Beginning in the mid-1990s, well before the reforms of 2002, the government initiated a number of piecemeal reforms in the agricultural sector as a response to declining output. Among the policies undertaken was an intensification of double-cropping, an emphasis on the introduction of higher-yield varieties, and a number of specialized campaigns to increase the output of particular foodstuffs, such as potatoes, mushrooms, rabbits, and goats.7 Some of these policy changes were introduced with technical assistance from the donor com- munity and made perfect sense. An example is the effort to expand potato production, which could be interpreted as a return to a more traditional and environmentally appropriate crop pattern that had been disrupted by policy interventions dating to the 1960s and the ideological campaigns of the 1970s.
Striking in this list of reforms, however, is the prominence of technical fixes, the reliance on exhortation to greater effort, and the dearth of measures that addressed the incentives facing farmers. Indicative of this mind-set was the revival in 1998 of the Nature Remodeling Program as “an important alternative to increased agricultural production” (Kwon and Kim 2003:32). This program had originally been launched in 1976. In the words of Kim Jo˘ng-il, it would literally bulldoze “in a sweeping manner” the North Korean countryside into fields of “regular shapes like a checkerboard.” The intent of the reform was to spur agricultural mechanization and sever the connection between former landowners and the land by changing its physical contours “beyond recogni- tion” (Kim 2000, Foster-Carter 2001). Similarly, his potato, rabbit, and goat
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projects—even where they might have had technical justification and outside support—were run in the style of mobilization campaigns reminiscent of his father’s failed “chicken in every pot” scheme (Noland 2000:box 3.2).
In at least one aspect, however, North Korean agricultural policy during this period did recognize incentive issues. Early land reforms had benefited cultivators and generated an early base of support for the regime. But col- lectivization—“cooperativization” in North Korean parlance—as well as grain seizures had broken the link to household and individual incentives (Smith 2005b:48–49). In 1996 the government introduced on a limited or pilot project basis in certain areas of the country a reduction of the size of work teams on the cooperatives from roughly ten to twenty-five to seven to ten members, a number that could effectively accommodate family-based teams. This reform was similar in certain respects to the Chinese household responsibility system introduced nearly twenty years earlier that had resulted in a dramatic increase in output. At the same time, the government introduced a system under which production targets would be established according to a moving-average formula rather than arbitrary diktat, thus allowing some predictability in the state’s take of the harvest and farmer allotments. The new system would also allow the production team to keep any output over the target either to consume or to dispose of as they wished (Han 2004; Kwon and Kim 2003). As we have discussed, government policy played a crucial role in the onset and deepening of the famine. These policies included the discretionary nature of production targets—and farmers’ efforts to evade them and protect themselves from con- fiscatory policies—as well as the fact that extra production was still sold to the state at stipulated prices.
The initiative to reduce the size of work teams confronted several difficul- ties, however. First, although it increased individual and family responsibility and effort, decision-making authority did not devolve in a comparable man- ner. In effect, the new policy amounted to simply pushing grain targets onto work units of smaller size without granting them the corresponding freedom to adjust production techniques, inputs, or the mix of crops. Second, the end of the floods and the increase in aid by no means implied a revival of the indus- trial economy, on which agricultural production remained dependent. Even if households effectively adjusted for declining production, targets under the new formula were essentially unattainable because of the lack of inputs. As a result, the targets still implied effective confiscation by the state of all production above the level retained on farm for in-kind consumption.
More fundamentally, it is doubtful that the mere announcement of a new target-setting process was enough to reverse farmers’ perceptions of govern-
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ment intent; the government had reversed course before. Eventually, the for- mula, which was based on a moving average of past production, began to reflect plausible targets under the existing input-constrained conditions, not the higher yield pattern of the past. As a result, it held forth the possibility to the cooperative farmers that extra effort would be rewarded. In the short run, however—and continuing through 2005—the changes almost certainly did not fully reverse the hoarding and diversion on the part of the farmers that were a component of their efforts to mitigate political risk.
While the rapid increase in the provision of aid arguably relieved the pres- sure on North Korea to adopt policy reforms (indirectly crowding out domes- tic production as well as commercial imports), the donor community also attempted to encourage the adoption of more effective agricultural policies. At the 1998 Agricultural Recovery and Environmental Protection (AREP) meet- ing organized by UNDP, representatives of the donor community were blunt at to the significance they placed on the importance of changing policies (see, e.g., Babson 1998). But the North Korean interpretation of the crisis continued to emphasize the role of natural disasters and the collapse of foreign trade. The government identified the three priorities of the AREP program as farm- land recovery and rehabilitation, the restoration of irrigation capabilities, and emergency improvements to fertilizer production facilities but flatly rejected institutional or incentive reforms. In his introductory remarks to the First The- matic Roundtable on the AREP in 1998, the leader of the North Korean del- egation—a vice minister of foreign affairs—argued explicitly that the AREP program would be implemented through existing institutions (Choi 1998).
The process of marketization got a push in July 2002, when the govern- ment of North Korea announced major changes in economic policy compris- ing four central components: microeconomic policy changes, macroeconomic policy changes, and renewed efforts to create special economic zones and secure foreign aid (we take up these reforms in detail in the following sections).8 From the perspective of agriculture, however, the government continued to describe incentive reforms such as the introduction of smaller work teams and fixed-rate tenancies along the lines of Chinese practices as pilot projects. The evaluation of the inadequacies of North Korea’s “within the box” initiatives by a South Korean government think tank is worth citing at length: “Irrigation facilities require streamlining, preferably linked to large gravity-fed networks. More fertilizer alone is not likely to provide sustainable enhancement in agri- cultural productivity. Other innovative, environmentally friendly agricultural techniques (such as improving soil fertility through green manure, using alter- natives to chemical fertilizer, rotating crops, integrating pest management,
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and instituting policy reforms) need to be put into practice. Double-cropping wheat and barley after rice and maize (cereal after cereal) on already exhausted soils is unsustainable. Introduction of leguminous crops in the crop rotation is vital” (KIEP 2004:104).
In some sense, the policy changes undertaken in July 2002 with respect to agriculture could be interpreted as a belated recognition that earlier incentive reforms had not gone far enough. The most important change introduced at this time was a dramatic increase in the procurement prices of grains. With the famine and chronic food shortages, food prices on the market skyrocketed, while the prices paid to farmers remained constant and the prices paid for the rations that were available through the PDS remained nominal. The price reform raised the state procurement price to roughly 80 percent of the contem- poraneous market price. This reform was clearly designed to increase the vol- ume of food entering the PDS and to limit diversion to farmers’ consumption, private markets, and other uses, such as the production of liquor, and the real- location of acreage away from grain to cash crops such as tobacco on the supply side and thus, by implication, to draw consumers back into state-controlled institutions on the demand side.9 In parallel, the authorities loosened central planning, allowing some cooperative farms to choose their own crop mixes.
The government also permitted an increase in the size of private plots on cooperative farms from 30 p’yo˘ng (approximately 100 square meters) to 400 p’yo˘ng (1,320 square meters) while at the same time introducing a rental or tax system to compensate the state for the corresponding reduction in the land controlled collectively by the cooperative. Since the rental rate was not set ex ante, however, farmers exhibited reluctance to apply themselves intensively to the cultivation of these plots. Again, the security and credibility of property rights loomed as an important constraint since farmers remained unsure about how much of the output they would be required to surrender to the state (Nam 2004).
The incentives for farmers to route their production through state channels were further weakened by the inflationary spiral set off by the July 2002 policy changes that we take up in the next section. In the year following the July 2002 price increases, the market price of rice and corn, which had been on a generally downward trend since peaking during the famine, more than tripled. The result was that the gap between the state procurement price for grain and the price that farmers could receive if they diverted production to the market increased sharply (figure 7.2). Although the discrepancy between state procure- ment prices and market prices was not as wide as it was during the prereform period, it was nonetheless substantial.
180 DEALING WITH A NEW NORTH KOREA
FIGURE 7.2. Price Trends, 1998–2003 Source: Lim 2005.
The maintenance of yields in the face of dwindling fertilizer inputs suggests that North Korea saw improvements in input-adjusted productivity that might be traced at least in part to the incentive changes introduced after 1996. But the modesty of the changes in incentives—and undoubtedly their lack of cred- ibility—together with an ongoing dearth of complementary inputs contributed to continuing stagnation in output. Despite South Korea’s infusions of fertilizer and improved weather, North Korea’s agricultural output was still lower in 2005 than in 1990 (figure 2.3). If one accepts the quasi-official figures from the FAO, output remains less than half its peak. It is extremely unlikely that bad weather alone can explain this pattern of stagnation.