Mongolia Beset by Cashmere Crisis: Herders, Mills Struggle in New Economy

By John Pomfret, Washington Post, Monday 17 July 2000; Page A01

UNEGDIINSUUJ, Mongolia—A satellite dish sits next to his yurt. Four hundred goats dot the pasture nearby. A motorcycle and a pickup truck stand ready to carry him across the boundless desert. Tumur, a lanky six-footer with a fuzzy white tuft below his lower lip, is a herder extraordinaire.

Tumur’s well-being is a clear illustration of the benefits brought by the collapse of communism in Mongolia, but things are still not right in Tumur’s slice of paradise. And as he recounts the challenges faced these days by a nomad on the dusty expanses of the Gobi Desert, Tumur also tells a wider story, that of his vast, under-populated country between China and Russia and its wrenching transition toward a market economy.

Because of high prices for cashmere, made from the wool of goats, more and more Mongolians have taken to Tumur’s desert to raise goats. In their numbers, they have endangered the Gobi environment with overgrazing, threatening the nomad’s cherished way of life. Moreover, the high prices come not from Mongolian mills, but from China, which imports raw wool for its mills and is choking out Mongolia’s stodgy but economically important garment industry.

I am the son of a herder, and my children will be herders, Tumur intoned as he held court from a small red wooden bed in his spacious tent, or yurt, which was festooned with Buddhist paintings and a giant wall-hanging of a mountain sheep. But there are many people moving into the pastures.

When communist rule ended in Mongolia 10 years ago, the country had two world-class industries: copper and cashmere. Now, despite millions of dollars in international aid and the combined wisdom of hundreds of Western experts, it has none.

In part, Mongolia is to blame. It failed to modernize copper production, and corrupt government officials were elbow deep in illegal trade in cashmere. Walk through the halls of Gobi Cashmere, Mongolia’s biggest cashmere firm, and it is obvious why Mongolia’s cashmere firms are suffering: The styles hark back to the 1950s, and the neon colors are pure disco.

But Mongolia is also a victim of globalization and the market economy. Pressure from the World Bank, the International Monetary Fund and the Asian Development Bank, for example, forced Mongolia to lift a ban on the export of raw cashmere in the mid-1990s. As a result, China will buy almost all of Mongolia’s production this year, leaving Mongolia’s own processing industry with no future.

Market economics is nothing other than the economics of power. If you’re a powerful economy like the United States or Japan, you can accept the religion, said Ralph van Gelder, an Australian who has studied Mongolia’s cashmere industry since 1994. But when it’s applied to a small country like Mongolia, it just doesn’t work. They’re getting crushed.

For generations, Tumur’s ancestors raised sheep, goats and camels in this arid swath of desert and prairie along the Chinese border 350 miles south of Ulan Bator, the Mongolian capital. That life ended in 1921, when Mongolia became a satellite of the Soviet Union, ending 200 years of Chinese control. Communist Party apparatchiks confiscated the herds of Tumur’s family and those of other nomads like him. The idea was to turn Mongolia’s nomads into factory workers, only their workshop would be the steppe and their product raw cashmere.

The fall of communism in Mongolia in 1990 gave Tumur, who uses only one name, a chance to begin anew. Ninety percent of the herds were privatized, and Tumur received 100 goats. Today, he has 400 and is considered one of the success stories of the southern Gobi.

Livestock privatization sparked an explosion of economic activity in Mongolia’s pastures. That and the near total collapse of the economy in many of the country’s county and provincial seats prompted tens of thousands of Mongolians to buck the world trend toward urbanization and return to the land.

According to government statistics, there were 147,508 herdsmen in Mongolia in 1990. Last year, there were three times as many. In 1990, Mongolia supported more than 33 million livestock. By last year, that number had jumped more than 30 percent.

But the flood of new herdsmen into the market, along with the collapse of government services, created enormous stresses on the environment. Many of the herders had no experience raising livestock or understanding of nomadic life. We Mongolians think we have a genetic ability to raise animals, said Galbadrakh, an environmental activist in Ulan Bator. Many of the rookie herders didn’t realize how hard it would be.

First, the rookies do not move as much as the old-timers, increasing stress on the best pastures near population centers. Second, everyone wants to raise goats to feed the global appetite for cashmere. But goats eat everything, even roots and dirt, and they rip up the prairies. Third, with the collapse of government services, no one takes care of the wells—a shared resource that is the key to successful herding. Dalandzadgad, a regional capital that lies 20 miles west of here, means place of 70 wells. Today, there are fewer than 10.

It’s not even benign neglect; it’s become really dangerous, said Jennifer Butz, who directs a project funded by the U.S. government that helps economic development in the Gobi region. Herders are taking stones from the wells to make winter pens for the goats, and because no one owns them, no one complains.

These man-made worries have only been compounded recently by rough weather, what Mongolians call the zud—a summer of drought followed by an early winter. So far this year, 2.5 million head of livestock have died.

Near the two tents Tumur calls home, a few young goats lay dying in the green fields. Their mouths wrenched in a foaming grimace, they were choking on the dry weeds Tumur calls sword grass. The grass is no good here this year, he said. A few days ago, Tumur sent most of his herd westward with a few of his grandchildren and a tent to try to find a better place.

The collapse of the Soviet Union was a sucker punch to Mongolia’s economy; aid from Moscow had accounted for more than a third of the economy. The withdrawal of Russian forces from the region, while applauded by most Mongolians, devastated local towns. Western aid partially filled the gap, accounting for about 20 percent of Mongolia’s gross domestic product, but a shortfall remains.

In the years following the collapse of communist rule, Mongolia’s new governments looked to cashmere as a big earner of foreign currency. In 1994, the government, hoping to encourage development of a cashmere processing industry, slapped a ban on the export of raw cashmere to keep its price artificially low. A bevy of investors from the United States and the West rushed in, opening more than 50 textile mills.

Mongolia’s scheme collapsed, however, because of Western pressure. The export ban violated all the tenets of market economics, and in 1995, the Asian Development Bank held up $17 million of a $30 million loan until Mongolia dropped the ban. But as soon as it did, disaster struck in another form. China began to buy all of Mongolia’s cashmere, jacking the price higher. In the past two years, the price has jumped from $9 a kilogram (2.2 pounds) to more than $40. A shortage of capital and a paucity of bank loans make it impossible for Mongolia’s mills to compete.

The crisis of the mills has sparked nationwide hand-wringing, even among herders who have benefited from the price rise. Add to that concerns about the environment, the boom in the goat population and the uncertain transition to a market economy, and it is no wonder many Mongolians are worried about the future. Agriculture makes up more than a third of Mongolia’s economy, said Batchimeg, a researcher at the Mongolian Institute for Strategic Studies. So this is a matter of national security.

Seeking to stanch the outward flow of raw cashmere, the government instituted a tax on exports—but it was never levied. Corrupt senior officials realized that they could make vast fortunes selling raw cashmere tax-free to China.

Last month, Tumur took 220 pounds of raw fiber to Ulan Bator to sell to Mongolian mills, but they could not come up with the cash. Today, herders face a big dilemma, Tumur said. Sell cashmere to Mongolian companies and lose money, or sell it to China and get rich. We don’t like the Chinese, but we have no choice.

China began its race to become a cashmere empire in the early 1990s and now harvests from its own goats about two-thirds of the 16,500 tons of cashmere produced annually worldwide. Mongolia produces about 3,000 tons, while Iran, Iraq, Australia, Afghanistan and the United States make up the rest.