AGRICULTURE - A DEVELOPING SECTOR TO WATCH

Agriculture and animal husbandry have long been a mainstay of Mongolian life and today represent major opportunities for diversifying the country’s economic base and steering it away from dependence on mining and commodities. A number of factors combine to make agriculture particularly attractive in Mongolia; a large territory and unspoiled arable land, a long tradition of pastoralism, a favorable legal framework for foreign investment in agriculture, and large neighboring markets interested in Mongolian produce mean that the sector could become an important contributor to Mongolian growth in the coming years and support a viable and stable growth pattern in the future.

Mongolia’s large territory has always been a valuable place for extensive animal husbandry (cattle, sheep and goat, horses and camels). The country is well positioned on high-added-value markets, such as cashmere (2nd world producer). Despite its extreme climate conditions, Mongolia’s land presents advantages for focused culture. As a result of the abandonment of agricultural land after the collapse of the soviet regime, the fields have been laid fallow since then, making the soil very rich nowadays and particularly favorable for new sowing operations, including vegetables. Thus, Mongolia’s ambition to produce and export massively its high quality products, could it be superior quality meat or pure organic seat buckthorn juice or cosmetics, sounds realistic, even though, the story is not one of unalloyed positives.

Indeed a number of structural issues are hampering the overall competitiveness of the sector. Climate change, deforestation and desertification, infrastructure, supply chains, financing, and SPS standards are the most significant of these. Infrastructure and supply chains are major issues facing all companies operating in Mongolia, but it is particularly acute for those operating in the agricultural sector. A limited rail and road network and a shortage of haulage space make exporting produce difficult. As such, investing in a province with good connections, such as Selenge or Tov Aimag, is often preferred. As for financing, the lack of liquidity in the Mongolian financial system means that loans are normally available only at high interest rates - something which renders many a business proposal uncompetitive. What’s more, the relative immaturity of the financial sector means that agricultural insurance policies and other such tools are not readily available. Foreign investors who have access to international financing, though, are able to circumvent these roadblocks. Finally there is the issue of SPS standards, which are clearly inadequate in Mongolia. While some of the problems of SPS standards are the responsibility of the government, the major issue is lack of capacity within existing market actors. Indeed, this can be said to be the greatest weakness of Mongolian producers. The lack of conformity with international standards means that they are unable to differentiate their produce or to access lucrative export markets. Investment in suitable standards and technologies is a sine qua non for a successful and sustainable project and the sector will have to upgrade its capabilities if it is to become truly competitive.

Taken together, then, the Mongolian agricultural sector represents an important investment opportunity, but also one in which investors will face considerable challenges. Foreign investment and expertise are best suited to addressing these challenges and will be critical to driving professionalization of the supply and production processes. For the most part (with a few notable exceptions), the existing market actors do not meet international standards or incorporate up-to- date technologies, which is why we are still talking more about the sector’s potential than its success. Realization of this potential, though, is clearly feasible and in the coming years the agricultural sector will almost certainly move away from localized production and become a modern sector of the economy, forming a sustainable and lucrative pillar of Mongolia’s economy.