While mining and minerals represent the key to Mongolia’s future growth and wealth, agriculture is also a vital part of the economy. The sector, which involves the raising of livestock for both meat and wool, and to a lesser extent the cultivation of grains and vegetables, has the biggest impact on the lives of average Mongolians. Imported consumer goods are still very expensive, and much of the population remains quite poor. According to a recent World Bank report, Mongolians in the lowest quintile of the income distribution spend about half their earnings on food, and about 30% of the country was below the poverty line in 2011, though that number was down a remarkable 9.4 percentage points from 2010. While agriculture generates only about 15% of GDP, it employs roughly 40% of the population. Coal and metals may eventually make the country rich, but until then farming and herding will sustain the nation and take the edge off the ups and downs expected along the way. “Livestock’s share of GDP is small, but it is the biggest factor in inflation. So it has the power to influence the economy,” said B. Erdenebaatar, a rural development expert at the Centre For Policy Research, a non-governmental research institute founded in 1998.

INCREASING INDEPENDENCE: What is particularly encouraging for Mongolians is the possibility of becoming self-sufficient in terms of food. The country has in recent years imported the majority of its staples, leaving it susceptible to global inflation, protectionism and shortages, but in certain areas it has been able to increase production considerably and is moving towards independence from international markets. According to Mongolian Economy magazine, an independent Ulaanbaatar-based publication, in 2012 the country was able to meet all domestic demand for meat, wheat and potatoes, 60% of domestic demand for flour and vegetables, and half of the demand for eggs. These high rates come after a multi-year agricultural boom. The magazine also noted that Mongolia produced about 2m tonnes of fruit in 2012, more than double its production in 2011 and more than five-fold since 2009. Wheat production has doubled since 2008; according to the UN Food and Agriculture Organisation (FAO), the 2012 wheat harvest is estimated to reach 468,000 tonnes, which will be a new record. While it will never be able to fully meet domestic demand for most crops due to its cold climate and harsh winters – sugar, for example, will always be a problem – Mongolia could reach a point at which it can meet almost all of its domestic demand. In the socialist era, the country was 80% self-sufficient in food. It is now at about 60% and rising. “While everyone is talking about mining,” said I. Otgonjargal, the deputy editor of the Mongolian Economy, “It is also important to talk about other areas for the future.”

FOOD & ECONOMIC SECURITY: Concerns about food security have also increased of late as negotiations regarding mining concessions and foreign investment have run into problems and as world commodity prices remain stubbornly high making imported food expensive. The country is keenly aware of the need for balanced development and is working to build a portfolio of diverse income streams that both reduce exposure to risks and protect the nation from the so-called Dutch disease.

Becoming the Kuwait of coal is also at odds with the times. Straight-line production and a focus on GDP goals have fallen out of favour internationally and have been replaced with a more complex and environmentally sensitive vision of progress. This is especially the case where non-governmental organisations and multinationals are involved. They test projects for their impact on society, culture and the economy in the broadest sense. Approval is based on the ability to deliver over the long term, the creation of positive outcomes that benefit the entire nation, and those that help keep the rich-poor divide from widening are especially favoured. For Mongolia, agriculture is thus a top priority given that it is a traditional industry that utilises available resources.

EXPORTS: Agriculture can do more than simply meet domestic needs. It is a major source of export revenues, only second after mining and minerals. Currently, agricultural raw materials make up around 10% of total merchandise exports, but that number does not accurately represent the importance of the sector. Historically, the ratio has been much higher – in 1998 it hit 32.24%. Mining-related exports have boomed and mineral exports alone have risen 10-fold between 1998 and 2008, driving down agriculture as a percentage of the total. Additionally, the gross figure for agricultural exports is probably understated as an estimated 50% of raw cashmere is sold to Chinese traders and smuggled out of the country and may not show up in official statistics.

Agrarian exports play an important part in the lives of the rural population, which makes up about half of the country. A good deal of the money from mining is paid out as profits, taxes and salaries to managers, and wages to skilled labour.

Agricultural exports have the potential to feed through more directly to the incomes of the most economically vulnerable Mongolians. The strategic value of agriculture has become especially apparent as negotiations with international mining companies falter and the stability of mineral revenues has come into question.

NEW GOVERNMENT: The significance of agriculture has been recognised by the new government, which came into power in late August 2012. It immediately shook up a number of government agencies, forming the Ministry of Industry and Agriculture from the Ministry of Food, Agriculture and Light Industry. (Some of the small and medium-sized enterprise-related responsibilities were hived off to the Ministry of Labour). The shift is both symbolic and practical, suggesting that agriculture will be seen more as an industry and developed as such. The new government is still a work in progress and its platform continues to evolve, and while a strong progressive and populist element remains, it seems to be veering in a more pragmatic and nationalistic direction. The state recognises that to achieve its social policy aims, it needs to actively manage the economy and make sure it expands properly.

The recent election seems to be part of a longterm trend in the country that is very relevant for agriculture. After completely opening up to the world following the collapse of the Soviet Union, Mongolia is beginning to loop back around and question its liberal policies. The emphasis now is not so much on excluding others, but more focused on clearly defining the nation and strategically nurturing its core economic strengths. This has led to reforms in education, the encouragement of manufacturing and a concerted effort to improve the agricultural sector. While the country has not exactly come full circle, it is re-evaluating its experiment with unbridled liberalism and starting to re-implement some centralisation, coordination and industrial policy. The technocrat is winning out over the laissez-faire approach, and agriculture is one of the main targets.

“The new government will support the private sector, and agriculture is a priority,” said J. Tuvshinsanaa, project manager for the Agricultural and Rural Development Project, which is funded by the Asian Development Bank (ADB).

CHALLENGES: However, the government is still facing a number of serious challenges. When the Soviet Union collapsed the system of management governing pastures and farmland in Mongolia fell along with it and production plummeted. From 1990 to 2005, wheat production dropped by 83% and was in deficit (with consumption outstripping production) for a full 15 years, according to E. Tumurtogoo, a researcher at the Mongolian State University of Agriculture. Potato production decreased 65% between 1990 and 1996 and was in deficit until 2006. In 2000 a meat surplus turned into a deficit and the market has still not been able to recover 1990 levels.

While most people in Mongolia recognise the socialist era as a dark period, many also note that essential structures were in place then. After the fall, most forms of state governance in the countryside fell apart, and many of the programmes that helped farmers and herders organise were abruptly ended. “Before we had a communist system,” said S. Ukhnaa, the production manager at Altai Cashmere. “It was a communist system, but it was a system.”

In addition to research, investment and management, the Soviet government organised agrarian campaigns, one in 1959 and another in 1976, to increase production, and kept a hay reserve to ensure herds had a dependable supply of food in the event of a cold snap, called dzud in Mongolian. The results were impressive. During that period and through to 1989, 76% of available land was used and an emphasis was placed on working it efficiently. By 2007 only 30% of agrarian land in Mongolia was being utilised, and the results were poor. The country produced only 24.9% of the wheat needed, 86% of national demand for potatoes and 47% of vegetables.

HERD DOUBLED: After the 1991 liberal reforms, the total number of grazing animals more than doubled to 50m animals as collectives were dismantled and herding was privatised, formal institutions abandoned and most regulations were allowed to go unenforced. Rather than working to achieve optimal numbers, herders sought to maximise their holdings. As a result, the country now suffers from overgrazing, animals are less healthy than they were before and business has become far more volatile due to a shortage of hay reserves and sheds to accommodate animals during particularly harsh winters. In the absence of any sort of formal institutions, the land has been heavily taxed by unrestrained grazing from livestock.

“Pasture degradation is getting worse and worse. The number of the livestock is not controlled,” said Takeshi Ueda, a natural resources economist in the Environment, Natural Resources, and Agriculture Division of the ADB’s Central and West Asia department. “Mongolia can do much better with a bit of technical assistance and proper management of pastures. There must be more structure. We have to have better quality and smaller numbers.”

POSSIBLE SOLUTIONS: There is no clear consensus on how this should be accomplished. One suggestion is to improve herders’ financial security so they are less inclined to maintain larger herds as a precaution against the likelihood of animals dying off during dzud. However, insurance programmes have not been successful so far as they are either undersubscribed or find themselves burdened by large losses (see Insurance chapter).

Charging herders for the use of land is another potential option. Land, for the most part, is the property of the state and the tragedy of the commons rules. Because the input price is set at zero, there is an incentive to overuse; however, leasing pastures would be highly unpopular and dangerous for politicians who rely on votes from herders. Finally, any form of organisation, either corporate or collective, could serve to reduce the size of herds; the profit motive at work in a larger group might result in a push toward more sustainable grazing. But this has been tough to implement because of social organisation. “They are originally nomads. They cooperate, but their cooperation is marginal,” said ABD’s Ueda.

To a certain extent the country has to reassemble the structures of the socialist system, but through the market and private enterprise instead. Herders must be motivated in some way to raise their livestock sustainably and to utilise natural resources with the long term in mind. The new Mongolian Agricultural Commodity Exchange could introduce market forces for this. “Industrialisation of livestock is doable,” Ueda told OBG. “They have to provide incentives for herders to go for quality over quantity.”

PROTECTING QUALITY: The production of raw wool suffers from similar issues as herding livestock for meat. Because of overgrazing, overproduction and efforts to generate as much cash as possible, the quality of Mongolian cashmere has greatly diminished. The country has some of the best fibres in the world, measuring 13 microns in diameter, about one micron less than Chinese cashmere. But on average, most of the cashmere exported by Mongolian herders is about a micron thicker than that from China. Breeding for maximum production rather than quality, or simply the lack of attention to quality, has resulted in an inferior product. “Chinese fibres are one micron less. That’s a huge advantage,” said Sarangoo.

Maintaining Mongolia’s natural environment is crucial to improving standards in the agricultural sector. Equally important is to upgrade the genetic stock of livestock and, in the case of cashmere production, herders have to separate fibres before sale. For meat and dairy, recreating systems in the private sector similar to those that were in place before liberal reforms would help improve standards in the sector’s output. D. Munkhjargal, the executive director of leading dairy processor Suu, told OBG, “Informal milk producers pose a challenge since quality and hygiene are extremely poor, but it is still a lucrative business. Around 20m litres of milk are sold on the streets of Ulaanbaatar every year.” A renewed and revised food safety law is also being devised by the government, both to ensure the quality of domestic products and to help find a way for Mongolia to increase its domestic food supply.

SOME SUCCESSES: So far, efforts by the state to reform agriculture have been mixed. The Third Crop Rehabilitation Programme 2008-10 appears to have achieved some success given the rapid increase in production and a return to self-sufficiency in some areas. Still it is not clear whether the state will be able to reign in overgrazing.

Like herders, some bureaucrats still show a bias towards higher production figures. “It is the Ministry of Industry versus the Ministry of the Environment and Green Development,” said Ueda. “The sentiment at the Ministry of Industry is that more livestock will help herders, so the priority is increasing herds. Even though they do care about herders, they have to consider less livestock for more money.”

There has also been some speculation as to whether reshuffling the ministries was the right move given the problems facing the country. While it is generally recognised that the industrialisation of agriculture will have its benefits, there is concern that the drive toward higher production could come at a price and that the government is missing a key part of the equation. “They combined the Ministries of Industry and Agriculture; they combined two big sectors into one,” said N. Gombo, the assistant representative for the UN FAO. She added, “They removed the word ‘food’. That tells you something.”

OUTLOOK: Ultimately, the biggest challenge may not be the more subtle aspects of agricultural management, but the simple zero-sum game of mining versus agriculture. While there is now a general understanding that agriculture is vital to the economy and that it can be a sustainable sector, the more immediate attractions of mining may prove to have too much of a pull. As the figures in the mining sector are so impressive, the government may decide in favour of that industry. Land that could be used for grazing or crops might be turned over to a mine simply for the tax revenues and employment opportunities – even though it may be a short-term payout that leads to serious land degradation.

Some have suggested that the country can have it both ways: with mining located primarily in the north and agriculture in the south. Others, however, disagree, arguing that resources are found throughout the country and lie under much of the pastures and farmland. Even when the two are not in exactly the same location, the contamination caused by mining can be potentially devastating for livestock and herders, and farmers and their crops. Pollutants have already affected agriculture, and the problem will only worsen if steps are not taken to protect the sector’s smaller but sustainable payoff.