CASHMERE IN MONGOLIA

With production of over three thousand tons of raw cashmere per year, Mongolia is the second largest producer of raw cashmere in the world, behind China. with production of about twelve thousand tons per year. Cashmere is the second largest hard currency-earning export for Mongolia after mining. The cashmere sector in Mongolia has grown relatively quickly in recent decades. The number of cashmere goats in Mongolia doubled between 1992 to 1999 from 5½ million to 11 million and doubled again to around 22 million in 2010.

According to USAID: Mongolia is the second largest producer of cashmere in the world with about 15 percent of world production, compared to China’s 75 percent and lesser percentages for Iran, Afghanistan, South Africa, the United States, and Australia. [Source: USAID, May 2005]

Marina Romanov wrote in Mongolia Briefing: “ Mongolia’s climate and geography is suited for herding cashmere goats, which thrive in harsh dry mountainous climates and produce the highest quality of wool. In moderate climates, goats lose the ability to grow the downy coats that produce the quality cashmere necessary for making luxury garments. [Source: Marina Romanov, Mongolia Briefing, February 24, 2012 ^|^]

History of Cashmere in Mongolia

In the Soviet era, Mongolian herders were paid a wage and gave their cashmere to a local agent. In the post-Soviet era, herders own their own flocks and earn money from the goats or raw cashmere they sell. [Source: Rebecca Mead, The New Yorker, February 1, 1999]

Marina Romanov wrote in Mongolia Briefing: During Mongolia’s Socialist Era (1921–1990), cashmere was exported mainly to Europe before its focus dramatically shifted to China in the Democratic Era since 1990; a move which benefited the PRC’s manufacturing establishment enormously. With the rapid growth of cashmere loans from the Western and Japanese banking systems, Mongolian customers were unable to buy the nomads’ raw cashmere. Thus, the nomads increasingly turned to Chinese traders who came to them in the Gobi Desert, usually with much higher offers. [Source: Marina Romanov, Mongolia Briefing, February 24, 2012 ^|^]

Since 1996, a ban on the export of raw cashmere was replaced with a 30 percent export tax. However, the tax was poorly implemented, as corrupt senior officials realized that they could make fortunes by selling raw cashmere tax-free to Chinese factories. According to estimations, 50 percent of Mongolian raw cashmere is smuggled into China with no duties paid on either side. This has enabled China to capture the Mongolian raw cashmere export market, depress the Mongolian manufacturing sector, and take control of the world cashmere market.

Today, more than half of the raw cashmere in Mongolia is exported to China. Following the return of free market capitalism, the size of the country’s livestock population has grown dramatically — almost doubling from approximately 23 million in 1993 to 44 million by 2010. In addition, goats accounted for almost half of the country’s livestock, a record high.

Cashmere Goat Herders in Mongolia

A typical Mongolia herder owns about 100 goats. A man with 400 goats is considered relatively wealthy. The cashmere trade became particularly lucrative when the price of a kilogram of raw cashmere rose from $9 a pound to $40 a pound in the mid 1990s. In 1997, a television with a windmill electrical generator could be bought with 80 kilograms of cashmere (a year's output from 200 goats). Wealthy herders have bought pick up trucks, motorcycles, Buddhist paintings and satellite dishes for their gers.

Most herder families with a few dozens goats, sell cashmere to middlemen, earning about $600 a year. Describing the Mongolian environment, where cashmere goats thrive, Jane Macartney wrote in The Times of London: “On the Mongolian steppes, the emptiness and the silence inspire awe. From time to time a huge, tawny eagle drifts on the breeze, watching for small animals to snatch amid the grasses. The only movement on the ground comes from the flocks of sheep and goats, yaks and cattle that roam, heads down, as they munch their way across the grasslands. Here and there white yurts – the portable dwellings used by the nomadic people — stand out on the endless sea of grass. At one cluster of four yurts, a mother gathers her teenage children, slings a metal bucket over each arm and sets out to milk the horses, a hundred of which graze with their foals near by. The fermented milk is turned into airag, the national drink. [Source: Jane Macartney, The Times of London, August 8, 2009 +++]

“The family’s other animals have been moved for the summer to a more remote area where the grass is greener. The total flock numbers several hundred beasts; nothing too large by Mongolian standards, the mother explains. It is virtually a subsistence living. However, the goats and their fine, downy cashmere brings in cash that enables the family to buy such luxuries as a satellite dish or a motorcycle. Most flocks now include as many goats as they do sheep. This represents a huge shift, officials say, from the days when the latter outnumbered the former two to one.” +++

Economics of Cashmere Herding Sector in Mongolian

According to USAID: About one third of the population of Mongolia is engaged in herding cashmere goats as one part of their income stream. After the liberalization of the herding sector in the early 1990s to allow private ownership of herds, the goat population increased dramatically, much faster than the populations of other herding animals, such as sheep, cattle, and camels, from 5 million in 1990 to over 11 million in 1998. Experienced herders increased the size of their flocks and there was significant entry into the sector by small herders often located near aimag or sum centers who raised goats as one source of income in an effort to cushion falling incomes. The severe winters of 2000 – 2002, however, drastically reduced the goat population as up to 25 percent of offspring did not survive the winter. By 2004, however, the goat population had recovered and surpassed its pre-dzud levels to over 12 million goats. [Source: USAID, May 2005 ]

In order to increase the size of their herds, instead of culling most male goats at an early age (except for prime bucks used for breeding) and also culling older female goats, herders have been letting both male and female goats live longer in order to harvest their cashmere. This increase in the number of males and older goats in the herds has also been due to the lack of financially rewarding opportunities to sell goat meat from culled goats or to sell their skins at attractive prices. The death of the young goats during the recent dzuds also affected the average age of the goats in herds. Since males have thicker diameter fibers than females and young goats have finer fiber cashmere than older goats, the increase in goat population and the consequent change in its age and sex composition have been has been responsible for much of the deterioration of the “average “quality of the raw cashmere produced in Mongolia.

The important point here is that although average cashmere quality has declined, this has been more due to the increased production of lower, but acceptable, quality cashmere, rather than to a decline in the amount of high-quality cashmere being produced. Mongolia still produces sufficient high quality cashmere to meet world demand in this small and declining market segment. Moreover, the current (and most probably the future) price differential offered by Mongolian processors between high quality (13.5 15.5 micron) and lower quality (15.5 – 17.5 micron) cashmere of is only about 15 percent. This differential is also equal to the price differential between Mongolian cashmere and Chinese dehaired cashmere. The price differential offered by Mongolian processors (and by the world market) is not large enough to offset the decline in the weight of cashmere harvested per goat of 20 percent-25 percent that occurs when fiber diameter is decreased by 2 microns.

In order to improve herder income if herd quality is increased, a decrease in fiber diameter of two microns must be accompanied by an increase in price of at least enough to compensate for the decrease in yield per goat of 20 percent-25 percent. To be quite clear on this important point, an initiative to increase fiber quality by decreasing fiber diameter “reduces “ the economic value of each goat and reduces the income of herders unless price differentials are greater than 20 percent-25 percent.

Contrary to the recommendations in other reports, initiatives to increase fiber quality by decreasing its diameter are (and have been) misguided. Again contrary to the conclusion in other reports, despite the decline in the quality of Mongolian cashmere, the price differential between Mongolian cashmere and Chinese cashmere has not increased over time. Nor is the price of Mongolian cashmere falling toward the level of cashmere produced in Iran and Afghanistan. In the past, some reports have strongly criticized the processing sector for paying only one price for cashmere regardless of quality, i.e., for buying all a herder’s output at one price regardless of quality. The reports attributed this behavior to the processors’ desire to mask price movements and price differentials based on quality from the herders in order to gain lower average prices. At this time, however, the processors are willing to pay price differentials based on quality, yield, and color and priced in relationship to price differentials on world markets. They now in turn accuse Chinese traders of buying all output at one price, a price they cannot match and remain profitable.

Money and Cashmere Goat Herders in Mongolia

Kit Gillet of CNN wrote: Mongolian herders have found that cashmere is by far the most profitable source of income available to them. Like the majority of herders, Ariunzaya earns most of his money from the cashmere trade. He sells around 150 kilograms of cashmere a year, earning about $7,600 from this, a sizable sum in Mongolia, but he is unsure how long that can last. "When I first arrived in this small area in 1996 there were just five families — now there are 35. In 1995 there were about 3,000 goat and sheep, now that number is about 15,000. I am not sure how many more it can support." They can make 50,000 tugrik a kilogram ($37) in a country where 35 percent of the population still lives below the poverty line. Because of this, herders have been turning more and more of their attention to increasing their goat population. A sharp drop in global cashmere prices in 2009 year encouraged herders like Bayanmunkh to increase the size of their herds to compensate.[Source: Kit Gillet, CNN, September 13, 2010 |:|]

A price of $95 per kilogram is regarded as the break even point for a herder to make a profit from selling cashmere. Prices of cashmere started rising in 2009 in part because of harsh winter in Mongolia that resulted in animals freezing to death. Herders ate their goats rather then keep them for their undercoats. Prices rose from about $75 a kilogram in April 2009, when prices were low because of the global recession, to $130 in March 2011.

Marina Romanov wrote in Mongolia Briefing: Some herders, who manage to sell around 150 kilograms of cashmere a year, can earn about US$7,600 – a sizable sum in Mongolia, where one-third of the population lives below the poverty line. [Source: Marina Romanov, Mongolia Briefing, February 24, 2012]

Mongolian herders spend money on building barns, digging wells and purchasing grains, grasses and hay. They often have little money left over for food. Water is a big problem for many herders. Water tables have dropped to low levels in places where cashmere goats are raised. The government provides loans to buy pumps and build water infrastructure.

Cashmere prices are big news in Mongolia. Many herders use their radios to tune into information on the latest prices. If the prices are good they sell right away. If the prices are bad, they store their cashmere in open air refrigerators and wait until, they hope, prices improve. Some herders can't tell the difference between cashmere and wool.

The government extends many subsidies to the herding sector. Herders pay no income taxes; rather they pay a very low tax based on the number of goats in their herds. They do not pay for their dormitory or food expenses when they board at sum or aimag schools and pay no social security or health fees; water is provided free from wells drilled and maintained by local government units; and fodder is subsidized. The effect of subsidized fodder prices on the stock of fodder has been severe: rapid declines in fodder production. Similarly, local government budgets cannot accommodate such large expenditures on drilling and maintaining wells and the number of wells has declined significantly. Pilot projects have shown, however, that herders are willing to pay for water if this ensures supplies. [Source: USAID, May 2005 ]

Overgrazing by Cashmere Goats in Mongolia

Large cashmere goat herds have overgrazed areas in the Gobi desert. Goats are regarded as harmful to the environment because they pull up and consume the roots of grass. In addition to harming the environment the loss of grass means the goats get less from the land and consequently the quality of the cashmere decreases.

Marina Romanov wrote in Mongolia Briefing: The large population of cashmere goats is a problem because goats destroy grasslands and soil much more than any other traditional Mongolian livestock, such as sheep, cattle, horses and camels. Goats are much more voracious eaters and consume the root of the grass thereby stopping it from growing altogether.” [Source: Marina Romanov, Mongolia Briefing, February 24, 2012 ^|^]

According to USAID: The carrying capacity of Mongolia for all herd animals – goats, sheep, camels, cattle, and horses – is limited. One estimate of the total carrying capacity shows that in equivalent sheep forage units (SFUs), Mongolia’s herd size surpassed its carrying capacity in the mid to late 1990s and the SFUs were only reduced below the carrying capacity by the dzuds in the early 2000s. By 2004, however, with the recovery of the herds, SFUs again significantly surpass the estimated carrying capacity of Mongolia. The consequences of overgrazing can be quite severe. One study in Mongolia shows that a low culling rate (as is currently practiced) leads to an increase in flock size to 12 million (its current level) and then a precipitous decline to zero as Mongolia is denuded of forage and becomes a desert.[Source: USAID, May 2005 ]

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

Last updated April 2016