 while prices in Pyongyang fell to lowest prices in months.

At the same time, the FAO Rice Price Index, which takes into account global production and prices, may not be the most reliable measurement for what is happening in Northeast Asia. After all, the 2008 panic affected North Korea because the countries involved were major rice producers in South and Southeast Asia with whom Pyongyang had close commercial ties.

We are certain that North Korea imports most of its rice through China, thus, if the price fluctuations are indeed caused from abroad, China’s commercial purchase of rice may be a more accurate predictor of North Korean prices. However, China’s own rice imports cannot be accurately measured because overland purchases from Burma/Myanmar and Vietnam are known to be both significant and difficult to assess with any accuracy.

Nonetheless, an interesting correlation appears when comparing rice export price of Vietnam and domestic rice price in North Korea. Since September 2012, around the same time when we observe a sharp increase in food prices in North Korea, Vietnam’s aggregate tonnage of rice exports declined from nearly 900,000 tons to around 340,184 tons by February 2013.

During the same time, export price (FOB, USD per ton) steadily increased, peaking in November 2012 and falling to about $433 per ton in February 2013. While export figures for March 2013 are not yet available, rice prices in Vietnam have risen due to the  government’s rice reserve policy which seeks to prevent major falls in the rice price by purchasing one million tons of the grain by March 15.

The correlation is largely imperfect, but there appears to be a positive relationship between exports from Vietnam and domestic food prices in North Korea. It is something to look into as Vietnam was the world’s second largest rice producer in 2012 (with 65% of its exports going to Asian countries) and has given generous food assistance to North Korea in the past.

One can also speculate whether the downward trend of food prices in early February was interrupted by North Korea’s third nuclear test on February 12, 2013. The tense political environment created by the test could have negatively affected rice imports into the country and consequently adversely influencing prices. Alternatively, the North Korean people themselves may be purchasing more grain to hedge against escalating tensions that could diminish the country’s food supply. A similar phenomenon occurred in the aftermath of the Yeonpyeong Island shelling in December 2010.

Another key question is why volatility of prices in Hyesan remains so low. Since September 2012, changes in rice prices there have never been more than KPW 300 with the price of rice fluctuating between KPW 6200 and KPW 6600. This is very stable when compared to price volatility in Sinuiju which ranged between KPW 5500 and KPW 7000 during the same time period. Is it possible that the level of government oversight in the different cities affect food prices? Yet more important questions to explore.

Perhaps prices in April will reveal more information.

More to come.

About Yong Kwon

I develop trade advocacy strategies for a DC-based consulting firm. Studied economic history at the London School of Economics, and can be found on twitter at @ykwon88
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6 Responses to Price Volatility and World Rice Trade

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