Planting the seeds: Despite several hurdles, the sector is beginning to revitalise

With agriculture accounting for around 20% of Mongolia’s GDP and providing employment for 35-40% of its population, the sector is clearly not only a central pillar of the country’s economy, but also of its social structure. Both these pillars are undergoing substantial changes, however, as Mongolia urbanises while also shifting much of its economic focus towards mineral extraction and industrialisation.

Thus, the sector faces some crucial challenges today, but the opportunity to development a more secure and sustainable pattern of production is also available. The government is turning more focus onto agriculture, aware that moving forward with its challenges is a key part of their country’s future progress.

HARSH GEOGRAPHY: Mongolia is a nation formed by historically nomadic peoples, who have roamed the 1.56m sq km that now constitute the large, landlocked nation for many hundreds, if not thousands, of years. They have done this in a challenging climate, which is generally one of extreme temperatures. Winters can average temperatures as low as -30°C in January, while the summer heat can rise to over 30°C. The summer is short, while the winter is long, making for a very short growing season. A particularly bad winter is known as a dzud, when freezing temperatures combine with high winds to create often-fatal blizzards. In the winter of 2009-10, between a quarter and a third of the country’s entire population of livestock – some 7.8m animals – died in a dzud, affecting 217,000 families’ livelihoods. One reason for the low temperatures and frequent snows is that the country’s altitude is generally high – the average elevation is 1580 metres – with several mountain ranges criss-crossing. The country also includes a desert, the Gobi, leaving the rest of its land generally sparsely vegetated steppe.

NOMADIC CULTURE: Given the climatic and geographical characteristics of Mongolia, the agricultural sector has developed almost exclusively along nomadic, pastoral lines, with livestock by far the major activity. Herding is also a lifestyle and fundamental to the culture of most of the rural population. This practice follows a traditional pattern, historically based on five animals, known as the “five treasures” – sheep, goats, horses, yaks and camels. Herders move their animals according to season and the availability of grazing land and water, with fodder for the winter collected and then distributed during the harsh months when the snow and ice cover the ground, making grazing impossible.

HISTORY LESSON: This has been the traditional way of life for many Mongolians stretching back to ancient times. In the modern era, the establishment of the Mongolian People’s Republic in 1921 led to a Soviet-style organisation of agriculture. State farms and cooperatives were established, with full collectivisation by 1959. In the 1960s, following Mongolia’s accession to COMECON, the Soviet economic union, large amounts of agricultural aid came to the country from Russia and Eastern Europe, which were also the main destinations of Mongolia’s agricultural surpluses.

The herders, known as arads, were organised into negdels, or cooperatives, and given permanent settlements, rather than continuing their nomadic lifestyle. These cooperatives and state farms also practised crop-based agriculture and livestock farming and were tied to the wider Soviet bloc for exports of produce, as well as imports of machinery and fertilisers. Individual members of the cooperative were allowed to own animals, albeit with a strict maximum number enforced. All land, however, was owned by the state.

At the same time, state farms were concentrated in the more productive arable areas, near to urban centres, and focused more on crop production. Under the Soviet system then, Mongolia followed a model of modernisation that went along with then-prevalent ideas about mechanisation, scientific farming and the economies of scale to be gained from large farms. This was also common in the non-communist world. The system included a support mechanism provided by the state to ensure a buyer and processor of what the cooperatives and state farms produced. A social infrastructure went with this, in terms of rural veterinary services, education and training programmes, and built facilities such as schools and health centres for the cooperative members and their families.

TRANSITION: With the collapse of the Soviet Union and the transition to a free market democracy in 1989-90, however, the bulk of this rural infrastructure vanished – much of it, in popular perception, almost overnight. Mongolia suffered from a particularly rapid privatisation policy, based on vouchers, with GDP dropping around 20% between 1990 and 1993. The privatisation strategy, almost all now agree, had a highly detrimental effect on agriculture in particular.

Indeed, livestock was one of the first things to be privatised, in 1991-92, with this leading to the dissolution of the state farms and many of the cooperatives. Many herders took their animals and returned to the nomadic lifestyle, moving onto pasture land that was still state-owned. This was because privatisation of land was an issue of great controversy for the new state, with the debate concluded, at least for a while, by the 1992 constitution, which kept all Mongolia’s pasture land in public hands, while allowing the private ownership of some state lands near to or within urban areas.

Herders have since been free to conduct grazing on any state land, while keeping personal ownership of their animals. They have, however, also been very much on their own when it comes to providing veterinary treatments, collecting fodder for the winter and instituting any new techniques in their age-old craft.

NUMBER GAMES: The agricultural sector is usually divided into livestock and crop production, with the former traditionally accounting for around 80% of agricultural production by value. According to the census of livestock carried out by the National Statistical Office (NSO) in 2009, Mongolia was home to some 44m animals of all varieties – in recent years, the five treasures have been supplemented by pig rearing and by bovine varieties other than yak.

By the end of 2010 the NSO reported that there were 1.9m horses, 2.2m cattle of all varieties, 270,000 camels, 14.5m sheep and 13.9m goats in the national herd. This totalled 32.77m head, demonstrating the impact of the 2009-10 dzud. An annual animal census, which has been held every year since 1960, always takes place in December, to take account of the breeding season. The results of the census carried out in December 2011 are expected to show the herd in the process of restoration, with estimates putting the total at around 40m, although official figures had not been released at the time of press.

PRODUCTS: While much of the livestock sector’s produce is food products, one of the more lucrative businesses has been cashmere wool. This largely explains the increased number of goats in the national herd, as the wool comes from the Kashmiri goat, a native of the Himalayas. Mongolia is the second-largest producer of cashmere in the world, after China, with the fluctuations in its price having a major impact on herders’ incomes. In 2009, before the dzud killed many of the country’s goats, Mongolia produced around 6700 tonnes of raw cashmere – 28% of total world supply – up from 3300 tonnes in 2000 and 1500 tonnes in 1990. Total exports in 2009 were worth $180.7m. Mongolia also produces and exports more limited amounts of sheep wool and camel hair. All three are supplied to the textiles industry, which accounted for around 23% of Mongolia’s manufacturing sector in 2009.

Meat and dairy products are mainly the remit of farms around Ulaanbaatar, with 85-95% of all meat produced being consumed domestically. In 2010 Mongolia produced 334,400 tonnes of meat, exporting 24,000 tonnes of this, mainly to Russia and the Middle East. While much of this meat is slaughtered by the herder, the Just Group, which produces a variety of products made from beef, mutton, horse and goat meat is currently making gains in the segment, illustrating a shift towards industrialisation in the sector. In 2010 its subsidiary Makh Market, which has a network of 11 processing and packaging plants that meet international standards, was responsible for 22.8% of meat exports and supplied 40% of industrial-processed meat for local markets, with these figures looking set to increase in the near term. The company was the first in Mongolia to introduce global quality standards and passed an international audit in late 2011.

On the crops side, NSO figures show that in 2010 Mongolia produced 345,458 tonnes of wheat, 167,956 tonnes of potatoes, 82,266 tonnes of vegetables, 1.1m tonnes of hay and around 31,000 tonnes of handmade fodder. These amounts all represented increases on 2009, except for cereal production, which was 9.3% lower, year-on-year. Potatoes were up 11.1%, vegetables up 5.5%, hay up 24.1% and hand-made fodder up 21.1%.

Preliminary figures for the 2011 harvest released by the Ministry of Food, Agriculture and Light Industry in October that year showed 443,400 tonnes of wheat, 191,500 tonnes of potatoes and 97,200 tonnes of vegetables had been harvested. This represents the largest crop in the country’s democratic history, according to the minister of agriculture, T. Badamjunai. The crop side of the sector has also been the beneficiary of major government assistance in recent years, centred around the Crop Rehabilitation Programme (see analysis).

WEATHER & WATER: Meanwhile, livestock continues to face some major challenges. Part of the reason the dzud of 2009-10 was so bad was that it had been preceded by a drought during the summer of 2009. This had severely hampered growth of crops used as fodder during the winter, leaving many animals undernourished when facing the extreme cold.

This underscores the vital importance of climate and environmental conditions on the sector, with both of these undergoing some worrying trends in recent years. According to the UN Food and Agriculture Organisation, Mongolia’s mean temperature rose 1.9°C between 1940 and 2004. This climate change is widely held responsible for a lack of rainfall in the country. Ironically, given its reputation for extreme cold and snow, Mongolia also has one of the highest levels of sunshine of any country, at between 230 and 260 days per year. This makes rainfall a key concern, with the supply of water to sustain the animals and the pasture for grazing an issue the government is keenly aware of.

Indeed, pressure on water resources was first felt in the early years of privatisation, when the disappearance of many jobs in urban areas led to a return to the land by many Mongolians. Herding has long been a social safety net for many poorer Mongolians, who practice it as a kind of default position, economically, at times when they cannot find other opportunities.

Thus, according to the NSO, the livestock population went from 25m to 31m between 1990 and 1997. Expansion of the national herd continued in the 2000s, despite major dzuds in 2000-01 and 2001-02. While these terrible winters reduced numbers, the herd recovered, only to be hit again in 2009-10. The increased numbers of livestock and individual herders grazing across state land – and with some 80% of Mongolia’s territory gazetted as state pasture land – has also had a negative impact on areas known for their previously lush pastures. As herders have a right to roam where they choose, a concentration on better land has led to that land’s impoverishment, along with the exhaustion of its wells and watering holes. One of the most water-abundant and high-quality pasture area is the so-called “Golden Triangle” between Ulaanbaatar, Erdenet and Darkhan, which is now displaying signs of overuse.

The traditionally lucrative cashmere wool trade has also led to herders investing in a large number of goats in the national herd. Goats, which are generally more destructive to pastures than other animals, have traditionally been kept in smaller numbers compared to the proportion in today’s herds. Historically, cashmere wool gathered would supply only local requirements.

LAND: Meanwhile, further pressure on pastureland is currently coming from the growth of the mining sector. Land re-allocated for mines is almost invariably rural territory that had been pasture. This is a controversial subject, however, as mining advocates argue that given the size of Mongolia, such transfers are still of minor significance. Some political pressure remains, however, from herders who find that their traditional grazing lands have been handed over to mining franchises by the state, which owns all the pastureland.

Mongolia’s herders are thus involved in a trade that exhibits a cycle of growth followed by catastrophic decline, with the risk largely on their shoulders for many years, after the removal of blanket state insurance for livestock in the early 1990s. This left herders exposed in periods of disaster, with many facing little choice but to abandon the sector altogether and migrate back to urban areas if they were particularly badly hit. The current sprawl of ger (tent) cities around Ulaanbaatar owes much to this practice.

CALCULATING RISK: In recognition of the risk exposure of the rural community, the government introduced a new index-based scheme for herders in 2004 in which two types of product were initially made available. A basic livestock insurance, which is a commercial product sold by private companies, and a disaster response product, which the government underwrote to cover emergencies in which the soum-level herd loss was greater than 30%. The latter was then superseded by a government catastrophic coverage (GCC) policy. The GCC is available only to those covered by basic livestock insurance and applies only the value of livestock insured under that policy, but as with the DRP covers losses beyond the commercial risk layer, which is currently over 30%. On average, herders insure less than 30% of the value of their animals. A fall in global cashmere prices affected many herders’ incomes in recent years, making insurance premiums more difficult to keep up, but the currently increasing sale prices could boost the livestock insurance segment . Nonetheless, the insurance scheme is clearly a step in the right direction at mitigating some of the risks. Yet for many, the livestock sector requires some more fundamental reorganisation if it is to break out of what many see as a “low input, high risk, low output” pattern.

SIZE MATTERS: Currently, herd sizes are generally small – a World Resources Report from 2010-11 suggests only 6% of herder families have more than 500 head, 25% of full-time herders have 200-300 head, 30% have 100-200 head, and 39% have less than 100 head. Many therefore argue that the reorganisation of the sector back into larger farms and cooperatives might be a solution. Land privatisation is also a connected issue, with some arguing that this needs to be done in order for the agricultural sector as a whole to move forward.

Despite the arguments of those in favour, land privatisation has been a highly controversial issue since the early 1990s, when the decision taken in the 1992 constitution to keep all pastureland under state ownership. A cultural issue underpins this, with the nomadic lifestyle of traditional Mongolians requiring that herders be able to move where they need, rather than be constricted by ownership boundaries.

A NEW POLICY: In the light of all these challenges, in recent years the government has moved towards taking a more active role in the agricultural sector, with 2010 seeing its National Mongolian Livestock Programme (NMLP) get under way. This is a substantial undertaking, accounting for around 3% of total annual government expenditure during the programme’s lifespan, the first phase of which runs from 2010-15. The NMLP sets out five main objectives: to assist in the formulation of the kind of legal, economic and institutional environment that will engender a sustainable livestock sector; to improve animal breeding services so as to increase productivity, quality and competitiveness; to raise the level of the veterinary services available in the sector to international standards; to develop livestock production that is adaptable to changes in the climate and environment, with a strengthened risk management capability; and to develop targeted markets for livestock and livestock products, with proper processing and market structures.

Under each of these five headings, a significant amount of work is being done or is in the pipeline. One of the key building blocks is the establishment of a basic administrative infrastructure in each soum ( county). A unit is to be set up in each of the soum centres that includes officials responsible for veterinary health, breeding programmes and pasture management. This basic capacity building should help provide a basis for all five of the NMLP’s targets.

The government will also supply veterinary and breeding experts on demand to the aimags (provinces) and at the sub-soum level, the bags, as well as providing training and education services to private companies. Raising the overall game of the sector is the aim, with a curriculum for distance learning for Mongolian herders and other sector participants a key way to bring the latest ideas about water and pasture management – and sustainable herding – to those engaged at the sharp end. Core stud herds are also to be created, enabling breeding programmes to work from high-quality and suitable stock.

OUTLOOK: The first objective of the NMLP will also likely involve an ongoing re-examination of the relationship between the state, the herders and private enterprise. While little is likely to be done in this controversial area prior to the June 2012 general elections, it will be an area of increasing importance if private investment is to flow into the sector.

Increased government focus on the agriculture sector is likely to produce positive results, with investment in crops also expected to continue. Investments in the improvement of the fundamental legal, economic and managerial infrastructure of the sector will prove to increasingly valuable to the country in the coming years.