Source: The Broken Telegraph

“Our people take pride in the fact that they are blessed with great leaders from generation to generation”

— High-level North Korean official on Kim Jong Un succession

Poor Weather Reduces Crop Yields; Reduced Crop Yields Lead to Increased Prices…

Weather, food prices, fossil fuels and instability are all linked. Droughts in Russia, Canada, Ukraine, and now in China, as well as floods in Australia have made prospects for this year’s harvest for a number of agricultural commodities look dim. Consequently, prices have spiked for commodities like wheat and grain.

Food Prices, Unstable Demographics, and Repressive Governments Led to Unrest…

Unsustainable food prices for the poor, a youth bulge, and decades of repression and corruption, led to a cascade of unrest in the Middle East.

Unrest Leads to Further Stockpiling and Higher Oil Prices…

This unrest, in turn, is leading to stockpiling amongst the remaining despots, which raises the cost of these agricultural commodities. Compounding this problem is that this instability is causing jitters in oil prices because of the geopolitical risk associated with Middle Eastern instability.

Higher Oil Prices Lead to Higher Food Prices

Rising oil prices increase the cost of transporting food and running agricultural machinery, which ultimately result in further increases in the cost of food. Exacerbating these rising fuel prices is the worry that Saudi Arabia’s ability to reliably supply the world with spare oil capacity no longer seems assured.

The kingdom claims it can reliably supply the world with spare production capacity of 2 million barrels per day. That said, increasing Saudi consumption of its own oil has resulted in declining exports. According to Fortune:

“In order to simply match their 2005 export peak of 9.1 million barrels a day, the Saudis would have to pump 12.1 million barrels a day in 2011. That’s almost 10% above the kingdom’s highest output for a year.”

Source: BP via Fortune and CNN

Given that some of the most productive Saudi fields have been pumping for decades, many investors are skeptical that Saudi Arabia can continue to supply this spare capacity indefinitely.

If Saudi Arabia is unable to provide this spare capacity, oil prices will spike even higher and lead to another food-oil commodity super-cycle/death spiral.

Chinese Droughts Doom North Korea

Now, China’s drought in eight wheat-producing regions may result in that country exporting less food to its reclusive neighbor, North Korea.

For North Korea, this chain of events could not have come at a worse time as that country is in the midst of a delicate succession struggle. Making matters worse, countries that used to provide the North Koreans with food aid like the United States and South Korea, are turning their backs on the hermit kingdom after North Korea sank a South Korean naval vessel and fired artillery on South Korean civilians.

Who can blame the Americans and the South Koreans after years of North Korean threats and demands? After $2 billion and 15 years of food aid, the North Koreans still continue to divert food from civilians to support their military and the Korean people continue to suffer from malnourishment.

In addition to the global factors discussed above that will likely make it more difficult for the North Koreans to procure foodstuffs, North Korea’s agricultural sector has experienced major setbacks this year. North Korean food production has been “plagued by floods, an outbreak of a livestock disease” and one of the worst winters in six decades. The U.N. World Food Program has warned that its current food supply can only sustain operations in North Korea for one more  month. Dissident groups have even reported that members of the 1.2-million strong military are suffering from food shortages.

A Curious Change in North Korean Behavior

A tell-tale sign that the food crisis is starting to have a significant impact on North Korean food supplies is that the hermit kingdom has made the unusual step of asking foreign governments for food.

North Korea never asks for anything. It usually makes demands after detonating nuclear weapons, sinking ships, firing artillery shells at civilians, or firing long-range ballistic missiles into the sea.

This sharp change in North Korean behavior should be a cause for concern for the United States, China, and South Korea, as it might imply a pending collapse of the regime or lead to a desperate attack by the North on the South.

The Central Intelligence Agency may have missed the signs in Egypt, but there is no excuse for missing the signs in North Korea.

Hopefully, the United States, China, and South Korea will be able to negotiate a phased process of integration of North Korea into South Korea as soon as possible. Should these parties choose to ignore these signals, millions may die.