The poverty of central planning and food insecurity

Last December, the DPRK Food Policy Blog noted that adverse shifts in Sino-DPRK relations resulting from the purge of Jang Sung-taek could potentially spiral into another food crisis. Drawing on comparisons to the winter of 1954-55 when sudden restrictions on the commercial exchange of foodstuffs led to the country’s first food crisis, this blog’s precautionary article highlighted the importance of maintaining North Korea’s trade relations with China in suppressing volatility in the domestic food market and protecting the people’s entitlements. It seems now that no major disturbances in bilateral relations have occurred – both states are clearly invested in maintaining stability through this period of internal political upheaval (read about Chris Green’s analysis of Pyongyang’s current posture towards China here).

But once again, the biggest threat to North Korea’s food security proved to be Pyongyang’s own centrally planned policies. Setting out to increase fertilizer usage in farming, the state has set high production quotas for communities to meet by March. Although similar quotas for organic fertilizer procurement (human excrement, animal manure and humus) had been set in previous years, this year not only has the aggregate amount increased by 200 kg to 1.7 tons per household, but officials are also refusing the usual bribes that had exempted households from these duties in the past. In addition, individuals are now required to deliver the fertilizer loads in person, drawing crucial labor and man hours away from income-earning activities. Further reducing productivity in other parts of the economy, officials have issues temporary restrictions on commercial activities to ensure that the people commit to the task of foraging/producing organic fertilizers.

This raises two core issues:

  • Without an open market, the relative productivity of fertilizers in inducing greater grain production is unknowable; therefore, the mobilization may have been a sub-optimal utilization of the labor force.
  • The prolonged closure of markets could lead to volatility in the food market as people’s loss of entitlements during the mobilization and loss of faith in the delivery of government-issued rations give way to panic.

Previous blog articles on North Korea’s doomed Green Revolution and the Hayami-Ruttan Thesis outlined the optimal path for inducing agricultural productivity – land-scarce economies (like Japan) ought to pursue fertilizer inputs while labor-scarce ones (like the United States) should adopt mechanization. With robust markets and public institutions, economic actors are able to assess the scarcities and inelasticity in the economy, substituting insufficient resources with innovations. Instinctively one might think that North Korea is a relatively land-scarce environment; however, upon considering how the country is largely urbanized, the country’s rural needs suddenly become more uncertain. Presence of an open market could have better informed economic actors of what innovations are more critical, but North Korea lacks the institutions that transmit such signals. Therefore, there is no way of knowing whether investment in fertilizer production is the most optimal strategy.

Perhaps more importantly, the obstruction to market activities could quickly lead to greater volatility in the market, triggering a food crisis. Commercial activities on the jangmadang (informal open markets) not only help distribute grain and foodstuffs, but also contributes to many individuals’ incomes. As a result, restricting market activities risks the collapse of both the food supply and incomes that allow people to acquire foodstuffs.

So far there have not been noticeable changes in food prices despite these adverse market conditions. However, the people’s uncertainties are palpable. Reports suggest that many people living in the periphery do not believe that rice rations will be provided for them despite promises from authorities. Further weakening the public’s confidence in the better distribution of rice is the fact that resources are being drained into Pyongyang, both as a matter of state policy and as a consequence of workers in the capital maintaining more favorable incomes than those in the periphery. Adding to this general specter, the potential supply shock from a poor spring harvest forecasted by the FAO could trigger market instability. Without adequate policy measures to communicate the availability of food, these conditions could give way to panic and hoarding.

Based on what has been observed since the KPW revaluation in the winter of 2009-10, it should have been clear to Pyongyang that there is no imperative greater than keeping the markets open. Alas, we will simply have to wait and see how things develop.

More 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
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2 Responses to The poverty of central planning and food insecurity

  1. Pingback: After Jang Sung-taek: Can North Korea brave the economic tempest? | Rice and Iron

  2. Pingback: How is North Korea responding to climate change? | Rice & Iron

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