North to Try Weak Agricultural Reform

Jeong Jae Sung  |  2012-07-11 11:09
Daily NK has obtained information revealing that North Korea has plans to roll out a new system of agricultural economic management.

According to an inside source, the authorities recently notified local organs of the so-called ‘6.28 Policy’, which is entitled, ‘On the establishing of a new economic management system in our own style’.

The agricultural element of the policy, which is to be implemented in October, will reduce the size of the basic farming unit and bring state agricultural procurement prices up to 'realistic' levels.

In more detail, the plan will see the following measures implemented: ▲ the so-called “bunjo danwei” (the basic farming unit on a cooperative farm) will come down from its current scale of 10-25 members down to 3-4 members; and ▲ the state will procure its quota of production at market prices and deduct the cost of inputs; then, as is nominally true now, ▲ the unit which produced it will be free to deal with the remainder as it sees fit. Land and other inputs will be provided by the state.

According to Kwon Tae Jin of the Korea Agricultural and Rural Research Institute, the North Korean authorities are hoping that, “[The unit downsizing and realistic procurement pricing structure] will give each agricultural unit the motivation to produce and will cause overall state food production to rise, all while not destroying the fundamental cooperative agricultural method.”

Under the existing agricultural management system, provincial Agricultural Management Committees set output targets then submit them to the Ministry of Agriculture for approval. Once they have been approved, each production unit is handed down a quota. Thereafter, the value of inputs, land usage fees and other non-tax payments such as “military support” are deducted from production, and the producing unit is given the right to distribute the remainder as it wishes.

However, according to defectors with farm management experience, because the state sets prices for the inputs too high and procures unrealistic amounts at nominal fees, the leftover for the farmers themselves is usually highly inadequate.

Although realistic procurement pricing therefore sounds good for farmers, there are many seemingly insurmountable problems, If procurement starts happening at market prices rather than the minimal prices at which it occurs now, then distribution also has to happen at market prices or the state will not be able to cover its costs. But if wages for urban industrial workers are not raised to realistic levels then they won’t be able to afford the food, and the system will not work.

Conversely, if the food were to be sold at a subsidized price by the state, then the system wouldn’t last long because the state would be unable to sustain the budget deficits that this would entail.

The system will ultimately drive inflation, which will undermine the procurement pricing structure, forcing the authorities to either pay more for everything or to pay less than market prices. The latter would then drive producers to hide production from the state in order to get higher prices on the open market.

One defector who was a cadre with a farming management committee in North Korea pointed out to Daily NK that this was what happened before, when “in the mid- to late-2000s when the government was buying food at above state prices, farming regions lived more comfortably than urban areas. However, after a couple of years the state stopped being able to pay, and the measure fizzled out.”

Ultimately, for as long as the North Korean state insists on focusing only on improving agricultural efficiency while retaining its collective agricultural and state production target systems, it will not be possible to solve food production and broader food security issues.

According to Kwon, “It looks to me like they want to make procurement prices more realistic to undermine the current high reliance on the market. But, because the state cannot solve the food problem in its entirety, the black market could be invigorated once again and inflation could occur.”

He went on, “There are not enough supplies and management officials are highly corrupt, so the likelihood of agricultural reforms like this working as planned is unbelievably low.”
 
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