Triangulating the Food Economy



“Boy, I got vision, and the rest of the world wears bifocals.”

--Butch Cassidy to the Sundance Kid

Lately there has been more than the usual scratching of heads in regard to the state of the North Korean economy, and unlike some more visionary North Korea watchers, I am definitely wearing bifocals. (Actually progressives, since this is 2014 and not 1969.) I thought that I would do a series of posts trying to informally triangulate some of the odd observations that I have stumbled across in the last few months. Who knows, I might try to get Kevin Stahler to test some of these hypotheses more rigorously. One common thread that could hold many if not all these strands together is that the North Korean economy is going through considerable institutional change. That should be expected to produce winners and losers (especially in an environment where the state does not seem to have a lot of capacity or interest in mitigating these effects) and hence disparate eyewitness accounts of ground-level conditions. Today I start with the food economy.

rice and forex rates 2014 nov

Well, the price of rice seems to have stabilized, and lately has even fallen in both dollar and in won terms (though there is some evidence of a recent price spike). As I wrote in a recent not yet published conference paper:

“Beginning in January 2013, possibly connected to the emergence of a current account surplus…the black market rate on the North Korean won hit a trough and the currency began to appreciate against the US dollar. Simply put, more dollars are entering the economy than going out, and as a consequence of this excess supply of dollars, the won price of a dollar is declining. The upshot is that the price of rice in Pyongyang—effectively determined by the marginal supply of dollar-priced imports has stabilized (and is declining in terms of North Korean won).

Rice is consumed by the elite, and it is an open issue whether the same relationships held (or held as tightly) for other, less costly foodstuffs like corn, or in locations other than Pyongyang. It is possible that the situation is stabilizing or even improving for upper echelon of North Korean society (people with access to dollars who eat rice) but not for less elite members of society who don’t have access to dollars and eat corn and potatoes.”

At the same time, rations are down, the World Food Program aid effort has dwindled, reports of inadequate rainfall or even drought abound.

Oh, and the price of fish is rising (but you knew that already, right?).

So how does this all add up?

Positive spin: It is possible that as I argued in my paper, that expanded trade with China has led to a medium-term improvement in North Korea’s balance of payments, a strengthening of the exchange rate, and contributing to a stabilization, if not fall, in rice prices (abstracting from temporary movements). The PDS doesn’t really matter anymore, aid hasn’t really mattered for years, and the drought stories are scaremongering—North Korea is doing just fine. If they’d stop selling fish to the Chinese, those prices would be coming down too.

Negative spin: The economy is actually slowing (I’ll discuss some of the reasons to believe this in a subsequent post) and the fall in prices reflects a fall in demand. The recent decline in the rice price is simply the normal post-harvest dip reinforced by negative demand factors. Depending on which predominates, we can expect to see a rise in prices reflecting the inadequacy of this year’s harvest, or a fall in prices reflecting an adequate harvest combined with falling demand driven by slowing or negative income growth. Rations are being cut, aid is minimal, and people are spooked by rumors about the most recent harvest. The price of fish is rising because the local fishermen have gotten squeezed in the overall economic decline, and there just isn’t enough supply to go around.

One way of differentiating between these two narratives would be to examine the price of corn, the less preferred grain, in absolute and relative terms.  If the price of corn is rising relative to rice, it may suggest that the “negative spin” story is closer to the truth in that liquidity constrained households are switching from rice and to corn. If the price of corn is also stable or falling and there is no increase in its price relative to corn, then perhaps the “positive spin” story is closer to the truth.

But even such additional evidence would not be dispositive: as I noted in the opening paragraph, the North Korean economy appears to be characterized by growing inequality (which is why relying solely on eyewitness accounts of conditions in Pyongyang could be very misleading). It could be that in effect the economy is improving for some groups while conditions are worsening for others.

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