Abstract
Selected Issues
Achieving Green and Inclusive Growth in Mongolia
Upgrading the livestock/agriculture sector offers a vital opportunity to diversify the economy and achieve green and inclusive growth. However, the livestock sector is threatened by rapid climate change, significant overgrazing, and imbalance in livestock species. These factors have led to massive land degradation with serious macro-critical consequences and socio-economic costs. Going forward, balancing the livestock population with nature’s capacity to regrow is crucial to secure the sector’s sustainability. Three key macro policies can help achieve green and inclusive growth: a pasture tax to address the problem of the commons, incentives to boost quality of animal products, and promotion of meat exports. These policies can bring the livestock population below the carrying capacity of the grasslands, while improving the value added of each animal—thus offering better and sustainable livelihoods to the herders.
A. The Mongolian Context
1. Mongolia is struggling to achieve inclusive and job-rich growth. After the 2016 crisis, overall economic growth in Mongolia has been strong and has averaged between 6–7 percent. However, the poverty rate has barely fallen over the past few years, and remains high at 28.4 percent in 2018 (according to the National Statistics Office). Worse, unemployment rate has increased in the past two years. Thus, despite strong overall growth, job creation and poverty alleviation remains a significant challenge.
2. The disconnect between job creation and growth is likely due to the heavy reliance on the mining sector and low productivity of the livestock sector. Much of the growth experienced over the past 2–3 years has been driven by the mining sector, despite the mining sector accounting for about a fifth of the total value added. However, since the employment share of the mining sector is small, mining-led growth is unlikely to deliver job-rich growth. By contrast, the livestock sector is still the biggest employer in Mongolia—but it still operates as a low-value-added sector.
3. Going forward, upgrading the livestock sector offers Mongolia a vital opportunity to diversity its economy and achieve green and inclusive growth. Given Mongolia’s endowments— vast grasslands spanning 80 percent of Mongolia and proximity to large markets in Asia—Mongolia holds a comparative advantage in livestock production. The livestock industry accounts for about 90 percent of agriculture production and is central to the nation’s social fabric: it employs 1 in 4 Mongolian—tying the livelihoods of the entire rural population to common weather shocks.
4. The government is already focused on improving the sector but efforts need to be stepped up. Mongolia’s constitution (1992) states: “The livestock of the country is national wealth and subject to state protection.” In 2010, the Parliament adopted the National Livestock Program with the aim of (i) making the livestock sector adaptable to climate change and social development, (ii) providing safe food supply, and (iii) increasing production and export of livestock products (mainly cashmere, meat, and milk). However, a decade later, there still remains a huge scope to upgrade the industry with key goals of the program remaining unmet.
B. The Overgrazing Challenge Facing the Livestock Sector
5. Amidst rapid climate change, overgrazing and imbalance in livestock species has led to massive land degradation threatening the livestock industry. After independence, with virtually no land use regulations or pasture management, the rising global demand for cashmere led herders to vastly expand their goatherds. At the same time, without a developed meat industry and strategic animal breeding there have been no serious limits on growth of livestock. This has tripled the livestock population since 1990 to about 70 million animals now (based on NSO data), with the share of goats rising from about 15 percent to about half—leading to serious overgrazing pressures. At the same time, due to its unique geography Mongolia has warmed three times faster than the rest of the world and 80 percent of the country is defined as highly vulnerable to climate change (Government of Mongolia TNC report under the UNFCCC, 2018; Batima, 2006). Amidst such rapid climate change, the overgrazing—especially by goats—has led to significant land degradation and desertification (affecting 76.8% of all Mongolian territory as of 2015), threatening the entire livestock industry (Government of Mongolia TNC report under the UNFCCC, page 31, 2018).
Goats in Mongolia
(Percent fo Total livestock)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsGoats in Mongolia
(Percent fo Total livestock)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsGoats in Mongolia
(Percent fo Total livestock)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculations6. Worse, the overgrazing problem is becoming bigger, with actual livestock numbers much greater than the estimated official carrying capacity of the grasslands. Based on various scientific studies, the government adopted a limit on the number of livestock in its 2010 National Livestock Program (Resolution of State Great Khural of Mongolia, 2010). However, the actual number of livestock now vastly outnumbers the targets by a ratio of almost 2 to 1. This is putting massive environmental pressure, and if left unchecked risks jeopardizing the sustainability of the entire sector. According to the National Report on the Rangeland Health of Mongolia (2015), the decline in rangeland (grasslands) health is the central challenge to sustainable livestock production in Mongolia, and “the control of livestock numbers is a fundamental pre-condition for effective rangeland management.”
Livestock Population: Actual vs. National Targets
(Millions)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO, Livestock National Program, and Author’s calculationsLivestock Population: Actual vs. National Targets
(Millions)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO, Livestock National Program, and Author’s calculationsLivestock Population: Actual vs. National Targets
(Millions)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO, Livestock National Program, and Author’s calculationsC. Four Macro-Critical Implications of Land Degradation
7. The combination of land degradation and climate change has serious macro-critical implications. Below we discuss four key implications.
8. First, there has been a significant increase in severity and frequency of livestock loss. Livestock herds living in degraded environments are less able to withstand climate shocks, leading to extreme losses of wealth (of up to an estimated 8–12 percent of GDP in a year) during harsh winters called ‘dzuds’—that have grown in frequency (Government of Mongolia TNC report under the UNFCCC, page 205, 2018). Furthermore, our estimation results suggest that the combination of harsh winters and harsh summers strongly predict loss of adult livestock. On average, a 1°C colder winter is associated with 1.8 percentage points increase in loss of adult livestock, while a 1°C warmer summer is associated with a 1.5 percentage points increase in loss of adult livestock.
Temperature Anomalies
(Avg. Annual Temp Minus Mean Annual Temp in 1901 – 10)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: World Bank, UK Met Office, Fund staff calculationsNote: Reported series are a 10 year moving averageTemperature Anomalies
(Avg. Annual Temp Minus Mean Annual Temp in 1901 – 10)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: World Bank, UK Met Office, Fund staff calculationsNote: Reported series are a 10 year moving averageTemperature Anomalies
(Avg. Annual Temp Minus Mean Annual Temp in 1901 – 10)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: World Bank, UK Met Office, Fund staff calculationsNote: Reported series are a 10 year moving averageLoss of Adult Livestock, Mongolia
(Percent fo Total Livestock)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsLoss of Adult Livestock, Mongolia
(Percent fo Total Livestock)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsLoss of Adult Livestock, Mongolia
(Percent fo Total Livestock)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculations9. Moreover, the impact of climate shocks has been worse in provinces (aimags) with greater increase in livestock numbers. The empirical setting to examine the role of unregulated increase in herd size on amplifying the impact of climate shocks is to examine how different provinces (or aimags) experienced the dzud climate shocks differently. Mongolia is divided into 21 aimags and one provincial municipality (the capital). The idea behind this identification strategy is to examine whether the same climate shock had larger impact on the aimags that experienced a greater increase in livestock immediately preceding the climate shock. We study the first dzud episode of 2000–2002. We first focus on livestock lost as an outcome variable. We present the results graphically here. The first panel of the figure below reports the results for the impact of growth in all livestock, while the second panel presents the results for the impact of growth in goats. The estimation suggests that during the dzud episode, an increase of livestock by 100,000 units in the pre-period was associated with a 2.8 percentage points increase in livestock lost during the dzud episode. This result is statistically significant at the 1 percent level. The role of goats on amplifying the climate shock was even larger. The estimation suggests that during the dzud episode, an increase of goats by 100,000 units in the pre-period was associated with a 5.7 percentage points increase in livestock lost during the dzud episode. This result is statistically significant at the 1 percent level. That is, about twice the effect size. Overall, the estimation suggests that the percentage loss of livestock (in percent of total livestock) during the dzud was biggest in aimags where livestock had grown the most in the preceding decade after the end of communist period. Moreover, the impact on livestock lost during the dzud was twice as big when goats drove the increase in livestock. This is consistent with other studies that find that since goats are voracious eaters than other livestock and consume the roots of the grass, goat herding can further aggravate land degradation and vulnerability to climate change (NEASPEC Report on Combating Desertification in North-East Asia, 2012; Hilker et al., 2014; Batkhishig, 2013).
Livestock Loss by Aimags, Dzuds of 2000–02
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Note: Lifestock lost in total livestock lost between 2000–2002 as percent of 1999 stock of livestockLivestock Loss by Aimags, Dzuds of 2000–02
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Note: Lifestock lost in total livestock lost between 2000–2002 as percent of 1999 stock of livestockLivestock Loss by Aimags, Dzuds of 2000–02
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Note: Lifestock lost in total livestock lost between 2000–2002 as percent of 1999 stock of livestock10. Second, there has been a decline in the sector’s productivity and value-added per unit of livestock. With absence of culling programs (leading to older less productive animals) and absence of strategic breeding, there has been a decline in quality of animal products (particularly cashmere) (Danforth, 2017; Spina 2018; World Bank, 2003). Part of this is driven by the rising global demand of cashmere. Since Mongolia supplies about 1/3 of global supply of cashmere, over the past decades livestock herders in Mongolia have been pushed to pursue volumes rather than quality. This has worsened the tragedy of commons in Mongolia by putting more burden on the Mongolian grasslands, while there has been a significant reduction in the value added of Mongolia’s livestock sector. For instance, our estimates suggest that between 1990 and 2018 the value added per unit of livestock declined by about 30 percent. This clearly suggests a significant shift from quality towards quantity in the livestock sector.
Relative Price of Mongolian Cashmere
(As a Ratio of Chinese Cashmere, 3-yr Moving Avg.)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Schneider Group and Author’s calculationsRelative Price of Mongolian Cashmere
(As a Ratio of Chinese Cashmere, 3-yr Moving Avg.)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Schneider Group and Author’s calculationsRelative Price of Mongolian Cashmere
(As a Ratio of Chinese Cashmere, 3-yr Moving Avg.)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Schneider Group and Author’s calculationsValue Added per Unit of Livestock
(Thousands of MNT, in 2018 Prices)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: NSO, Fund staff calculationsValue Added per Unit of Livestock
(Thousands of MNT, in 2018 Prices)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: NSO, Fund staff calculationsValue Added per Unit of Livestock
(Thousands of MNT, in 2018 Prices)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: NSO, Fund staff calculations11. Third, herders have been forced into becoming climate refugees leading to huge socioeconomic costs. With fragile and poor livelihoods, each climate shocks have led to a surge of herders migrating to the capital (Ulaanbaatar). Today, about 1 in 4 Mongolian lives in shantytowns (the ger district) in the outskirts of the capital—most of whom are former herders. The dzuds have been a primary driver of this migration flow, as the migration to Ulaanbaatar intensified after both the dzud episodes of the early 2000s and of 2010 (IMF, 2003; Save the Children, 2013; International Organization of Migration, 2018). Overall, the volume and speed of internal migration has outpaced the government’s ability to provide basic services—including housing, clean water, sanitation, heating, health care, and education (Mongolia Habitat-III National Report, 2016; World Bank, 2010a). Moreover, the lack of basic services in the ger district has also led to a significant pollution problem (with the highest PM2.5 emissions in the world) causing its own set of severe health hazards (World Health Organization, 2015; World Bank 2010b; UNICEF, 2018).
Number of Migrants Moving to the Capital
(Thousands)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsNumber of Migrants Moving to the Capital
(Thousands)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsNumber of Migrants Moving to the Capital
(Thousands)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsShare of Population in Slums
(2014)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: UN Habitat and Author’s calculationsShare of Population in Slums
(2014)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: UN Habitat and Author’s calculationsShare of Population in Slums
(2014)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: UN Habitat and Author’s calculations12. Moreover, the decline in herding and outmigration to the capital has been worse in provinces (aimags) with a greater increase in livestock numbers. We examined how the climate shock affected the decline in herder households in different provinces as a function of increase in the number of livestock. The outcome variable of interest is defined as percent change in herder household between 2002 and 1998, In the figure below, the first panel reports the results for the impact of growth in all livestock, while the second panel presents the results for the impact of growth in goats. Our estimation suggests that during the dzud episode of 1999–2001, an increase of livestock by 100,000 units in a given aimag in the pre-period was associated with a 1.1 percentage points decline in herders during the dzud episode. This result is statistically significant at the 5 percent level. Again, for decline in herder shares the role of goats on amplifying the climate shock was even larger. The estimation suggests that during the dzud episode, an increase of goats by 100,000 units in the pre-period was associated with a 2.6 percentage points decline in herders during the dzud episode. That is, about two and half times the effect size estimated for livestock. Overall, the results suggest that decline in share of households engaged in herding (expressed as a percent of total households) during the dzud was biggest in aimags where livestock had grown the most in the preceding decade after the end of communist period. Moreover, the impact on livestock lost during the dzud was 2.5 times as big when goats drove the increase in livestock. This evidence provides support for the hypothesis that unregulated increase in livestock has amplified the economic impact of climate shocks in Mongolia—by both increasing the loss of wealth and livelihood.
Herders Decline by Aimags, Dzuds of 2002–02
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Note: Percent change in herder household is calculated as change between 2002 and 1998Herders Decline by Aimags, Dzuds of 2002–02
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Note: Percent change in herder household is calculated as change between 2002 and 1998Herders Decline by Aimags, Dzuds of 2002–02
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Note: Percent change in herder household is calculated as change between 2002 and 199813. Fourth, the land degradation and desertification has contributed to the increase in frequency and severity of huge dust storms across East Asia. Over 90 percent of Mongolia’s grassland is prone to some level of desertification and about 77 percent of Mongolian territory has been affected by desertification, largely due to degradation caused by overgrazing and limited pasture management (Government of Mongolia TNC report under the UNFCCC, 2018; Convention of Biological Diversity, 2014). Moreover, Mongolia’s shift into goats has accelerated the desertification process: goats can thrive on the desert shrubs that replace grass—leading to further desertification as their sharp hooves pulverize the protective crust of the soil that naturally checks wind erosion. This has led to intense dust storms (also called ‘Yellow Dust’) across East Asia (China, Japan, and S. Korea), associated with rising health and economic costs across the region.
Desertification Rate in Mongolia, 2010, from Nyamtseren, Mandakh (2014)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Korean National Institute of Meteorological ResearchDesertification Rate in Mongolia, 2010, from Nyamtseren, Mandakh (2014)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Korean National Institute of Meteorological ResearchDesertification Rate in Mongolia, 2010, from Nyamtseren, Mandakh (2014)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Korean National Institute of Meteorological ResearchD. Policies to Achieve Green and Inclusive Growth
14. Overall Mongolia needs effective land/pasture use policies and quality improvement programs to sustainably boost value added of the sector. To firmly place the livestock industry on a sustainable path and boost livelihoods of the most vulnerable households, Mongolia needs to (i) increase resilience to climate change by addressing overgrazing and balancing the size of its herds with nature’s capacity for regrowth, and (ii) improve governance, pasture management, and livestock productivity in line with commitments of its National Livestock Program. The government is already trying to more in this domain. For instance, in December 2018, the Mongolian Cabinet approved a National Program to promote and develop intensive animal husbandry. It plans to spend MNT166.3 billion on the program implementation for 2019–23. Under the plan, the funding will be spent on rendering support to build capacity of managers and professional association of intensive animal husbandry, transform it into cluster system, import high productive livestock, naturalize, ensure food safety and safety and introduce technology. Moreover, the plan aims to boost processing and export of meat, while reducing import of milk and other dairy products. While these efforts are welcome, effective implementation is key and more is needed to upgrade the livestock sector.
15. From a macro perspective three key policies can help: a pasture tax, incentives to boost quality of animal products, and promotion of meat exports. First, reintroducing a pasture tax—with an exemption for small/medium herders—can reduce herd size and in turn help reduce land degradation and wealth inequality. Second, incentives to boost quality of animal products (and reducing focusing on boosting quantity) will enable the sector to become more productive. Third, upgrading the meat industry would provide a natural limitation on herd size and incentivize herders to focus on quality over quantity.
Pasture Tax
16. Herders now pay no taxes on livestock holdings, contributing to high inequality in rural wealth. Ahead of the 2009 Presidential elections, the Parliament repealed all taxes on livestock herders. Before then herders were liable to pay between 50–100 MNT (or less than USD 0.1 in 2019 prices) per head of sheep. Goats were considered equivalent to 1.5 sheep for taxation purposes. 20 sheep per member of herder household were exempt from taxes. However, since 2009 herders are liable to pay no taxes after the Parliament repealed the taxes. An analysis of concentration of livestock wealth in 2018 using micro data (see figure below) suggests that households with below median wealth have about 91 livestock, while top 1% households had about 1835 livestock—which is 20 times more. The very high concentration of livestock wealth among herder households suggests that the re-introduction of the pasture tax can be designed in an equitable way, thereby protecting the most vulnerable households.
Inequality of Livestock Wealth
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsInequality of Livestock Wealth
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsInequality of Livestock Wealth
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculations17. Building on a 2015 proposal that was submitted to Parliament, there is interest in reintroducing the pasture tax, and the idea is gaining traction. The Asset Tax Law proposal that was submitted to Parliament in 2015 proposed to grant power to local authorities to set the livestock tax between the range MNT 0–1000 per head of sheep (with all livestock being converted to sheep head units for tax purposes). Note that the law dealt with other assets beyond livestock, including housing, vehicles, and guns. The tax exemption threshold was raised from 20 to 50 heads of sheep. While this proposal did not pass in the Parliament, there is again discussion and interest in passing the tax.
Livestock Tax Rates
($ per Animal (in 2019 prices))
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Ministry of Finance and Author’s calculationsLivestock Tax Rates
($ per Animal (in 2019 prices))
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Ministry of Finance and Author’s calculationsLivestock Tax Rates
($ per Animal (in 2019 prices))
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Ministry of Finance and Author’s calculationsExemption Threshold
(Number of Effective Sheep Units)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Ministry of Finance and Author’s calculationsExemption Threshold
(Number of Effective Sheep Units)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Ministry of Finance and Author’s calculationsExemption Threshold
(Number of Effective Sheep Units)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Ministry of Finance and Author’s calculationsThis interest is also shared by herders (based on our conversations with the cooperatives) as they recognize the fragility of the environment and the impact overgrazing is happening on the livestock sector and the grasslands.
18. Designing a progressive pasture tax—combined with a generous exemption for small/medium herders—can help address overgrazing in an equitable way. Policy change is essential to limit the large externalities associated with unregulated pasture use. Re-introducing a pasture tax that is at least as high as the one proposed in the 2015 draft law will be an appropriate place to start. The right level of the tax will need to be calibrated over time to achieve a reduction in livestock numbers at least in line with national targets (introduced in the 2010 National Program). To mitigate the impact on small/medium herders a more generous exemption threshold could be considered. For instance, an exemption of 100 livestock heads would imply that over half of the herder households would be exempt from taxation. Such an exemption threshold could also improve political acceptability of the tax. In addition, to further increase political acceptance of this tax, the local governments should be allowed to retain the tax revenues at the local government level—and allocated to improve pasture quality, water resources, and livestock productivity.
Incentives to Promote Quality of Animal Products (particularly Cashmere)
19. Government incentives and regulation to promote high quality animal products— particularly cashmere—is crucial. Beyond the pasture tax it will be important for the governemnt to introduce additional incentives to promote quality over quantity in the livestock sector. Currently, a significant majority of subsidies under the National Livestock Program are given to wool and hides producers, but they are geared towards quantity of produce rather than quality of produces. Given the lack of emphasis on quality, Mongolian cashmere fiber has thickened over time, implying that a large share of Mongolian cashmere is unfit for use by the luxury knitted/woven garment industry (Dash, 2017; Spina 2018; World Bank, 2003). Going forward, boosting the value added of the industry will require significant upgrade to to cashmere quality. In this context, streamlining the incentive schemes and targeting programs towards promoting quality, developing better animal management practicies (including strategic breeding programs and culling programs), improving grading and standardization, and expanding market access of Mongolian traders/processors to the world cashmere market will be essential.
Boosting Meat Exports
20. Mongolia’s proximity to China and Russia offers it great potential to boost its meat exports. With livestock population nearing 70 million, the stock of livestock far exceeds domestic demand. Thus, boosting meat exports, would enable Mongolia to improve the share of the agriculture sector in the overall economy and reduce the reliance on mineral exports. In this context, Mongolia is uniquely placed between two large markets—Russia and China—which offer significant opportunity to expand meat export to these countries. For instance, in a joint press release issued by the foreign ministers of China and Mongolia in December 2017, the Chinese authorities expressed interest in expanding meat imports from Mongolia.
21. However, Mongolia’s meat exports remain significantly below its potential when compared to other lifestock-intensive countries. Mongolia has made singificant progress in boosting its meat exports over the past three years. Our estimates suggest that meat exports were about 2,800 tons in 2015, but it increased to about 70,000 tons by 2018. Despite this impressive increase, meat export potential of Mongolia could be 5–10 times higher than the 2018 exports if Mongolia’s export rate (i.e. exports per unit of livestock) matched that of other countries like Uruguay or New Zealand (Danforth and Dash, 2017).
22. At present the major obstacles to boosting meat exports are food safety concerns, lack of regulation and standards, and poor logistics. One of the main barriers to meat exports from Mongolia is concerns about Food and Mouth Disease (FMD). Due to the contagious nature of FMD and its presence in Mongolia, many countries have implemented import bans on meat from Mongolia. Eradicating FMD and achieving FMD-free status from the World Organization for Animal Health (OIE) will be a significant step—as all major suppliers of meat to China have attained this status (Food and Agriculture Organization of the United Nations, 2019). However, it requires significant investment and action from the government to address institutional weaknesses in animal health services delivery, including boosting resources and governance of the veterinary services and the national vaccine program. Encouragingly, the government is working with OIE and other development partners to attain the FMD-free status and address food safety/disease concerns more generally. This should remain a critical short-term priority. In addition, Mongolia needs to improve regulation and formal supply chain to both effectively monitor food safety and to create high quality Mongolian brands. Beyond this, improving investment over the medium term in infrastructure, storage facilities, scientific labs, and transportation will also help.
23. Simulations show that greater meat exports can feasibly cut livestock numbers in half while boosting value-added of the entire sector—when combined with a pasture tax. Meat exports were about 70,000 tons in 2018. The government aims to achieve 100,000 tons of exports by 2020 and 200,000 tons of exports by 2025. However, promoting exports will need to be combined with the pasture tax (discussed above) to control the overgrazing problem. Without such a tax, trying to boost exports can worsen the overgrazing and land degradation problem by incentivizing herders to have more livestock. Thus, a pasture tax is a critical complementary tool to achieve sustainability in the sector. Simulations show that, ceteris paribus, combining a pasture tax with gradually increasing meat exports by 50 percent initially (and eventually doubling) can halve the livestock population in line with national targets within a decade. This could boost the value added of the sector by shifting the focus more quantity to quality and would be a win for both the Mongolian livestock sector and the environment.
24. Greater meat exports will also benefit the cashmere industry, as it will incentivize herders to sell their low-quality goats to the meat industry. Higher meat prices will incentivize herders to streamline their livestock and sell off the older lower-quality goats to the meat industry. This will enable the herders to focus on boosting the quality of their herd, practice strategic breeding, and focus on improving the quality of their cashmere products.
Annual Change in Livestock: Actual vs. Predicted
(Millions)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsNote: Linear model depends on (1) survival of young, (2) annual loss of adults, and (3) meat productionAnnual Change in Livestock: Actual vs. Predicted
(Millions)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsNote: Linear model depends on (1) survival of young, (2) annual loss of adults, and (3) meat productionAnnual Change in Livestock: Actual vs. Predicted
(Millions)
Citation: IMF Staff Country Reports 2019, 298; 10.5089/9781513541208.002.A002
Source: Mongolia NSO and Author’s calculationsNote: Linear model depends on (1) survival of young, (2) annual loss of adults, and (3) meat productionE. Role of the International Community
25. The international community can also help Mongolia in its endeavor to achieve green growth in at least three ways. The neighboring countries have a strong incentive to enable the right environment in Mongolia to practice sustainable herding to limit the growing health and economic costs of dust storms. But even beyond that, to preserve the unique ecosystem in Mongolia and to help Mongolia cope with the climate shocks, the international community can help.
26. First, the international community can help by supporting quality. Luxury goods customers expect—and are willing to pay for—consistent high quality. The success of all luxury good industries depends on their ability to consistently produce high quality goods. For the cashmere and meat industry in Mongolia to grow sustainably it must prioritize quality over quantity. An article in the Science magazine directly linked the explosive global demand for cashmere fueled by “fast fashion and increased knitting capacity” in the world as factors in ruining Mongolia’s grassland (McLaughlin, 2019). Consequently, it is important for all actors along the production chain to ensure that quality is preserved. Starting with Mongolia, improving the quality of the national herd would substantially increase the quality of Mongolian cashmere and meat. Beyond that international trade partners can help by improving the access of Mongolian traders and processors to the world cashmere market. Improvements in the legal and regulatory environment that encourage the establishment of strategic alliances between domestic processors and herders, or foreign markets and the Mongolian industry, would improve profitability and give these processors some certainty on supplies of raw material.
27. Second, trade policy of neighboring countries can become more environmentally conscious. This will enable Mongolia to align incentives between expanding the meat industry while fighting overgrazing. Therefore, current MOUs between Mongolia and trading partners to promote Mongolian meat export can emphasize the need to address overgrazing, land degradation, and desertification.
28. Third, end consumers and retailers can practice ethical supply chain in their procurement. For instance, Patagonia, the apparel brand, is addressing the degradation of pastures in Mongolia, by promoting the use of waste scrap from other cashmere purveyors. “We didn’t want to be a part of that, so we stopped using virgin cashmere several years ago,” Patagonia said in its 2018 environmental and social initiatives report. “By providing a market for recycled cashmere, we help divert discards from landfills and incinerators and, in our own small way, take no part in the desertification of Mongolian grasslands.” It is unclear what impact Patagonia’s effort has had on market demand. Another effort focused on cashmere sustainability, the Wildlife Conservation Society’s cashmere initiative is concentrating on the sustainability of Gobi Desert region cashmere production (Deneen, 2019). One of the immediate goals of this project is to convince herders to keep fewer goats, by helping them raise the quality of cashmere produced by improving herd quality. The project is also encouraging herders to negotiate prices directly with clothing manufacturers, potentially cutting out the middlemen who control the cashmere market. Overall, initiatives to practice ethical supply chain can reduce the environmental burden on the fragile Mongolian grasslands.
F. Final Thoughts
29. Policy change is needed to make the livestock sector more sustainable, inclusive, and adaptable to climate change. Balancing the livestock population with nature’s capacity to regrow is crucial to secure the sector’s sustainability. To upgrade the sector in a sustainable way it is essential to reduce quantity of livestock, while improving the value added of each animal. Bringing about change in the sector will be challenging, as it will require changing herding approaches and methods. However, upgrading the sector is essential to ensure inclusive and sustainable growth in the country.
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