What Kim Jong Un’s Russia visit could mean for the North Korean economy

September 12th, 2023

By: Benjamin Katzeff Silberstein

Early this morning local time, North Korean leader Kim Jong Un arrived in the Russian town of Vladivostok. There, he is scheduled to meet with Russian president Vladimir Putin. Aside from the geopolitical situation and their political ties, the two are expected to discuss expanding North Korean weapons exports to Russia.

What could this mean for the North Korean economy?

The country’s military industry is an economic sector of significant size both in terms of production and employment. A radical increase in weapons exports to Russia could mean a general boost for the economy through increased consumption.

Gains will, however, be limited by the military industry’s isolated position in the economic structure. Many of the military’s factories supply themselves with most essential raw materials through mines and energy supply channels of their own. While many other sectors in the economy have essentially been privatized since the mid-1990s, the arms industry is entirely controlled and centrally planned by the state. Weapons exports to Russia could in fact hamper North Korea’s economic development in the long run by diminishing the regime’s incentives to reform the domestic economy.

Although the sector is far from the country’s top employer, with two million estimated workers in the defense industry, its contribution to the economy is significant. For a sense of proportion, North Korea’s 2008 census lists 4.4 million as workers in agriculture (including forestry and fishing), 718,000 in mining and quarrying, and close to 3 million in manufacturing. A massive and sudden expansion in weapons exports would not drastically change North Korea’s economic situation but could nonetheless make a modest contribution to economic growth and consumption.

Data sources: DPRK 2008 Census, Namhoon Cho (2019)* (see p. 576 for figures.)

As graph 1 shows, the country’s defense industry is estimated to be the third largest employer in the country. Because the data is so unreliable, these figures should not be taken at face-value. Rather, the proportions are what matter. Regardless of their exact number compared with other groups in the workforce, at an estimated two million, their employees are numerous enough for a drastic increase in purchase orders from Russia to boost the economy through increased wages, expanded hiring, or a combination of both. Major and continuous orders from Russia would benefit some parts of the military industry more than others.

Most profits will likely go directly to the state and the military, but workers in the industry may see their pay rise, and new colleagues recruited, if the orders from Russia end up being large enough. All this will have ripple effects on the overall economy, with increased consumption stimulating the consumer goods economy and service sector as well. Economic benefits are likely to be highly regional, with the impoverished Jagang province standing out as a central beneficiary thanks to its high concentration of arms factories.

In the long run, however, North Korea’s economic benefits will likely be limited. The military economy is independent from the “people’s economy” and is usually known as “the second economy.” The military often operates its own factories and mines through a military-industrial complex of sorts, and do not need to turn to other sectors of the economy for raw materials and other inputs. All this is by design, to give the military special status in funding and budget priorities. This limits the potential spillover effects into other industries.

Overall, boosted arms industry exports could diminish the regime’s incentives to develop the market system. The North Korean leadership is currently on a campaign to restore (at least some of) the state’s power over the economic system, including the private and semi-private sectors such as the general market and service sectors. An inflow of cash or other compensation from Russia, such as vast amounts of fuel oil and food, could give the regime more space and safety to suppress private economic activity in favor of the state-controlled sector. This fits well with the regime’s current strategy for the economy but will dampen the country’s long-term prospects for economic development.

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North Korean market prices suggest serious food shortages

June 20th, 2023

By: Benjamin Katzeff Silberstein

Recently, the BBC became one of few global outlets to succeed in interviewing ordinary North Koreans inside the country about the food situation. The image is dire: starvation, empty markets and other signs of severe food shortages.

In the past few years when reports of food scarcity have surfaced from North Korea, market prices have given remarkably little credence to the claims. Not so at the moment. Comparing current prices levels with historic ones, the overall picture suggests that prices since the onset of the Covid-19 pandemic (and the North Korean government’s border closure), market prices have moved to a permanently higher level, indicating that overall supply of food is lower. This does not give us a specific number on how severe the food shortage is, but it gives quantitative evidence that food has become significantly scarcer since the onset of the pandemic.

To show this, I use market price data gathered and reported by Rimjingang, an online news outlet with sources inside North Korea that regularly publish market prices. I chose this specific data set because it is transparent and specific about where in the country the data comes from. Due to tightened border controls under Kim Jong Un’s tenure, information from inside North Korea has become even more difficult to access. Therefore, transparency about the data is crucial.

The price data almost exclusively comes from the region bordering China, such as Ryanggang and North Hamgyong provinces. The border region is different from the rest of the country in several crucial respect, perhaps most crucially in that it is much more involved in trade and smuggling with China than other regions. Nonetheless, the North Korean market system is integrated to some extent, with goods being transported around the country for sale. Although dilapidated infrastructure and harsh state regulations make internal travel difficult, the overall price trends very likely hold for the national level.

 

Market changes after Covid-19

Prices fluctuate frequently on North Korea’s markets, but usually within a more or less fixed span. The following graph shows prices for North Korea’s two main staple goods, rice and corn, from 2017 until mid-June this year. The prices are shown in renminbi, the most commonly used foreign currency in the border region, to check for inflation in the North Korean currency, Korean People’s Won (KPW).

The left side of the graph shows prices before Covid-19. Aside from a few nonsignificant bumps, prices hovered between 1–1.5 RMB for corn and 3.5 RMB for rice for the most part prior to the inception of the pandemic, fluctuating throughout the year. Interestingly, although North Korea closed its borders in January 2020 to protect against the virus, prices don’t truly begin to move until October that year.

Over the course of the next few months, however, prices for both rice and corn climbed significantly.

Rice prices rose from their regular level to move between 4 and close to 6 RMB in late 2020 and early 2021 and shot up drastically during the spring and summer months, the lean season before the fall harvest, when the storage of food begins to dry up. Prices normally go up during this season, but perhaps a spreading awareness that the border wouldn’t open anytime soon pushed prices up much further than normal. After shooting up to close to 15RMB and remaining much higher than normal for several months, prices stabilized at an interval between 8 and 4.5–5 from the fall of 2021 and onward. Prices have been moving around 5RMB since the end of 2022. That is an approximate 1.5RMB difference from the normal price level, or 42 percent.

On the one hand, prices now are much more stable than last year’s fluctuations to very high levels. On the other hand, the price level is now permanently higher, meaning that North Korean consumers face a permanently higher price level. Higher prices, logically, suggest that supply has dropped. In other words, with food supply lower, people must pay significantly more for the same amounts of food.

We see the same dynamics in prices of corn. Graph 3 below show corn prices from the fall of 2017 until the latest observation in mid-June:

Corn is a generally less preferred staple good for North Korean consumers, meaning that people tend to increase their consumption of corn when food overall becomes more expensive. From moving around 1.5RMB/kg before the pandemic, corn prices climbed significantly from late 2020, hitting almost 3RMB – a doubling of the normal price level – by March 2021. Prices then climbed further during the rest of the year and hovered around 4RMB in the late summer and fall. Since late 2022, prices have moved between 2.3 and close to 3RMB, meaning they have increased by at least more than half on the lower end of the spectrum, and doubled for the higher end.

Conclusion

None of this is evidence of a widespread famine in North Korea, and the BBC’s three eyewitness testimonies also do not fully prove anything of the sort. But that the country is experiencing a significant food shortage seems beyond doubt, as suggested both by reports from people inside the country as well as market prices. These prices do not tell the full story. The situation likely varies significantly between regions, and the state appears to have increased food ration distributions to parts of the public (see one example here). That trade with China has continued to open up little by little in 2023 has probably contributed to food prices stabilizing as well. Still, current price levels remain far higher than normal. For a population’s whose margins are mostly very small, if it doesn’t amount to starvation, it means that an already difficult situation has gone from bad to worse.

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MISSING THE TARGET: The complicated truth about sanctions on North Korea

June 16th, 2023

The following article was published in East Asia Forum Quarterly‘s June issue, and is re-published here with permission. 

On the surface, sanctions seem to have had little impact on North Korea’s behaviour. At the time of writing, the world is waiting for the launch of a new North Korean military spy satellite that Supreme Leader Kim Jong-un announced on 19 April 2023.

North Korea is under one of the harshest multilateral sanctions regimes of any country in the world. But the country still circumvents sanctions regularly through complex smuggling operations at which it is by now very adept. This situation raises questions about whether sanctions on North Korea have failed.

It is true that sanctions have not reached the stated political goal of inducing North Korea to give up its nuclear weapons. The country has made impressive advances in missile technology and is evidently capable of acquiring the necessary technology despite sanctions. The ‘spy satellite’ launch would be one of around 30 missiles tested in 2023.

Although North Korea has ways to evade sanctions, this does not mean sanctions have no impact. Sanctions interplay with domestic governance and economic systems in ways that are complex and often hard to fully evaluate. The alternative to sanctions is not an open, liberal and free-trading North Korea, but likely a slightly more well-off version of its current state.

The issue of evasion illustrates why the impact of sanctions is so hard to evaluate. Sanctions-evading actions are not rare events, but are institutionalised within North Korea’s economy. Since the 1970s, North Korea has systematically smuggled alcohol, tobacco, drugs and other contraband through its diplomatic networks abroad. These activities continue today and with North Korean capabilities expanding into the cyber realm, sources of illicit income will likely continue to constitute an underestimated part of the regime’s hard-currency revenue flows.

But sanctions evasion and smuggling are very expensive activities. For Chinese, Taiwanese and Singaporean trading companies and entities to risk smuggling oil to North Korea, Pyongyang must pay a massive risk premium on its purchases. North Korea has to pay well above market prices to give sellers a reason to take the risk of arrest and prosecution for sanctions violations.

The same is true for illicit North Korean exports. Sanctions do not stop coal exports entirely, but they slash the prices that North Korea can charge. Any buyer—almost always China—will only risk importing from North Korea if prices are cheap enough to outweigh the risks. Even prior to the harsher sanctions levied in 2016 and 2017, China, through its position as a virtual monopoly buyer, consistently paid below-market prices for North Korean coal. This dynamic is likely even stronger today, as Chinese imports of coal and other sanctioned North Korean goods continue but go mostly unrecorded.

Despite North Korea’s evasion tactics, sanctions are indisputably hurting the North Korean economy. The country’s exports are estimated to be worth only a few hundred million dollars per year—much smaller than its . The UN Panel of Experts estimated, for example, that North Korea earned around 370 million dollars from sanctions-violating coal exports in 2019. This is only a fraction of the 1.19 billion dollars it earned from such exports in 2016, before the harsher sanctions.

The civilian impact of sanctions is unclear. On one hand, sanctions have likely dealt a harsh blow to labour-intensive industries like textiles, where a of workers are women, resulting in increased unemployment and lower wages. The falling incomes of North Koreans working in sanctioned industries substantially dampen the wider economy. On the other hand, there is no evidence that sanctions have driven up the price of food or other essential goods.

Sanctions have undoubtedly worsened North Korea’s food shortage by hindering imports of fertiliser and spare parts for agricultural equipment. North Korea’s own border closure, though, likely also provided an obstacle to foreign trade. But the impact of sanctions on North Korea’s food system is minimal compared with the regime’s refusal to undertake basic reforms in agriculture. The government bristles at dismantling collective farms or letting farmers sell their products on open markets.

Trade by evasion should logically become easier and cheaper. For sanctions to be effective against North Korea, China—which constitutes more than 90 per cent of North Korea’s foreign trade—would have to implement them. As US–China tensions continue to grow, reasons for China to implement sanctions on North Korea are diminishing.

Reports of North Korean trade deals in weapons and labour with Russia in the wake of Russia’s invasion of Ukraine are already circulating. Very little is confirmed about these transactions, but there is evidence to support increased economic exchange between the countries. Earlier this year, satellite imagery from the border area indicated that Russia was increasing oil exports to North Korea while exporting unknown goods that could be arms destined for the Wagner Group.

But this does not change North Korea’s situation. Combined with its poor global reputation, sanctions will continue to make North Korea dependent on a very small number of trade partners—mainly China —who can charge highly unfavourable prices.

None of this is to say that the current thinking on North Korea sanctions is without serious flaws. The demand that denuclearisation should come before any relief on sanctions, for example, is unrealistic. But many also exaggerate the possible gains of abolishing sanctions. A common misperception is that, were sanctions to be lifted, North Korea would open its doors to foreign investors who would flock to the country for its strategic geographic location and cheap labour.

Removing sanctions would not change the basics of North Korea’s economic system. Despite a permissive attitude towards markets during former supreme leader Kim Jong-il’s reign and the first few years of Kim Jong-un’s, harsh state control over the economy best serves the regime’s political and social goals by allowing it to control the distribution of resources. Sanctions hurt, but removing them is no silver bullet for political or economic progress.

Benjamin Katzeff Silberstein is Associate Fellow at the Swedish Institute for Foreign Affairs and a Postdoctoral Fellow at the Safra Center for Ethics at Tel Aviv University.

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How large are Russia’s oil exports to North Korea in context?

June 15th, 2023

By: Benjamin Katzeff Silberstein

For the first time since 2020, Russia recently reported oil exports to North Korea in their official trade statistics. These numbers obviously do not include the unknown but likely large quantities of oil that the country buys from Russia under the radar, through smuggling. According to the official numbers,

Russia had exported 67,300 barrels of refined petroleum to North Korea by April, the first deliveries reported to the U.N. since Moscow said it shipped 255 barrels of refined oil to the North in August 2020.

Under U.N. sanctions against Pyongyang’s nuclear and missile programmes, countries are required to report monthly sales of refined petroleum to the Security Council North Korea sanctions committee.

The oil sales began shortly after train travel between Russia and North Korea resumed in November for the first time since 2020, raising expectations of a resumption of trade.

(Reuters)

Although likely an underestimate of the total (including smuggling), this number is significant, not least because of the rapid increase. But as with other current trade figures on North Korea right now, as the border seems to be opening slowly to trade, the numbers are only a fraction of North Korea’s regular imports. North Korea’s annual imports of refined petroleum before the pandemic, for example, were estimated at 4.5 million barrels per year. Assuming the same pace of Russian exports continues through the year, that would put these imports for North Korea at around 3 percent of total annual imports.

This is not to say that the news isn’t significant, particularly if it marks the beginning of a longer trend. But for now, North Korea’s oil and fuel imports remain, as far as we can tell, far lower than their regular levels.

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Why the North Korea–China trade increase could be an illusion

May 24th, 2023

By: Benjamin Katzeff Silberstein

North Korea–China trade is steadily growing, perhaps slowly moving back to its normal  before Covid-19 -“Maximum pressure” sanctions in 2016–2017. According to the latest numbers, trade continues to grow:

Chinese outbound shipments to the isolated country surged 69% year-on-year to $166 million in April, data released by China’s General Administration of Customs showed.

The top export items in terms of value were processed hair and wool used in wigs, worth about $11.6 million, and diammonium hydrogen phosphate, a widely used fertiliser, worth $8.84 million.

But it is far from back to the “old normal” before 2017. Look, for example, at what is being exported. The biggest export products were wigs and fake eyelashes, accounting for over 66 percent of exports to China. This is part of an offshoring industry where North Korea first imports hair from China, and then locally manufactures it into wigs to export back. Sales of wigs, eyelashes and related products accounted for close to $22.7 million in April. To get a sense of proportion, consider that coal exports, formerly one of North Korea’s most central export goods, totalled $1.19 billion in 2016, a little over $99 million per month on average. So when we look at North Korea’s most central exports at the moment, they are still very small compared to the increasingly distant normal. Wigs just aren’t economically meaningful in the same way as coal.

None of this is to say the increase in trade isn’t meaningful. North Korean imports from China may be just as meaningful or perhaps even more so for the economy at this point, with inputs both for export-destined wigs and fertilizer being the central import goods. The increase in trade is certainly positive for the North Korean economy, but it does not seem to (yet) change the overall dynamics where North Korea still cannot export its formerly most important export goods openly, without circumvention and smuggling that involves significant costs. It could be that covert exports will eventually reach the old level of openly reported exports, but we don’t have any hard data to suggest that is yet the case.

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Yet another North Korea–China border opening report (including tourism)

May 11th, 2023

By Benjamin Katzeff Silberstein

At this point, non-materializing reports about the China–North Korea opening for full traffic are too many to count. A recent story by SCMP (link here) claims both truck trade and tourism from China to North Korea will start in one month. But “sources briefed by officials on both sides” is an acknowledgment that the report is not based on direct sources. And as has seemed the case for North Korea since Covid-19, plans for policy changes can often change and often do. Judging by the policy pattern, there doesn’t seem to be an overall strategy or timeplan.

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As Chinese ambassador arrives, is North Korea opening up?

March 30th, 2023

By: Benjamin Katzeff Silberstein

After a very long hiatus over the pandemic, China’s new ambassador to North Korea has taken up his post in Pyongyang, AP reports:

Wang Yajun will help in the development of the traditional friendship between the “close neighbors sharing mountains and rivers,” Foreign Ministry spokesperson Mao Ning said at a daily briefing.

China is North Korea’s main source of economic aid and political support, but interactions have been disrupted by travel restrictions imposed in an attempt to prevent the spread of COVID-19.

The ambassador’s posting comes as North Korean state media reported that leader Kim Jong Un urged his nuclear scientists to increase production of weapons-grade material to make bombs to put on the country’s widening range of weapons.

The report Tuesday followed a series of missile launches — seven this month alone — and rising threats to use the weapons against North Korea’s enemies.

(Full article here.)

Does this signal a broader relaxation in North Korea’s border restrictions, brightening prospects for trade to open up more broadly as well? Maybe. After all, there’s been signs for many months (well over a year), from infrastructure construction to (fairly tangible) rumors reported from the border area. And imports have increased, particularly of food, resulting in prices stabilizing somewhat.

At the same time, there are good reasons to doubt it. Welcoming back a Chinese envoy is, after all, a decision more in the realm of foreign policy and diplomacy than economics and pandemic prevention. Thus far there have been no reports in outlets such as Daily NK or Rimjingang suggesting a major reversal in trade policy is imminent. To the contrary, the bigger pattern seems to be the state centralizing control over trade while keeping it at a very small minimum. Whatever trade regime emerges from this, it may not look like the old one.

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Corn prices continue to rise in North Korea in early March, suggesting tightening food supply

March 10th, 2023

By: Benjamin Katzeff Silberstein

A few updates on the food situation:

Overall, prices continue to rise, as reported by several outlets. A recent article in Rimjingang reports that fuel prices are in fact double what they were last year this time. Fuel prices are highly sensitive to import conditions, suggesting that getting fuel and oil into North Korea remains relatively difficult:

The international price of fuel rose steadily worldwide due to Russia’s invasion of Ukraine in February 2022; however, it began falling in June of last year. South Korean gasoline prices, for example, have fallen by KRW 558.

Why, then, are North Korea’s market prices for fuel still rising? A reporting partner in the northern part of the country told ASIAPRESS that “it is because the authorities have drastically limited the amount (of fuel) circulating in the market,” further explaining that:

“Supplies of fuel are under state control, but state-run fuel supply depots have sold fuel into markets, allowing anyone to buy it. There has also been a lot of corruption in the military and other government agencies, with people siphoning off fuel (where they can). As a result, it’s now become difficult to buy fuel at fuel supply depots. They don’t sell the fuel unless you have haengpyo, which are used by government agencies and enterprises.”

Haengpyo are akin to checks and are used by organizations to pay for goods or services.

Another possible factor is that while North Korean market prices do tend to follow global ones for many goods, they often do so with a significant time lag. This results from the many barriers that disconnect the North Korean economy from the rest of the world, making it react more slowly to global changes than other countries.

I’ve often pointed out that differences in the relative price between corn and rice is one of the most relevant metrics we have access to for assessing North Korea’s food situation. The two main staple foods are, depending on the season and other factors, corn and rice. Corn is generally much cheaper than rice, because rice is the preferred (and therefore more expensive) good. Corn prices increasing in a way that isn’t seasonally normal is, therefore, a possible sign that the overall food supply is decreasing (for more, see this post).

This is precisely what Daily NK reports is happening, and they in fact note the highest rice prices ever recorded in their index (though this does not seem to take inflation into account). Rice prices are going up more than normal for this time of year, and so is demand for corn:

Early March rice prices in North Korea have hit their highest point ever compared to prices surveyed in early March over the past five years, a recent Daily NK survey of commodity prices in North Korea has found. The survey also found that rice prices are not falling by much following last year’s harvest, but demand is rising for corn, a rice alternative.

According to Daily NK’s regular survey of North Korean market prices, a kilogram of rice in Yanggang Province’s city of Hyesan cost KPW 6,300 as of Mar. 5. That is 3.3% higher than two weeks ago on Feb. 19, when it cost KPW 6,100.

In Hyesan, the price of a kilogram of rice rose to KPW 6,300 in late November and began falling from December to KWP 5,620, but has been rising once again since mid-January.

In fact, early March rice prices in North Korea were found to be the highest ever of all Daily NK surveys taken in early March over the past five years.

[…]

In early March 2019, before North Korea shut its borders to prevent the spread of COVID-19, the price of rice in Pyongyang, Sinuiju and Hyesan was KPW 4,200, KWP 4,210 and KPW 4,400, respectively. In early March of this year, it was 38% more expensive in Pyongyang, 42% more expensive in Sinuiju and 30% more expensive in Hyesan.

The current rice prices are even higher than when rice and corn prices spiked following a spate of panic buying of grain after North Korea closed its border in January 2020.

Food prices, of course, vary heavily between regions, partially because domestic transport is so costly and slow:

In early March 2019, before North Korea shut its borders to prevent the spread of COVID-19, the price of rice in Pyongyang, Sinuiju and Hyesan was KPW 4,200, KWP 4,210 and KPW 4,400, respectively. In early March of this year, it was 38% more expensive in Pyongyang, 42% more expensive in Sinuiju and 30% more expensive in Hyesan.

The current rice prices are even higher than when rice and corn prices spiked following a spate of panic buying of grain after North Korea closed its border in January 2020.

In Pyongyang, however, the price of rice has fallen somewhat compared to Daily NK’s survey of prices taken in mid-February. A kilogram of rice in Pyongyang’s markets cost KPW 5,800 as of Mar. 5, 3.3% less than it cost on Feb. 19, when it cost KPW 6,000.

The fall in rice prices in Pyongyang suggests that the city’s residents may have been able to recently purchase grain through state-run food shops.

[…]

Meanwhile, the price of corn in North Korean markets is rising more sharply than the price of rice.

As of Mar. 5, a kilogram of corn in the markets of Pyongyang, Sinuiju and Hyesan cost 6 to 11% more than it did in Daily NK’s survey in February.

A kilogram of corn cost KPW 3,000 in Pyongyang, 11% more than it did on Feb. 19, which essentially means that while demand for rice fell in Pyongyang, demand for corn skyrocketed.

In fact, the price of corn this year is at a five-year high for early March.

This is all happening despite reports that the state has directed its food shops, that usually only operate sporadically, to sell at subsidized prices, with the regime using state supplies to drive down the market price (I spoke with Daily NK about this in a recent interview).

Many question marks remain. My biggest concern about the information that we’re getting right now is regional bias. It’s always an inherent risk in any information coming out of North Korea through grassroots sources. But with border controls tightening so much since the onset of the pandemic, getting information out has become significantly more difficult. With fewer sources — and no one really denies this is the case — single data points from specific regions can carry comparatively larger weight, distorting the overall image.

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What’s going on with North Korea’s agriculture?

March 2nd, 2023

By: Benjamin Katzeff Silberstein

As the South Korean government has said, this week’s meeting in Pyongyang on the food situation is as close to an open admission either of serious food shortages already prevailing, or that the regime forecasts that things will get worse. But what do we really know? In this post, I look at two main indicators: reports and testimonies from inside North Korea reported by the defector-run news outlet Daily NK, and market prices, primarily of corn and rice.

Overall, the food situation appears significantly more difficult than usual. Increased corn prices is perhaps the most worrying indicator. Comparisons with the famine of the 1990s still aren’t warranted, but there are worrying signs that the state wants to tighten control over agricultural production. At the same time, some of the policies put forward by the government make relative sense, in particular those reported by Daily NK (and have not been confirmed by the government). In conclusion, the situation appears concerning and could reasonably be called a “crisis”, but it still does not appear to be in disaster territory. This could change quickly depending on weather conditions and government policies, particularly on border trade.

 

A note of caution

It’s important to bear in mind that the North Korean regime carefully plans what messages it wants to send to the outside world. It’s not always clear exactly what that message is, but it does exist. The government has a purpose in holding a public meeting of this sort, and in telling the world about it. That’s not saying the regime is being dishonest about the situation, but they do have a clear incentive to let China first and foremost, but also the international community at large, know that they need food assistance. It could also be directed towards the broader international community, and there have been reports that the government has been in talks with UN organs about food aid.

 

The food situation and Covid-19

North Korea’s food situation has made a peculiar and sad journey over the past few years. During Kim Jong-un’s first few years in power, agricultural production increased for the most part, a pattern that began already under Kim Jong-il. The food situation overall continued to seem stabile, for the most part, throughout the “maximum pressure” and negotiations of sanctions in 2017–2019. Things really became problematic when North Korea shut its borders to foreign trade in the winter of 2020 to stave off Covid-19. Although North Korea doesn’t (openly) import much food, its agricultural system relies on imports of fertilizer and some agricultural equipment, and spare parts for tractors and machines.

The border closure also significantly disrupted the flow of information from the country. Because of the government’s strict enforcement of border controls, it has become significantly more dangerous and difficult for independent organizations (mostly based in South Korea) with sources inside the country to keep in regular contact, and traders and smugglers cannot venture over to China in the same way they normally have since the early 2000s. North Korea has always been a closed society, but this is even more true since the beginning of the pandemic.

 

What does the state say?

To understand how the North Korean government sees the agricultural situation, it’s worth looking in-depth at the summary report published by Rodong Sinmun today (March 2nd, 2023). The current spotlight on agriculture is really part of a longer focus that began in 2021, and isn’t as sudden as the global interest in it (my emphasis throughout the text):

The plenary meeting of the WPK Central Committee had a discussion of historic significance to comprehensively analyze and review the work for 2022, the first year of implementing the programme for the rural revolution in the new era, and further concretize the important tasks and long-term objectives for putting the agricultural production on a stable and sustained growth track and the urgent tasks arising at the present stage of the national economic development and the practical ways for carrying them out.

North Korean parlance has a way of making every issue “the most important”, but it’s very clear that agriculture is explicitly front and center on the economic policy agenda:

The concluding speech raised again the revolutionary change of the rural communities at the present stage of struggle as an important revolutionary task for achieving the prosperity and development of the state and the promotion of the people’s well-being, and put forward the principled matters to be maintained in implementing the programme for the socialist rural revolution in a perfect way. 

It referred to the intention of the Party Central Committee which set the attainment of the grain production goal as the first target of the 12 major goals for the national economic development and the main purpose of the current enlarged plenary meeting, and raised the main goals and tasks for agricultural development.

The problem is, of course, what to do in practice. The report is short on specifics and concrete details, and most statements related to policy appear to advocate modernization for the sake of it, but with what resources? Highlighting the role of irrigation and mechanization suggests the government does have a sense of the most central challenges on the ground, but to develop these areas, North Korea would need to import both machinery and spare parts:

It is necessary to set it as a priority task in ensuring the stable development of agriculture at present to accelerate the completion of the overall irrigation system to cope with abnormal climatic phenomena, and dynamically push ahead with the irrigation project planned for this year and perfect the irrigation system of the country in the period of the five-year plan.

The machine-building industry and agricultural sectors should produce and supply to the rural communities more new and high-efficient farm machines which are the most necessary and effective in putting the agricultural production on a modern and advanced basis, while steadily propelling the work for renovating the farm machine sector in an innovative way. 

From a policy perspective, the emphasis on the role of the state is worrying. In other policy areas, North Korean rhetoric over the past few years has been clear that the state seeks to take back control over the direction of the economy from markets and other non-government players. Further centralizing state control over agriculture could be devastating for efficiency, but I’m not sure this section of the report must be read that way. Rather, it could be about local government organs supporting farmers with what they need (again, unclear with what money):

In order to increase the nationwide agricultural output, attention should be paid to overcoming the lopsidedness in the guidance on farming and keeping the balance to be responsible for farming as a whole and it is important to concentrate on increasing the per-hectare yield at all the farms. This is an important principle for guidance on the agricultural production.

The General Secretary stressed the need to enhance the role of the provincial, city and county guidance organs and all the farms in attaining the long-term objectives of agricultural development.

[…] 

The concluding speech put forward the measures for further expanding the rural construction this year and the policy-oriented tasks to be prioritized and pushed forward with by cities and counties.

In order to attain the gigantic long-term objectives of rural development, it is necessary to decisively strengthen the Party guidance over the agricultural sector and improve the rural Party work.

[…]

He stressed the need for all Party organizations to intensify the struggle against the practices of weakening the organizational and executive power of the Cabinet, the economic headquarters of the country, and thoroughly orient and subordinate the Party work to the implementation of the Party’s policies, thus getting their working efficiency verified in the practical struggle for attaining the 12 major goals for the development of the national economy this year.

 

Reports from independent sources

A few recent articles from Daily NK (henceforth DNK) shine interesting light on the situation. Their reporting gives the impression of a protracted, difficult situation rather than a sudden emergency. DNK reports, for example, that the North Korean currency has strengthened against foreign currencies with expectations that trade may soon begin again:

Because hopes of expanded trade have been frustrated several times before, North Koreans are not rushing out to secure foreign exchange even when the government hands down orders regarding the expansion of trade.

According to Daily NK’s recent survey of North Korean currency rates and market prices, the US dollar was trading at KPW 8,400 in Sinuiju, North Pyongan Province as of Feb. 19.

As that figure represents a mere 0.2% increase from the previous survey on Feb. 5, when the dollar was trading at KPW 8,380, the rate does not appear to have changed significantly.

In Pyongyang as well, the dollar was trading at KPW 8,360, more or less what it was on Feb. 5, when it was trading at KPW 8,370.

[…]

With rising expectations of reopened trade repeatedly dashed over the last three years, trade-related directives from the North Korean authorities are not immediately translating into renewed trade, a reporting partner in North Hamgyong Province told Daily NK recently, speaking on condition of anonymity.

In fact, North Korean authorities issued orders on Feb. 10 to provincial trading agencies calling for submissions of general plans for import and export activities and foreign currency acquisition.

The reporting partner said trade has failed to restart several times during the COVID period even after the authorities said it would.

“As long as the government issues no clear permissions [to resume] trade, orders to merely prepare [to restart trade] are not leading people to buy yuan,” he said. 

DNK also reports that the steep, recent climb in food prices may have been generated by signals from the state that its food reserves increasingly need to be replenished. These price hikes are very significant, and far larger than normal:

North Korean market rice prices have recently skyrocketed after holding steady since last November’s harvest. A nationwide campaign of soliciting donations of “patriotic rice” may have helped fuel the dramatic rise in market rice prices.

According to Daily NK’s regular survey of market prices in North Korea, a kilogram of rice in Pyongyang’s markets cost KPW 6,000 as of Feb. 19. On Feb. 5, it cost just KPW 5,200, meaning the price climbed 15% in just two weeks.

Thus, the price of rice in Pyongyang climbed about KPW 6,000 for the first time in three months, having held steady in the KPW 5,000 to 6,000 range since last November.

The price of rice climbed in other regions, too. The price of rice in Sinuiju and Hyesan climbed 9% and 5%, respectively, between Feb. 5 and Feb. 19.

[…]

The recent spike in North Korean rice prices is smaller than the climb immediately following the border closure; however, the spike is much steeper that the usual increase in prices early in the new year.

On the other hand, the price of corn in North Korean markets has trended differently from region to region.

A kilogram of corn cost KPW 2,700 in Pyongyang as of Feb. 19, 6% less than it did on Feb. 5, when it cost KWP 2,900.

This means that while demand for rice has increased in Pyongyang, demand for corn has fallen.

In Sinuiju, a kilogram of corn cost KPW 3,000 as of Feb. 19, the same as it did earlier in the month. On the other hand, in Hyesan, the price of corn has climbed. A kilogram of corn in Hyesan’s markets cost KPW 3,300 as of Feb. 19, 6% more than it did on Feb. 5, when it cost just KPW 3,100. In Hyesan, the price of rice and corn both rose 5 to 6%. 

The state is both supporting market prices more through grain distribution, but also demanding more from the people. This means that while prices have been kept somewhat stable by the state opening its storage houses for some public distribution during the winter, the state is signaling shortages by demanding more rice from the public:

The recent climb in market rice prices appears influenced by the country’s nationwide campaign for “patriotic rice” contributions and insufficient supplies at official grain shops.

Daily NK recently reported through a source in North Hamgyong Province that North Korea is asking all citizens to contribute at least 5 kilograms of “patriotic rice.”

There are price differences region to region, but since rice generally costs twice as much as corn, the North Korean government is treating 10 kilograms of corn as equal to five kilograms of rice when accepting donations. In fact, many North Koreans are donating whichever grain is cheaper in their areas of residence. As a result, rice prices have spiked sharply in Pyongyang and Sinuiju, where rice had been relatively cheap compared to corn.

Moreover, entering February, state-run food shops have sold only small amounts grain to consumers, which appears to have helped contribute to the spike in market grain prices. 

Thanks to DNK, we also have some sense of at least what some North Koreans have been told about the plenary meeting on agricultural issues. Interestingly, the policies mentioned appear much more prudent and wise than those included in the Rodong Sinmun report:

In particular, North Korea’s government ordered each province to secure irrigation facilities appropriate for their geographic conditions and draw up plans to ensure water for terraced fields, calling irrigation facilities that work no matter what the climatic conditions “the most important issue.”

North Korea’s leadership also ordered the preparation of various data, including soil analyses of farmland, analyses of irrigation conditions and analyses of progress in agricultural mechanization.

[…]

The province’s authorities also ordered the writing of a draft plan for scientific farming in accordance with soil and lot conditions, and called on officials to hurry construction of modern agricultural housing as per this year’s plans, the source said.

How far these measures can go is very hard to tell and, again, no major change will occur unless the state dedicates significant resources to agricultural development. That would mean moving resources from higher-priority areas, which the state is unlikely to do in the near future.

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The possibly dangerous direction of North Korean economic policy

February 7th, 2023

By: Benjamin Katzeff Silberstein

The North Korean economy really do seem to be going from bad to worse. I was slightly optimistic at the beginning of the year that trade with China (and to an increasing extent Russia) would move back toward its pre-Covid-normal or even increase given international tensions.

But what if the state simply doesn’t want that to happen? We’ve seen a clear retrenchment in overall economic policy, and the state has centralized foreign trade. But what if it wants to lower foreign trade overall? Self-reliance, after all, remains the core ideology.

This recent report from Daily NK sources in Yanggang seems to suggest as much, where trade cadres have been told off by the Party for pushing for too much for trade to scale up. Sounds to me like they’re just doing their jobs.

This hasn’t been confirmed as a broader policy, and we need much, much more information to say anything concrete. But the report is an interesting data point and a worrying one. Even more retrenchment from global trade would be potentially disastrous for the population.

It is of course possible that the report only represents a specific instance and has more to do with internal political or financial feuds than with anti-trade sentiments. All this is more speculative than predictive.

But, I do think we need a broader, and perhaps more speculative debate, on worst-case-scenarios inside North Korea. I don’t think we’re near 1990s-levels yet, but the economy is incredibly fragile to begin with and policies right now seem both messy and dangerous.

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