Agriculture sector central to Mongolia's economy and cultural heritage

Over the past decade or so the agriculture sector – one of Mongolia’s oldest industries – has remained integral to the country’s long-term development strategy, even as mining, telecoms and some other relatively new sectors have grown rapidly.

Until just a few years ago the majority of Mongolia’s population was involved in herding or farming in one way or another, and as recently as 2011 more than 30% of the country’s workforce was employed in agriculture, according to World Bank data. While this figure is expected to decline in the coming years, largely as a result of steadily increasing rural-urban migration, a considerable percentage of the population will likely continue to be involved in agricultural activities – primarily in the livestock segment – for the foreseeable future.

Government Backing

In recent years, in particular, the Mongolian government has launched a number of programmes aimed at shoring up agricultural production and employment with an eye towards improving the country’s long-term food security situation and boosting exports.

These programmes aim to address a wide variety of hurdles. Mongolia is a challenging environment for most agricultural activities. Only around 1% of the country’s massive land area can support farming at any scale, and the growing season is less than five months long most years, on account of the long, harsh winters. The climate varies widely throughout the country, with temperatures ranging from 40°C in the Gobi desert in the summer months to -40°C and lower in the steppe during the winter.

Some winters bring a dzud, a front of extreme cold and rough weather that comes on with little warning, killing livestock en masse. During the winter of 2009-10 a dzud wiped out an estimated one-quarter of Mongolia’s animals, for example.

Other challenges include the nation’s transport networks, which are in relatively poor shape, hindering the transport of agriculture goods to market; a continued lack of organisation in terms of long-term planning and development; and poor access to financing, among other issues.

Despite these and other issues, many local players are cautiously optimistic about the future. Relatively mild winters since 2010 have resulted in steadily increasing agricultural production in many areas. Mongolia’s rising reputation as a major producer of cashmere and other animal products has resulted in steadily increasing foreign exchange earnings and new business opportunities around the world. Finally, and perhaps most importantly, the government is currently in the midst of a handful of projects aimed at ensuring continued stability and expansion for years to come.

A Long Tradition

During the communist period, prior to 1991, Mongolia’s agriculture sector was entirely owned by the state and production was organised into regional-level collectives.

The industry benefitted from substantial subsidiaries from the Soviet Union during this period, not to mention imported technologies and various other industrial inputs. Consequently, the country achieved complete self-sufficiency in milk, wheat and meat products, and managed to meet more than 80% of overall domestic demand for food products.

When the transition to a market-based economy began in the early 1990s this system was largely disassembled, and production dropped dramatically. As state oversight and support declined during this period, most herders and farmers returned to the traditional nomadic agricultural practices that were common in pre-communist Mongolia.

The agriculture sector faltered through the 1990s. In 2002 the country produced just 40,000 tonnes of fodder, down from more than 1m in 1989. Pastureland and watering holes were depleted as a result of herders breeding animals in unsustainable numbers. A series of particularly cold, harsh winters wiped out large numbers of livestock during this period, further contributing to the decline.

A lack of oversight had a similarly negative impact on farming, and crop productivity declined by an estimated 80% in the decade-and-a-half following the end of communism.

Signs of Recovery

Since the mid-2000s, however, the sector has seen something of a turnaround. Over the past decade, in particular, the government has worked to take on a more active role in many agricultural segments, including livestock, farming, processing and distribution.

Initially this involvement took the form of a handful of one-off projects aimed at boosting production in various key areas, including the cashmere and wool segments, for example. More recently, and particularly since 2009, successive governments have developed a variety of medium- and long-term development plans for the sector.

Both the State Policy on Food and Agriculture (SPFA) and the State Policy on Herders (SPH) were launched in 2009, and the Mongolian National Livestock Programme (MNLP) was put forward in 2010. When the current government took power in 2012 it kept these policies in place, which was considered to be a broadly positive sign in a country where successive governments regul arly cancel initiatives that had been launched by their predecessors.

SPFA

The SPFA, which has the broad aim of boosting the country’s food supply by expanding and improving upon sustainable agriculture practices, builds on a similar project that was initially launched in 2003. Under the initiative the Ministry of Food and Agriculture is working to encourage the use of technology in animal breeding and care, and also in other parts of the agriculture sector.

SPH

The SPFA is complemented by the SPH, which is focused on boosting incomes and quality of life among Mongolia’s herders, who numbered in excess of 700,000 as of late 2012, according to World Bank estimates. The programme is composed of various components, including those aimed at improving herder organisation and collectivisation in an effort to enable risk-sharing; facilitating steady improvements in the quality of meat and other animal products produced in Mongolia; and boosting access to markets, both within the country and further afield.

MNLP

Set to run until 2021, the MNLP is similarly composed of various livestock-related initiatives, including programmes aimed at ensuring the adaptability and long-term viability of the segment in light of climate change, which has the potential to seriously impact Mongolia’s agriculture sector.

The programme is organised into five priority areas, which include the “formulation of a favourable legal, economic and institutional environment for sustainable development, and the development of good governance in the livestock sector”; the improvement of “animal breeding services” as part of the effort to boost productivity and competition; expanding and improving veterinary services in order to better protect the health and quality of livestock; developing new risk management capacity in an effort to prepare for the effects of climate change; and establishing “targeted markets for livestock and livestock products” and “proper processing and marketing structures” in an effort to “increase economic turnover”, according to the policy document.

The objectives that are laid out in the MNLP and other programmes are reiterated and reinforced in Mongolia’s comprehensive National Food Security Programme, currently in its second iteration, under which the state is working to boost the country’s self-sufficiency in terms of food (see analysis).

In April 2013 the Agricultural Commodities Exchange of Mongolia (ACEM) was launched, after years of work by the state and provincial authorities. Part of the government’s longstanding effort to improve market access in the agriculture sector, cashmere was the primary raw product traded on the exchange initially, though new lines are expected to be added as the entity develops. “The launch of ACEM is of historic importance in [the] creation of the supply network of … raw materials,” said B. Tsogtgerel, the then vice-minister of industry and agriculture, at the launch of the exchange.

Corp Production

Mongolia has seen steadily increasing crop production over recent years, with the total sown area standing at 415,368 ha in 2013, up from just 194,789 ha in 2008, according to the Mongolian Statistical Information Service. However, the country still faces numerous challenges in this segment. As mentioned previously, just 1% of Mongolia’s land can support the growing of crops – primarily in a handful of river valleys in the north – and currently less than that amount of land is actively being cultivated on an annual basis.

That said, given the country’s enormity and the relatively small size of the population – Mongolia is one of the least densely populated nations on earth – the country is nearing self-sufficiency in a number of crops. It has also seen rising productivity across a number of grain crops in recent years.

However, the state has acknowledged that meeting 100% of domestic demand for vegetables and other crops is unlikely, given the country’s extremely short growing season and harsh climate (see analysis). “The country is not largely self-sufficient in wheat and potatoes,” Charles Annor-Frempong, a senior rural development specialist at the World Bank who focuses on Mongolia, told OBG.

According to the Mongolian Statistical Information Service, total potato production was 191,619 tonnes in 2013, up from 78,673 tonnes in 2003. Production of fodder crops was 42,642 tonnes, compared to just 9566 tonnes a decade earlier. Cereals rose from 165,047 tonnes to 387,043 tonnes in the same period, while vegetable production was 101,762 tonnes in 2013, up from 59,610 in 2003. Wheat production in 2014 was 430,000 tonnes, up 17% from 2013, attributed largely to good weather conditions. Further to this, the government announced that it plans to collect 465,700 tonnes of wheat from 300,000 ha during its 2015 spring harvest.

Animals

Mongolia produces a wide range of products derived from tavan khoshuu mal (the five primary kinds of animals): goats, sheep, cattle, horses and camels. Together, these species account for an estimated four-fifths of the country’s overall agricultural production. Additionally, the Dukha people, a small group of ethnic Tuvans who live in the remote northern Khövsgöl province, raise herds of reindeer.

As of 2014, the country had just under 52m head of livestock in total, according to the Mongolian Statistical Information Service, up from 28m a decade earlier. Sheep and goats are the most numerous, with 23m and 22m, respectively. Around 3.5m cattle, 3m horses and 350,000 camels make up the rest.

More than 25% of the nation’s working population is involved in animal husbandry of some kind. The great majority of this workforce is made up of independent small-hold herders, who graze their animals on Mongolia’s vast state-owned steppe. Prior to democratisation in the early 1990s, the sector was organised so that most herders bred and tended to one type of animal only. Today, however, in an effort to mitigate risk, most herders have chosen to raise mixed herds, which means that they must deal with multiple types of products at various times of year and attend to multiple markets.

Meat

During the communist period Mongolia was a major meat producer, exporting more than 40,000 tonnes annually to its neighbours, primarily the Soviet Union. Like many other segments, the meat industry has faced a range of challenges, including declining production across all animal types, a deterioration in quality, low levels of processing capacity and, since the late 2000s, rapidly rising prices. This last issue can be attributed largely to volatile production, which has, in turn, contributed to a lack of supply, pushing the price up. In March 2012, for example, the average price of 1 kg of beef in Mongolia was MNT8200 ($4.92), nearly double a price of MNT4403 ($2.64) during the same month the previous year, for example, and more than three times a price of MNT2331 ($1.40) in January 2007, according to the National Statistical Office of Mongolia.

More recently, however, increased investment in meat production and processing has resulted in steadily improving quality in most segments, which has in turn contributed to rising export potential. Indeed, Mongolia is positioned to once again become a major meat exporter. In September 2014, after talks between Mongolia’s president Ts. Elbegdorj and his Russian counterpart Vladimir Putin, Russia announced that it planned to lift restrictions on meat imports from Mongolia. Accordingly, the Russian meat producer Buryatia Group proposed the purchase of 7000 tonnes of beef and horse meat from Mongolian suppliers during a meeting in March 2015. This follows on a large meat order from China in 2010 and an economic partnership agreement that was signed by Mongolia and Japan in July 2014, under which Mongolian meat will be exempt from Japanese tariffs for a period of 10 years.

Cashmere & Related Products

Cashmere is one of Mongolia’s most prestigious products in international markets. The country is the world’s second-largest producer of raw cashmere (after China), accounting for approximately 20% of global supply. Mongolian cashmere is widely considered to be of the highest quality. The cashmere segment has grown rapidly over the past 20 years, with the total amount of raw cashmere produced in the nation up by 450% from 1990 to 2009, for example, as herders increased the size of their flocks. Today Mongolia produces 5500-6500 tonnes of cashmere on an annual basis, most of which is exported to China for processing.

In an effort to retain added value in this segment, the Mongolian government has worked to build local processing capacity, with considerable success. As of mid-2013 the domestic industry purchased around 30% of locally produced raw cashmere, up considerably from previous years. This jump can be attributed in part to a series of state-sponsored subsidy programmes aimed at building the industry. These initiatives are expected to continue to have a positive impact on the sector for the foreseeable future.

The country is also a major producer of sheep wool, camel wool and other animal-skin products, including yak moults and leather. Most production in these areas is exported for processing outside the country, though a considerable number of herders also sell wool within Mongolia for personal use. China and Russia are both major importers of raw wool and other animal-skin products. The leather segment has considerable government attention – in 2013 the state financed a new leather-processing complex north of the capital, for example.

Outlook

Generally speaking, production levels and overall food quality are improving across the sector, and exports are increasing apace.

The cashmere segment in particular continues to provide high revenues for many Mongolian companies and individual herders, and opportunities for meat and other animal-product exports bode well for future growth. “While the sector has seen a number of ups and downs since the collapse of the Soviet Union in the early 1990s, in general the government has done a good job supporting agriculture,” Annor-Frempong told OBG. “They have focused primarily on boosting overall production by developing a targeted subsidy programme and provided various other types of support to farmers and herders.”

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The Report: Mongolia 2015

Agriculture chapter from The Report: Mongolia 2015

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