Significant potential: Meat could prove to be a major export given the prevalence of herding

With approximately one head of cattle per person, 10 sheep and/or goats per capita, and a clean, healthy environment perfect for organic farming, Mongolia is in a good position not only to feed itself but to sell superior, high-grade, hormone- and antibiotic-free meat. The country has the potential to go from a marginal supplier of low-grade products such as horse meat to Russia, to a seller of very-high-margin beef, mutton and lamb to places like Japan, Korea, the US and Europe. “The meat is tasty, organic and free range,” said I. Battogtokh, a manager at the Mongolian Meat Association.

BEEFING UP THE SECTOR: But before the country can reach this level, quite a bit of work needs to be done. At the moment, most of the industry remains informal and very few products are inspected or graded. Inconsistent standards are applied in animal care and disease is not uncommon. “Herders are lacking in equipment, know-how and local veterinary services to do health checks on cows,” D. Munkhjargal, the executive director of dairy processor Suu, told OBG.

The supply chain is fraught with problems regarding sanitation, and safe handling is rarely practised at all points along the value chain. “The situation is OK in the country and the supply of food is OK, but if you examine it in detail, and if you are concerned about food safety and nutrition, there are many areas that need more action,” said Nyamjargal Gombo, the assistant representative for the UN Food and Agriculture Organisation. In addition, the environment is being degraded by mining activity, resulting in animals that are often unhealthy and thus produce contaminated meat. The country has plenty to eat, but is far from reaching its potential.

UPS & DOWNS: According to the Mongolian Meat Association, approximately 15,000 tonnes of meat are exported annually. Other sources put the number closer to 17,000 tonnes, and in 2010 official state statistics placed the total at 23,000 tonnes. The precise amount, however, is not known, as a good quantity of meat is smuggled out of the country. In 2010 it was reported that coal trucks were being used to illegally ship large quantities of meat from the provinces of Uvs, Khovd and Zavkhan to China. Whatever the exact figure, it is less than 10% of total production, and meat is exported mostly to China and Russia, though some products make it to Iran, Japan, Kazakhstan, Ukraine and Vietnam. The potential to expand exports certainly exists given that during the Soviet era about 40,000 tonnes a year were exported to the Soviet Union.

In the past two years, exports have been quite volatile.

In 2010 Russia, the main export market, banned imports of Mongolian meat (other than horse meat) following an outbreak of foot-and-mouth disease in Dornod, Khentii and Sukhbaatar provinces. The ban was lifted in late 2011, and later that year the sector received a further boost when China and Mongolia signed a three-year trade deal that was expected to increase the export of meat. However, in March 2012 exports of meat to China were restricted until July 2012.

HAACP: Efforts are being undertaken to improve conditions in the meat industry both to make products safer for domestic consumption and to improve quality to make them eligible for export to high-income countries. Much of this effort is being overseen by private industry. In February 2012 Makh Market, a subsidiary of Just Agro, received Hazard Analysis and Critical Control Points (HAACP) certification – a process developed by NASA and Pillsbury in the 1960s to ensure that food taken into space was safe for consumption.

HAACP focuses on following procedures rather than testing the end product, and checking whether handling and production may have introduced any dangerous substances. In obtaining the certification, Just Agro spent some $37m to upgrade its technology, $45m on acquiring meat from herders and $740,000 on training, according to T. Sodnomdarjaa, the firm’s CEO. The government would like 60% of Mongolian food products to be meet HAACP requirements by 2016.

CUT OUT THE MIDDLEMAN: Just Agro is working to improve, or totally remove, other links in the supply chain. It believes that one of the main problems lies in the relationship between pastoralists and processors. At present meat is brokered by traders, putting some distance between the producer and the end user. These middlemen increase costs, but add very little value and can even prevent cooperation. Just Agro believes that by working more closely with herders directly they will save money (an estimated 15% of their current spending), and thus be able to invest more in technology and provide feedback and support for herders. “We want to take the traders out of the process,” said Joel Cachet, director of finance at Just Group.

The country’s meat market has undergone a transformation similar to the cashmere industry. After the 1991 liberal reforms, cooperatives collapsed and centralised control was abandoned, and what emerged was a workable but imperfect system. Traders increasingly began buying meat from herders, and not much has changed since, with middlemen purchasing meat from herders and selling it wholesale to firms that process the meat and sell it to retailers and restaurant owners. Just Agro and the government would like to reestablish a higher degree of control over the process and reduce the number of steps, each of which costs money and increases the chance of contamination.

SAVINGS VS. INVESTMENT: The key is getting the supply chain to work commercially. This may not be so easy. While wholesalers and meat processors are driven by profit, herders often have other priorities. They tend to look at their livestock as more akin to bank savings than capital investments. Rather than trying to maximise returns, which would compel them to work more closely with slaughterhouses, avoid agents and better manage their livestock, they seek to preserve numbers. “There must be entrepreneurship at every point along the value chain,” said Takeshi Ueda, a natural resources economist in the Environment, Natural Resources, and Agriculture Division of the Asian Development Bank’s Central and West Asia department.

Building a better value chain may become easier over time, and the government is discussing an update to the existing 1999 Food Law. Chief concerns include the low ratio of food that is processed industrially, the lack of inspection of imported items and high levels of contamination. Once passed, it should raise the bar across the industry and force herders to think about managing their investments better. The market itself may drive change as well. With incomes rising, education improving and more people coming into contact with the outside world, customers are beginning to understand the value of better quality meat. There is now an incentive for processors to invest in HAACP certification, and others along the value chain are also committing to improving quality.

PRICE RISE: In 2012 one of the biggest problems in the meat market was the rapid rise in prices, a trend that has been long in the making. Indeed, the price more than doubled in just three years between February 2009 and February 2012. In supermarkets beef rose from MNT2678 ($1.87) per kg in February of 2007 to MNT7625 ($5.33) in June of 2012, according to Mongolian Economy magazine, an Ulaanbaatar-based publication. These increases have contributed to inflation, which is running at about a 15% annual rate and hit a recent peak of 17.8% in May 2012.

Many reasons for the spike have been suggested, including the devastating 2009 dzud – a sudden and severe spell of cold weather – that killed about one-quarter of the country’s livestock. It will take a few years to recover, and it is possible that herders are overcompensating. A popular theory is that the government’s monthly cash handout, which now stands at MNT21,000 ($14.70) per citizen, has resulted in fewer animals coming onto the market. Herders often sell only what they need to, and government handouts allow them to sell fewer animals. Grey market trade with China might also account for some of the shortage, as demand is so high in China that meat products often find their way over the border.

IMPROVED LIVING STANDARDS: Another explanation for rising meat prices is that they are the natural result of increased domestic demand. Mongolia is quickly becoming a wealthier country, with average incomes rising and the number of people under the poverty line falling. While the country has always consumed a lot of meat, an improvement in living standards and incomes means more people are able to afford what the market has to offer. In this case, this may not necessarily be a bad phenomenon. At current prices, Mongolian beef is still far cheaper than prices elsewhere (indeed, it is part of a price stabilisation programme), and could simply mean the market is catching up.

Closing this gap could be the final push needed to improve the food chain. Increased profits and higher incomes for slaughterhouses and pastoralists could result in increased investment in safety, hygiene, processing and logistics as well as helping herders to make the leap from subsistence to a more business-like approach. So while the price of meat is a political issue, the price rise may simply go unopposed by the government. “Neither the state nor our members want a decrease in current prices,” said Battogtokh.

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The Report: Mongolia 2013

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