Tensions Driving Rice Price and Exchange Rate Hikes

North Korea’s attack on Yeonpyeong Island on November 23rd has caused a spate of rice price instability in the markets. Even though it is December, rice is now selling for around 1,300 won per kilo, as much as 500 won more than it was just one month ago.

This is contra to the normal trend, which is that the price of food generally declines because farmers on collective farms get food distribution from the state at this time.

A source from North Hamkyung Province explained the details to The Daily NK yesterday, saying, “The price of rice, which was between 800 and 900 won in mid-November, started going up on around the 23rd, and is now over 1,300 won.“

“People have been taken aback by the soaring food prices,” he added

According to the source, on the 8th and 9th the rice price in Hoiryeong Market apparently hit 1,900 won, the highest this year.

This phenomenon, which is rare but not unprecedented, seems to have been caused because the North Korean authorities are trying to raise domestic and international tension on the Korean Peninsula.

An example of this can be seen in a statement released by a North Korean “social organization”, Chosun Peace Protection National Committee, on the 11th, in which it proclaimed, “Our military and the people are both prepared for either expanded skirmishes or all-out war.”

Elsewhere, people’s unit lectures over the last few weeks have focused on asserting phrases like this one, heard in a northern provincial city lecture, “Since the current situation is extremely tense, you have to live lives appropriate to that tension.”

This atmosphere naturally has spilled over into the markets, where food wholesalers and the “donju,” holders of large amounts of capital, have reacted negatively, according to the source, who explained, “The latest mood is similar to the time when the authorities declared a ‘Quasi-war Footing’ in 1993. As the atmosphere gets more serious, money holders begin to obtain and cling onto foreign currency, so foreign currency dealing and circulation volumes fall and food trade is choked off. Therefore, rice prices soar.”

In additional, military tensions between North and South are having an influence on trade between the North and China, so the amount of Yuan flowing into North Korea has also shrunk, which is another cause of rising currency exchange rates and therefore domestic rice prices.

The source said, “People are saying that this happened because of the gunfight between the North and South,” going on, “For this troubling rumor that a war could break out, smuggling volumes between North Korea and China have also shrunk.”

Although rice has now settled back to 1300 won from its high of 1900 won, the source said many people are still concerned for the winter season.

“Since the 10th, the Yuan has gone down to 330 or 340 won, so the rice price has dropped to around 1,300 won accordingly,” the source said. “But we are worried about whether or not we can afford to eat enough corn porridge this winter.”

The Daily NK has also conducted an additional investigation of currency rates and rice prices in Pyongyang, Shinuiju and Hyesan, comparing December 7th to 13th with November 24th to 30th, to check the effect of this trend across the country.

In the North Korean capital, one U.S. dollar has increased from 1,400 won to 1,750 won, while rice has gone from 750 won to 1,250 won per kilo.

In Shinuiju, meanwhile, both foreign currency exchange rates and rice prices are marginally worse again, moving from 1,450 to 1,800 won per dollar and from 800 won to 1,300 won per kilo respectively, while in Hyesan, the dollar exchange rate mirrored that in Pyongyang, but rice had been hardest hit, going from 900 won to 1,350 won.

Additionally, in Shinuiju on the 9th one Yuan had soared to 420 won, near the level of the period before the redenomination.

This December 2010 price trend is occurring for the third time since 2000. The first was in December, 2005 when the authorities stopped all food trade because the state apparently planned to resume full food distribution. Thereafter, rice prices almost doubled. The second time was in December last year, a phenomenon caused by a measure shutting down the market following the currency redenomination.

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