Mongolia: Growing pains for agriculture

Although Mongolia’s agriculture sector is feeling the benefits of new management approaches and seeing intensified production thanks to technological advances, it is still struggling to overcome issues created by under-investment and a transition from a planned to a market economy.

In mid-June T. Badamjunai, the minister of food, agriculture and light industry, told the cabinet that the livestock industry expects 15m births this year, a record high, and that the spring planting of most crops was almost complete.

Animal herding provides almost two-thirds of agricultural production, while the main crops grown are wheat, potatoes and vegetables. These saw rises in output of 25% (433,400 tonnes), 14% (191,500) and 18% (97,200), respectively in 2011 thanks in part to a crop rehabilitation programme (CRP) that ran between 2008 and 2010.

The introduction of measures such as 40-50% loans for fuel, wheat seeds and fertilisers, along with Customs remittances and tax incentives for small and medium-sized enterprises (SMEs) are hoped to produce even higher yields in 2012, with targets of 490,000 tonnes of wheat, 200,000 tonnes of potatoes and 110,000 tonnes of other vegetables from 330,000 ha of arable land. The ministry has also procured new technical equipment using state funds and soft loans from China.

Trade links with Beijing are emerging as an area of great potential for agriculture, with Prime Minister S. Batbold predicting in May it could one day emulate the mining sector’s level of exports to China. Batbold made the claim as he was announcing that talks were under way for a deal that would see 100,000 tonnes of crops exported to China annually.

In a similar agreement, in 2011 Ulaanbaatar agreed to export 8m sheep. However, as a result of concerns over depleting reserves, inflation and speculation in March the government restricted meat exports until July 1. Such moves highlight recurring national concerns over the need to build up reserves for dzuds (harsh winters), which in 2009-10 claimed up to 17% of livestock – 7.8m animals.

Other concerns over such livestock exports include a fear that over-dependence on animal husbandry for meat and the nation’s cashmere industry are both contributing towards desertification. The process has seen a 20-30% decrease in pasture grassland yields over the past 40 years due to an increase in air temperature, increased dust storms and over-grazing.

The problem has likely worsened due to the move to a market economy in the early 1990s. As the privatisation of agriculture has led to production being dominated by household-level production, the sector is hard to regulate and less attractive to investors.

The CRP focused on establishing legally and economically favourable conditions for farming and vocational programmes, while bringing more advanced technologies and techniques into the sector, but critics say it didn’t represent a thorough enough attempt to establish farms on a truly commercial basis.

In a step expected to lay the groundwork for better coordination and regulation, the country launched its first nationwide agricultural census in May, meant to cover all households, entities and organisations. It will also provide data on land use, ownership, soil erosion, afforestation, protection, utilisation and irrigation. This follows a law passed in June 2011 establishing a state-run commodities exchange to help determine fair market pricing and encourage farmers to form independent cooperatives.

One possible model for future farming investment that uses foreign expertise while promoting sustainable techniques was a May 2011 investment by the Korea Mongolia Agricultural Development Preparation Committee, which leased 30,000 ha in the Khalkhgol region to carry out eco-friendly agriculture and livestock breeding. Both the Korean and Mongolian governments said the “Special Economic Agricultural Zone” would contribute to Mongolia’s food export market while helping to ease Seoul’s food-security fears.

Addressing the concerns over the lack of foreign interest in the sector, officials told OBG the government was working to improve the investment climate for agriculture. “There is a substantial possibility to increase investments in our sector. We will work towards proper management of investment policies to increase economic efficiency,” Badamjunai told OBG. “Given our agricultural potential and raw material resources, attracting investment for developing export-orientated industries is significant.”

Agro-processing, such as the processing of meat, milk, leather and raw materials, is one area identified as ripe for growth. However, agro-processing industries are generally on a small scale domestically, with only cashmere and some niche products currently available for export.

Technological innovations have lifted yields to new levels and the next step will be to create viable agriculture industries that invite foreign investment. With no shortage of arable land – if grazing is well managed – and a host of other high-quality raw materials at its disposal, Mongolia’s agriculture industry should post improved performance. However, until the sector is better organised and regulated, it will be hard for it to attract the investment it needs.


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