Things have definitely taken a slight turn away from the worst in North Korea. Despite the political drama that unfolded with the purge of Jang Sung-taek and his associates, the economy appears to be stable, with rice price volatility at its lowest in many months. Furthermore, the FAO/WFP Crop and Food Security Assessment Mission (CFSAM) revealed that while problems with distribution and consumption persist, North Korea has managed to increase its crop yield by 5% this year, narrowing the expected food deficit gap to 40,000 metric tons, a noticeable improvement from last year’s predicted 207,000 metric ton gap (read the summary of the mission report here).

All this is good news in a country where a significant portion of the population lives in destitution. But just as the situation improved rapidly, so too can conditions deteriorate.

Consider for a moment what happened in the winter of 1954-55 (a chronology of events can be found here and a more detailed narrative/analysis can be found here). As a result of the strategic bombings during the Korean War, North Korea’s agricultural sector had been completely devastated by the time of the armistice. However, even though domestic food production was inadequate to satisfy domestic consumption, North Korea did not suffer from a major food crisis in the immediate aftermath of the war. The supply of food had been bolstered by not only foreign assistance but also robust commercial activities. In fact, the conditions were improving at such a pace that rice prices actually dropped 45% during the first six months of 1954 compared to the first six months of 1953 despite increases in wages. This initial increase in standard of living came to an abrupt end in November 1954 with the abolition of commercial activities and lower than expected harvest of the winter crop. The food crisis that started that winter continued to devastate North Korea until July of 1955 when the government finally rescinded its ban on commercial trading of food stuffs, which quickly brought food prices down. This is particularly remarkable given that July/August would have still been the middle of a “lean period” in the harvest calendar.

So what does this event teach us?

For one, it reiterates what we already know intuitively: domestic grain yields do not necessarily need to increase to ensure food security as long as imports can supplement existing supply. But more importantly, the case study reveals the absolute importance of market institutions in protecting the people’s access to food by providing effective signals to economic actors – the quick resolution of the food crisis after the government rescinded its restrictions on trading foodstuffs shows that the 1954-55 crisis was caused by loss of entitlement (click here for a summary of Amartya Sen’s entitlement theory), not a decrease in the absolute quantity of food.

Nearly 60 years onwards, what similarities can we observe?

Following the devastation caused by the 2009 currency revaluation, the economy is making a slow recovery. After an extremely bumpy journey with nuclear weapons in tow, the country is now even showing signs of GDP growth and increased crop production. Just as in early 1954, Pyongyang is exhibiting optimism for the country’s economic prospects by increasing the wages of urban industrial workers. While there are concerns for inflation, the current boost to the overall supply of food is probably helping maintain price stability. The damaging effect of the disproportionate purchasing power of Pyongyang on the distribution of resources to the periphery has also been tempered by the increasingly active private trade of foodstuffs – which has been cited in the 2013 FAO/WFP CFSAM report as contributing to not only the better distribution of food, but also achieving dietary diversity that is so critical to the people’s health. These are positive developments.

Enter into this picture the removal of Jang Sung-taek. Jang had been a huge proponent of Sino-North Korean economic exchanges, leading the joint committee on developing Hwanggumpyeong Island Special Economic Zone.

Andrei Lankov believes that while Jang’s removal should not be seen as a death blow to potential reforms, it might

have some impact on North Korea’s relations with China. In Pyongyang, Jang was often seen as a China expert and was heavily involved with Sino-North Korean economic exchanges. Critical remarks about sales of resources to other countries at bargain prices might indicate that North Korea will become more hostile toward Chinese investment. Generally it seems that Kim Jong Un still harbors some expectations about the possible arrival of Western capital, and is therefore rather unenthusiastic about Chinese money.

Given that Pyongyang suffers from a widespread loss of confidence in the North Korean Won (KWP) and the Chinese Renminbi is a more readily accepted tender for purchasing goods in the private economy (read more about it here and here), changes in Sino-DPRK relations that affect the inflow of capital from China could seriously disturb the market. Market institutions can provide effective signals to economic actors in so far as the currency is stable because prices are communicated through the exchange of money. Therefore, if Jang’s removal actually signifies changes in North Korea’s policies towards China, it could seriously upset food prices.

This, combined with the potential shock to the supply of grains in the spring (caused by deficient supply of seeds for winter wheat and barley due to declining production in previous years), appears eerily similar to the conditions that led up to the crisis in 1954-55. The core difference is that the state has not banned the trade of foodstuffs, though many restrictions and limitations still remain in place.

At this very moment, there is nothing to definitively indicate that the country stands on the brink of another crisis, but it remains a dire imperative for North Korea to maintain both the current level of price stability in grain prices and commercial ties with China. We will observe vigilantly for any signs of difficulties as winter grows longer over the peninsula.

More to come.