Food, Fuel and Exchange Rates

Two recent articles are of great relevance to food security in the DPRK:

The Problems and Opportunities of Agricultural Practices in the DPRK” by Konrad  Mathesius notes the inadequacies of simply expanding agricultural production to evade a food crisis. Mathesius rightly underscores the negative impact of electrical shortages – especially for a country that since enforcing collectivization in the 1950s had pushed for mechanization and promoted the use of chemical fertilizers. This was deemed necessary in the poor, harsh farmlands of the North. Alongside creating massive environmental problems through erosion (caused by excessive expansion farmlands), the system created a major over-reliance on subsidized oil from the Soviet Union. As a result, the fall was that much harder when 1991 came.

During the great famine of the mid-1990s,

in an attempt to create quick-fix strategies to overcome impending famine, the government demanded that collective farms submit greater percentages of their crops to the Public Distribution Service. The government’s shifting of the burden onto collective farmers has encouraged the (illegal) private cultivation of land away from the prying eyes of officials. This in turn has led to less time spent tending collective farm crops and the deforestation of hillsides, which has increased erosion, runoff and flooding.

The resulting problems have continued to haunt North Korea. Last year’s flooding was a key source of low agricultural output. In addition, there are other issues caused by the deficit of fuel.

Night soil (excrement, usually human) is often used as a substitute for chemical fertilizers [which require high amounts of energy to produce], but the North’s lack of adequate wastewater treatment facilities and heavy rainy seasons mean that without proper treatment, pathogens can potentially be transmitted back into water systems and agricultural products. The consequences of untreated water and food can be gastrointestinal diseases that, particularly among children under the age of five, all too often lead to severe dehydration and death.

The 2012 UN report “Overview of Needs and Assistance” already emphasized rampant spread of diseases among children as a key concern in North Korea.

Meanwhile, in certain areas Pyongyang showed its capacity to make pragmatic decisions.

Kim Jong-il’s enthusiasm for potatoes and soybeans instead of rice was an impressive rejection of traditional food sources for crops that were more suited to the North Korean environment. Soybeans in particular have proven to be a vital source of protein for North Korean citizens. Additionally, and perhaps most shrewd of all, soybeans are nitrogen-fixing plants. That is, in the absence of sufficient chemical fertilizer, soybeans help boost the nitrogen levels in the soil (up to 40lbs/acre). While soybeans alone may only be able to produce 25% of the nitrogen required for a healthy acre of corn, the substitute is well received.

However, more needs to be done to shore up the massive deficit in food production, especially because the problems in the environment, economy and health compound existing problems to make finding a solution more difficult.

For example, as a recent article by Chris Green titled “The Inexorably Rising RMB Exchange” noted, the value of the North Korean Won is declining at a rapid rate. Exchange rate in Musan in January was 60,000 Won for 100 RMB, but the rate rose to 80,000 Won for 100 RMB by June. A year ago, 100 RMB was traded for 43-45,000 Wons, revealing a steady decline of the North Korean Won. Considering most of North Korea’s food, fuel and consumer goods come from China, the rising exchange rate can only result in a more difficulties for the people. Furthermore, Chris Green points out that chemical fertilizers, essential to food production, are imported from China. The economic conditions are making food production even more difficult.

Much of the consumer goods are apparently now being bought and sold in foreign currencies, which were expressly emphasized by the North Korean state as serious criminal offenses.

All this has serious implications for the North Korean economy as a whole:

The complete lack of consistent economic policy symbolized by the last currency redenomination of November 30th 2009 only helps to exacerbate a post-90s preference for holding foreign currency, something which is largely done in RMB (along with US Dollars). As a result, the North Korean authorities now find it nearly impossible to control the value of their own currency on a day-to-day basis, and are reduced to watching on as exchange rates fluctuate, while occasionally employing the sledgehammer (a redenomination) to give the impression of having some form of economic leverage.

Pyongyang’s inability to stabilize the currency/policy of redenomination will worsen the livelihood of the people who are struggling the most to secure survival. The above articles are signs of more difficult times 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
This entry was posted in Rice and tagged , , , , , , , . Bookmark the permalink.

One Response to Food, Fuel and Exchange Rates

  1. Pingback: Good days ahead… or is it just an aberration? | DPRK Food Policy Blog

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