News outlets are buzzing with reports that Jang Sung-taek, Kim Jong-un’s uncle and a prominent figure during the power transition in 2011-12, has been removed from power. Although not fully verified, some sources are suggesting that Jang was removed due to his support for a broader Chinese-style economic reform, which clashed with Kim Jong-un and Central Military Commission Vice-chairman Choe Ryong-hae’s preference for more limited changes in the system.
The long-term impact of Jang’s removal on North Korea’s economic development is difficult to assess (after all, the man’s been removed from power before and succeeded in returning to the regime’s inner circle); however, for the moment, Kim Jong-un’s control over the state appears to be reflected in the stability of food prices despite this major reshuffle. The price of rice in Pyongyang during the week of November 13 was reportedly KPW 5100/kg (KPW = Korean People’s Won), KPW 300/kg higher than in September but relatively stable considering the increase from KPW 2600/kg in April 2012 to KPW 6950/kg in March 2013. Low price volatility was also recorded in Sinuiju (November price at KPW 5400/kg, increase of KPW 300/kg from September) and in Hyesan (November price at KPW 5800/kg, decrease of KPW 200/kg from September).
The relative stability of food prices has been undoubtedly helped by the arrival of autumn harvest rice in urban areas, further pushing prices in Pyongyang down to KPW 4200/kg in early December. In cities like Sinuiju, low rice price volatility has even spurred demand for meat which is being sold at ever increasing prices, reflecting the growth of demand (pork prices stood at KPW 22,000/kg in mid November in Sinuiju, an increase of KPW 7000/kg since mid September). Sources in North Korea suggest that many of these new meat stores are run by entrepreneurs, acquiring permission to operate by providing authorities with 10% of the profit.
Despite positive signs of moving towards greater food security, the situation in North Korea has not yet yielded conditions that offer long-term stability.
The UN Food and Agriculture Organization (FAO) and World Food Programme (WFP) visited North Korea during September/October of 2013 and reported that despite the 5% increase in food production in 2013 (yield estimated at about 5.03 million tonnes after milling is taken into account), cases of stunted growth in children due to malnutrition remained high and 84% of households consumed borderline to poor levels of food. It is also important to note that although domestic cereal output has increased, a deficit of 40,000 metric tons still remains after taking into consideration the state’s planned imports.
Indeed, while reports from Pyongyang suggest that people are better off with lower cost of food, similar conditions have been few and far between in other parts of the country despite the intake of harvest grains. According to Daily NK sources, residents of Hyesan have not received anything from the state since the distribution of potatoes in October while cooperative farm workers in Hwanghae received amounts in accordance with localized distribution of food but nothing more. As this blog highlighted time and time again, there exists an extreme contrast in the way the state treats Pyongyang versus the country’s periphery. We see this divergence as the key obstacle in not only the country’s development but also its food security.
This gap between the core and the periphery may have been further exacerbated in recent months by dramatic increases in wages for industrial workers. Designed to boost productivity, workers in heavy industry and textiles have, since September, started to receive up to KPW 300,000/month, a significant raise from the average KPW 3000-4000/month that they had been receiving before. Recognizing that this will likely cause inflation, authorities are reportedly paying heavy industry workers in areas like Musan in North Hamkyung Province KPW 200,000 of the wages in kind (rice, etc.) and KPW 100,000 in cash. However, textile workers, who are based largely in Pyongyang and its surrounding areas, have been paid all KPW 300,000 in cash – a move that will only further increase the purchasing power of Pyongyang.
So far, food price inflation has not been noted in Musan (KPW 5,800/kg) or Pyongyang, but that might be because of the relative increase in the supply of grains during recent months. Many researchers, such as Cho Bong Hyun at IBK Economic Research Institute, fear that the rise in wages will cause the value of KPW to nosedive, leading to more unfavorable exchange rates for North Koreans trading with China and further disrupting commercial activities.
Meanwhile, similar raises in incomes have not been extended to agricultural workers. Daily NK reported that people engaged in farm work are “increasingly concerned about the amount [of grain] they will receive” as promised portions of the harvested rice, which is first sent to Pyongyang for the national rice reserve, have not yet been returned. There are fears that after having released some of the rice to stabilize prices earlier this year, the state has failed to collect satisfactory amount to refill the reserves. Seemingly confirming the farmers’ fears, calls for donations (called “loyalty rice”) have been issued by the state. There is further dissatisfaction among farmers who anticipate receiving rice from the reserves, but grain that is likely to be older, long-stored rice.
North Korea faces difficult economic prospects moving into 2014 – there are deficiencies in every aspect of its economy, from energy production to agriculture. As noted above, part of the problem is caused by the state’s intentional distortion of the domestic market to favor Pyongyang, which undermined the confidence of farmers and weakens the KPW. Major reforms are long due. But if Jang Sung-taek was indeed removed because of his attempts to further reform the country’s economy, then North Korea is due for a long winter.