Monetary stability and food security

Picture via Rodong Sinmun - the sign on the field reads “Everyone to the planting battle!”

Picture via Rodong Sinmun – the sign on the field reads “Everyone to the planting battle!”

Three North Korean cities are weathering the test of the lean season. According to Daily NK, rice prices in Pyongyang, Sinuiju, and Hyesan have remained below 4000 KPW/kg in the second week of May, falling slightly below what they had been in April. At the same time, the price of corn, which acts as the substitute for rice among poorer households, has also fallen by 500 KPW/kg since April to between 800 and 1000 KPW/kg. Daily NK’s North Korea source in Hyesan attribute this calm to two factors:

  • Work units on cooperative farms are bringing their stores of rice to market in bulk payment for resources for the planting season (diesel, fertilizer).
  • The Korean people’s won (KPW) exchange rate with China’s renminbi (RMB) changed very little, allowing North Korean merchants to maintain the terms of trade in cross-border commerce.

Here we see what this blog has emphasized in the past:

While these are good signs, observers must remain cognizant of the fact that nominal price of rice still remains higher than it had been in 2011 when the average food consumption score fell below the 28 point threshold for borderline food consumption.

according to data collected by Daily NK

according to data collected by Daily NK

Therefore, the most vulnerable members of North Korean society, in particular those who rely on the public distribution system (PDS), may not yet be able to afford long-term food security.

And while robust commercial activities might be evident in all-consuming Pyongyang and border-cities like Sinuiju and Hyesan with access to the Chinese market, we remain unable to assess the state of market activities elsewhere in the country. Last week, we hypothesized that the fires in Kangwon province, which were evident from satellite images, were caused by the lack of fertilizers in the region. If farmers there are unable to acquire the necessary farming inputs in local markets or do not have enough rice to sell at the market to afford inputs like fuel and fertilizers, then it is unlikely that merchants and urban consumers in Kangwon province are enjoying the kind of benefits witnessed in Pyongyang, Sinuiju, and Hyesan.

In addition, there remains the question of how long the state can maintain the exchange rate parity with the RMB. Korean Broadcasting Service (KBS) reported a story from Dandong on May 11, 2014 where they observed North Korean trucks delivering 600 tons of gold, silver, and copper ore concentrate to Chinese buyers – the report estimated that North Korea exports around 10,000 tons/month of mineral ores to China, selling these valuable resources at a massive discount. Such exports help prop up the KPW’s value vis-a-vis the RMB, thus are of the utmost importance in maintaining domestic market stability. However, there are growing concerns with labor absenteeism in North Korea’s state-run industries, caused by the state’s wariness towards increasing worker’s wages, despite increases in the cost of living, due to concerns that such actions will lead to inflation. No doubt the mining sector is also vulnerable to workers leaving work so that they can pursue higher earnings in private enterprises. The resulting decreased output could heavily affect North Korea’s trade parity with China and unsettle the fragile market.

More immediately, some analysts are deeply worried about the consequences of the current dry spell on North Korea’s food situation. Cho Bong Hyun of the IBK Economic Research Institute attributed this year’s price stability to the distribution of military rice reserves and noted that the ongoing drought could drive up prices as people anticipating bad harvest in autumn seek to horde rice now.

But what is more likely to happen (if there is indeed widespread domestic concerns regarding this year’s harvest) is that people will seek to horde RMB to hedge their future purchasing power in a more stable currency. Given that cross-border trade with China will probably continue irrespective of North Korea’s agricultural productivity in 2014, the RMB will become the premier medium of exchange for importing food if North Korea does suffer decreased crop output as a result of the current drought. This means that while food might not disappear from the stores, price volatility resulting from the people’s loss of confidence in the KPW will edge out consumers without access to foreign currencies or employment which provides wages that are consistent with living costs. In other words, those who are politically marginalized, without access to foreign exchange earning enterprises or state bodies, will be disproportionately affected by food insecurity.

In review, while current conditions in Pyongyang, Sinuiju, and Hyesan look positive, it is difficult to assess nation-wide conditions from these three particular cities because they maintain particularly advantageous trading positions with China. Even if we accept these three cities as proxies for the country at large, it is important to ponder what policies the North Korean state is pursuing to maintain market stability and question whether they can be maintained indefinitely without additional structural changes.


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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