Eating boots, dreaming of pork: food security and the budget deficit in 2014

Versatile - sturdy, eaten by sailors lost at sea, and sold for food by the Korean People’s Army

Versatile – sturdy, eaten by sailors lost at sea, and sold for food by the Korean People’s Army

The lean months are coming to the DPRK. From May through August, North Korean farms will be sowing and growing key crops like rice, maize, and soybean while consuming what remains of the harvest from last fall. Although winter and spring wheat and barley will be harvested at this time of the year alongside some potato crops, the 2013 FAO Crop and Food Security Assessment noted that the supply of seeds for winter wheat and barley this growing season had been constrained due to declining production in the past few years. Coinciding with this anticipated shortfall in supply, it is evident that the state no longer retains adequate reserves to continue distributing rations to people living outside Pyongyang.

Nonetheless, deficits in the country’s food needs and the unreliability of the public distribution system are not new revelations. And while the most vulnerable socio-economic groups who are heavily dependent on the public distribution system will be hurt by the absence of state rationing, farmers will continue to sell reserve grains in exchange for basic farming inputs such as fuel at the marketplace, thereby providing most North Koreans with access to some food stuffs. And so far we have seen the price of rice in Pyongyang, Sinuiju, and Hyesan continue to fall, hinting at improving market conditions.

However, beneath the image of a bruised country that is muddling along and slowly recovering from the devastation of the 1990s, there is a crisis brewing that threatens to destabilize the system.

We have previously noted how the North Korean state is likely engaged in deficit spending, eating into its reserves to finance bursts of public expenditure in line with Kim Jong-un’s 2011 promise to enhance the people’s quality of life (인민생활 향상). However, Pyongyang is now trapped between two impossible demands:

  • There is a dire need to continue suppressing inflation and uphold the exchange rate of the national currency as the erosion of the Korean People’s Won acts like a typhoon that sinks all boats in the economy
  • Average wages remain far too low for most people to engage the consumer market in a meaningful way and boost their standard of living

This contradiction was already evident last December when the state increased wages for industrial workers but paid ⅔ of the salary in kind (rice, etc.). Of course, this was not universally applied – workers in Pyongyang received the entirety of their raise in cash, further exacerbating the core-periphery wealth disparity in the country.

The North Korean state will have to resolve this quandary in the near future as the level of dissatisfaction over the status quo threatens both the state’s authority and the productivity of industries.

In particular, the burst of public spending in infrastructure construction is apparently beginning to wreak havoc in the most unexpected ways. DailyNK recently reported how soldier-workers in Pyongsong, brought in to bolster the inadequate workforce at construction sites, are in a standoff with locals over the access to food. Underprovisioned outside their bases, these soldier-builders were initially given boots to sell at the jangmadang (street markets) so that they may supplement their meager wages and buy more food. However, once the soldiers had eaten away their boot-derived income, they apparently resorted to theft and forced expropriation, further antagonizing strained relations between the people and the military.

Discontent was also palpable elsewhere in the country. Potato farmers in Yankang are reportedly enraged by the outward display of prosperity exhibited by cadres dispatched from Pyongyang to oversee the harvest. According to a source in the region

It’s the lean spring period and food is quite scarce, but these three cadres sent from Section 4 of the Central Party Agriculture Department still eat pork almost everyday. People are really unhappy… At a time when more and more people in the Okcheon Unit are running out of rice, the cadres can continue to live in their own world.  People attack them, pointing out that ‘workers starve while the ones ordering them around are living well.’

And it is this rising level of discontent that poses a great threat to food security and the economy in general. Because without robust economic growth or reforms to ameliorate public dissatisfaction, the state will be tempted to utilize inflation and other distorting mechanisms to buy short-term public satisfaction. We have seen the Soviet Union experiment with both prices and wages after Stalin’s death to bolster the public’s confidence in the communist party’s ability to inch towards a workers’ paradise – and the long-term cost of Khrushchev and Brezhnev’s misguided policies to enhance the workers’ standard of living contributed to the financial dissolution of the Soviet Union. In fact, this phenomenon of states making short-term political gains via increased public spending without considering the long-term ramifications is not limited to communist states. It is a central feature of weak governments.

In the case of North Korea, further damage to the value of the Korean People’s Won or the public’s confidence in the sovereign tender will be untenable and the markets that are keeping the people fed despite the country’s inability to achieve self-sufficiency in food production will collapse. These consequences notwithstanding, Pyongyang has pegged its legitimacy and purpose on an impossible task that will eventually force the currency to devalue.

So we find Pyongyang in the most difficult situation. It can neither withdraw from a policy of enhancing the people’s quality of life nor provide what is necessary for people to reach that standard of living without serious financial consequences.

Soon enough, muddling along might not remain an option.

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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One Response to Eating boots, dreaming of pork: food security and the budget deficit in 2014

  1. Pingback: Monetary stability and food security | Rice & Iron

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