Mere Cash for Cashmere
The cashmere industry in Mongolia is facing many challenges. These challenges range from outside forces such as globalization, the market, and trade. Inside forces such as the environment and the government are also affecting the cashmere industry in Mongolia.
All of these logistics are threatening the cashmere industry as well as the culture and future contentment of Mongolians.
Cashmere is one of the softest, warmest, and longest lasting materials on the market today. Cashmere fibers become softer as it is worn.
Cashmere is said to be eight times warmer than sheep’s wool and about that many times softer. It is also one of the most expensive cloths on the market today.
Cashmere originates from Kashmiri goats found in the Himalayas. Its wool comes from the downy undercoat that grows on goats from midsummer to winter.
The quality varies from goat to goat. The long hair on goats protects the cashmere down from the elements.
It is removed each spring by shearing or gradual combing of the goats hair. Goats produce about three to eight ounces of cashmere per year.
The average single ply women’s sweater requires approximately ten ounces of wool, which is equivalent to about three or four goats.
The quality of cashmere wool is measured by its length, texture, and the diameter of the fiber. The quality is also affected by the climate and nutrients that the goats consume.
The climate and geography of Mongolia is especially suited for herding goats because they thrive in harsh dry mountainous climates.
The highest quality of wool is found in these climates. Goats cannot grow the downy coats that produce cashmere in moderate climates.
In order to get a good understanding of the cashmere industry, it is necessary to explain the process by which cashmere is brought to the market. This process starts at the herder. For a herder, life can be very hard.
The amount of time herders stay in a spot depends on the weather and vegetation growth each year.
They may move to their winter/spring camp in late March to May if the weather is bad. During the winter, the herders often slaughter two big animals and ten small ones. Big animals consist of horses, camels, and cows. Small animals are sheep and goats.
They sell their animals and raw materials to middlemen most of the time and hope they get cash from this. Usually, they have to trade and barter in goods to the middleman for flower, sugar, rice, and other staples.
The middleman or traders come in autumn because that is when herders slaughter the animals for winter goods.
In October to early November, they make skins and hides. During May to June, they remove the cashmere from the goats, and from late June to early July, they remove the wool from the sheep.
Pastoral Nomadic lifestyle, the mainstay of the Mongolian economy, is an ecological adaptation resulting from the harsh climate. Grain can be grown in Mongolia, but the crop will be lost once every ten years due to drought.
Pastoral nomads are characterized by highly mobile herding, with temporary exploitation of the resources that disappear so quickly in the harsh climate.
The nomadic society values mobility and the ability to cope with problems by moving away from those threats. When resources dry up, they move toward other resources. Therefore, cultivation of the earth and the accumulation of objects are frowned upon.
Mongolian society and culture also developed in opposition to the Chinese culture of settlement and farming.
The culture of Mongolia is tied to the land.
The people of Mongolia see themselves as a part of nature.
The land is not only a means of survival but also the backbone of their existence. People coexist with the land. The meaning of land is passed down through language, religion, and culture.
The value of the land is equal to the value of people.
Globalization is characterized by shrinking space, shrinking time, and disappearing borders. People’s lives are becoming linked more deeply than ever before across the world. Globalization is leading to the integration of the worlds markets, culture, technology, and governance.
People are now more and more affected by events around the world.
How is globalization affecting Mongolia? Globalization is affecting Mongolia in that the markets now fluctuate much more rapidly.
It used to suffice for herders to get information on the cashmere market once every month or so. Now, the market can change so rapidly that it becomes necessary to get information day to day, hour to hour, and minute to minute.
It is now imperative that herders have access to technology that they never before had to have access to, for example the internet.
Despite increasing urbanization, industrialization, and foreign influence, nearly half of Mongolia’s population still lives by traditional pastoral nomadic values or in close relationship with the land.
This nomadic life has provided Mongolians with their national values, identity, and pride. Still, technology is influencing the nomadic lifestyle.
Since the 1980s the moving of herds is assisted by officials riding on motorcycles, jeeps, or sometimes airplanes to scout for good pasture to tell the herding camps where to move next. Herders are assigned to winter campsites, which often have stocks of coal and electric generators for lights and television.
Herders on the range use transistor radios to listen to weather reports and storm warnings.
Government policies are seeking to modernize and cope with globalization without destroying the traditional nomadic lifestyle.
The above technological influences are seen as very positive for herders. Unfortunately, many of these technological advances are only helping herders who have a lot of money and who are in areas of relatively good access.
Herders without much money or who are in mountainous areas those are hard to get to cannot get these technological advances as easily.
These poorest herders are herders with less than 150 animals. Increasing inequality will most likely result from globalization.
The transfer from a Socialist economy to a capitalist economy led to a crash in the market. Mongolia has been in the process of rebounding from this crash.
Mongolia is the second largest producer of cashmere in the world, second only to China. Trade problems with China and globalization are exacerbating the cashmere crisis in Mongolia for a number of reasons.
Mongolia produces about 3,000 tons of cashmere per year, about 21 percent of the world market.
Prior to Mongolia’s transformation to a capitalist society, cashmere in Mongolia was processed at home or sent to Western countries for processing.
Today, more than half of the raw cashmere in Mongolia is exported to China. This not only worries Mongolia’s manufacturing industry but Mongolia as a whole.
The processors are concerned because they are now only operating at about 50 percent capacity due to the large amounts of raw cashmere going to China. Since half of Mongolia’s 2.5 million people raise the goats that make cashmere, there is an urgency to fix the cashmere industry in Mongolia.
Another concern is mix breeding for the objective of quantity not quality, which has led to a decline in the quality of cashmere.
Why is there a crisis today in Mongolia?
The world supply of cashmere rose considerably in the 1990s, but the world demand for cashmere has fallen. Part of this lack in demand is due to the recession in Japan, who as a result is not purchasing as many cashmere products. The prices of cashmere have fallen due to rising supply and lowering demand.
To prop up the price of cashmere, the Chinese government is buying cashmere at an immense rate in Mongolia.
Since the Chinese government is buying large amounts of cashmere in Mongolia, it is pulling the supply of raw cashmere out of Mongolia.
This hurts the processing plants. To counter this trend, the Mongolian government after the transformation put an export tax on raw cashmere. This export tax does not work very well due to smuggling.
In 1996, it was estimated that of the 1,000 tons of cashmere sold to China, all but 16 tons were smuggled. Therefore, collection of the export tax is a major concern.
The 30 percent export tax of raw cashmere was put into place to discourage the extreme flow of raw cashmere into China. Preceding the transformation, exports were discouraged with a ban on the sale of raw cashmere.
Today the price of cashmere has reached an unprecedented MNT53,000 per kilo in the eastern aimags where the product is of the best quality.
At first glance this would seem very welcome, more so when herders have been badly hit by the weather and livestock loss, but the price rise is artificially manipulated by Chinese traders and their apparent generosity is more likely to have a sting in the tail for the Mongolian economy.
By any reckoning, given the global price of one kg of raw cashmere is now USD 65-70, this high price is not realistic.
Mongolia-based industries such as Gobi and Goyo have also had to pay the price jacked up by Chinese traders.
With their limited capital they have naturally been able to buy far less than their actual needs. The bubble blown up by Chinese policy will soon burst and prices will plunge as supply of raw cashmere increases. However, Mongolian companies will no longer have the money to buy.
The game seems to go like this: first, the Chinese manipulate an initial price rise so that Mongolian buyers exhaust their resources; then when prices fall, the Mongolian companies have no funds to take advantage of it, so the Chinese buy as much as they wish; finally, when Mongolian companies badly need cashmere, they find nothing for sale in the country and have to import Mongolian cashmere from China at a price dictated by traders who had originally taken it away.
This is what happened last year and it seems a repetition is more than likely.
There are a few options that herders in Mongolia have for selling their raw cashmere. Herders can sell their products to the Chinese, to Mongolian traders, or directly to Mongolian processing plants.
Mongolian herders would rather sell to Mongolians rather than to China, but many can not because the Chinese pay more for raw cashmere than Mongolian traders and processors do and they pay in cash. Many of the buyers are unable to get cash because the cost of borrowing is extremely high, therefore the Mongolian buyers can only exchange goods for raw cashmere.
The processing plants in Mongolia are going under because they do not have enough goods to run at capacity due to Mongolian herders selling their cashmere to China. Other Mongolian herders take their cashmere to the Chinese border themselves, or sell to those who do.
Mongolia has an abundance of natural resources. The environmental problems that Mongolia faces are caused by natural forces and human impact. An example of a natural force is a drought. A zud is caused by a harsh winter followed by a very dry summer.
The zud last winter killed hundreds of thousands of animals. Human impacts cause problems such as desertification, mining, logging, waste, and air pollution which threaten the livelihood of the country. Protection of the biodiversity and national parks are also a concern. Other concerns include sustaining the mineral, forest, and water resources.
Threats to the biodiversity of Mongolia and therefore future growth are: overgrazing which leads to desertification, over exploitation of animals and plants, pollution, soil erosion, and loss of land to oil and mining. Too often, development programs forget that the ecological health of the grasslands is vital to agriculture.
When the ecology of Mongolia is not protected, it threatens the whole pastoral lifestyle that is inherent to the culture and happiness of Mongolians. Another problem is that current laws need to be clarified and enforced in order to protect the environment.
There also needs to be effective mechanisms set up for inspecting, regulating, taxing, and collecting fees.
Desertification is the largest environmental threat to the cashmere industry in Mongolia. Many herders are losing their connection with the land, and over-grazing is one result of this loss.
Over-grazing leads to desertification. Almost 30 percent of Mongolia’s territory has the conditions necessary for desertification to occur.
One percent of Mongolia is severely affected by desertification. About 13 percent of this is due to nature and the other 87 percent of desertification in Mongolia is caused by humans.
Over the last four decades, the area of land covered by sand has increased to 8.7 percent. Desertification has affected 30 percent of pasture lands in Mongolia. Pasture lands account for a total of 80 percent of Mongolia’s land mass.
The population of goats (where cashmere comes from) is a problem because goats destroy grasslands and soil. These environmental problems are caused to a large extent by the very thing that Mongolians make their living by doing. Globalization may lead to a worsening of this problem because of the need to produce more and more products and also because the connection to the land is lost.
All of these logistics are threatening the cashmere industry as well as the culture and future contentment of Mongolians.
Cashmere is one of the softest, warmest, and longest lasting materials on the market today. Cashmere fibers become softer as it is worn.
Cashmere is said to be eight times warmer than sheep’s wool and about that many times softer. It is also one of the most expensive cloths on the market today.
Cashmere originates from Kashmiri goats found in the Himalayas. Its wool comes from the downy undercoat that grows on goats from midsummer to winter.
The quality varies from goat to goat. The long hair on goats protects the cashmere down from the elements.
It is removed each spring by shearing or gradual combing of the goats hair. Goats produce about three to eight ounces of cashmere per year.
The average single ply women’s sweater requires approximately ten ounces of wool, which is equivalent to about three or four goats.
The quality of cashmere wool is measured by its length, texture, and the diameter of the fiber. The quality is also affected by the climate and nutrients that the goats consume.
The climate and geography of Mongolia is especially suited for herding goats because they thrive in harsh dry mountainous climates.
The highest quality of wool is found in these climates. Goats cannot grow the downy coats that produce cashmere in moderate climates.
In order to get a good understanding of the cashmere industry, it is necessary to explain the process by which cashmere is brought to the market. This process starts at the herder. For a herder, life can be very hard.
The amount of time herders stay in a spot depends on the weather and vegetation growth each year.
They may move to their winter/spring camp in late March to May if the weather is bad. During the winter, the herders often slaughter two big animals and ten small ones. Big animals consist of horses, camels, and cows. Small animals are sheep and goats.
They sell their animals and raw materials to middlemen most of the time and hope they get cash from this. Usually, they have to trade and barter in goods to the middleman for flower, sugar, rice, and other staples.
The middleman or traders come in autumn because that is when herders slaughter the animals for winter goods.
In October to early November, they make skins and hides. During May to June, they remove the cashmere from the goats, and from late June to early July, they remove the wool from the sheep.
Pastoral Nomadic lifestyle, the mainstay of the Mongolian economy, is an ecological adaptation resulting from the harsh climate. Grain can be grown in Mongolia, but the crop will be lost once every ten years due to drought.
Pastoral nomads are characterized by highly mobile herding, with temporary exploitation of the resources that disappear so quickly in the harsh climate.
The nomadic society values mobility and the ability to cope with problems by moving away from those threats. When resources dry up, they move toward other resources. Therefore, cultivation of the earth and the accumulation of objects are frowned upon.
Mongolian society and culture also developed in opposition to the Chinese culture of settlement and farming.
The culture of Mongolia is tied to the land.
The people of Mongolia see themselves as a part of nature.
The land is not only a means of survival but also the backbone of their existence. People coexist with the land. The meaning of land is passed down through language, religion, and culture.
The value of the land is equal to the value of people.
Globalization is characterized by shrinking space, shrinking time, and disappearing borders. People’s lives are becoming linked more deeply than ever before across the world. Globalization is leading to the integration of the worlds markets, culture, technology, and governance.
People are now more and more affected by events around the world.
How is globalization affecting Mongolia? Globalization is affecting Mongolia in that the markets now fluctuate much more rapidly.
It used to suffice for herders to get information on the cashmere market once every month or so. Now, the market can change so rapidly that it becomes necessary to get information day to day, hour to hour, and minute to minute.
It is now imperative that herders have access to technology that they never before had to have access to, for example the internet.
Despite increasing urbanization, industrialization, and foreign influence, nearly half of Mongolia’s population still lives by traditional pastoral nomadic values or in close relationship with the land.
This nomadic life has provided Mongolians with their national values, identity, and pride. Still, technology is influencing the nomadic lifestyle.
Since the 1980s the moving of herds is assisted by officials riding on motorcycles, jeeps, or sometimes airplanes to scout for good pasture to tell the herding camps where to move next. Herders are assigned to winter campsites, which often have stocks of coal and electric generators for lights and television.
Herders on the range use transistor radios to listen to weather reports and storm warnings.
Government policies are seeking to modernize and cope with globalization without destroying the traditional nomadic lifestyle.
The above technological influences are seen as very positive for herders. Unfortunately, many of these technological advances are only helping herders who have a lot of money and who are in areas of relatively good access.
Herders without much money or who are in mountainous areas those are hard to get to cannot get these technological advances as easily.
These poorest herders are herders with less than 150 animals. Increasing inequality will most likely result from globalization.
The transfer from a Socialist economy to a capitalist economy led to a crash in the market. Mongolia has been in the process of rebounding from this crash.
Mongolia is the second largest producer of cashmere in the world, second only to China. Trade problems with China and globalization are exacerbating the cashmere crisis in Mongolia for a number of reasons.
Mongolia produces about 3,000 tons of cashmere per year, about 21 percent of the world market.
Prior to Mongolia’s transformation to a capitalist society, cashmere in Mongolia was processed at home or sent to Western countries for processing.
Today, more than half of the raw cashmere in Mongolia is exported to China. This not only worries Mongolia’s manufacturing industry but Mongolia as a whole.
The processors are concerned because they are now only operating at about 50 percent capacity due to the large amounts of raw cashmere going to China. Since half of Mongolia’s 2.5 million people raise the goats that make cashmere, there is an urgency to fix the cashmere industry in Mongolia.
Another concern is mix breeding for the objective of quantity not quality, which has led to a decline in the quality of cashmere.
Why is there a crisis today in Mongolia?
The world supply of cashmere rose considerably in the 1990s, but the world demand for cashmere has fallen. Part of this lack in demand is due to the recession in Japan, who as a result is not purchasing as many cashmere products. The prices of cashmere have fallen due to rising supply and lowering demand.
To prop up the price of cashmere, the Chinese government is buying cashmere at an immense rate in Mongolia.
Since the Chinese government is buying large amounts of cashmere in Mongolia, it is pulling the supply of raw cashmere out of Mongolia.
This hurts the processing plants. To counter this trend, the Mongolian government after the transformation put an export tax on raw cashmere. This export tax does not work very well due to smuggling.
In 1996, it was estimated that of the 1,000 tons of cashmere sold to China, all but 16 tons were smuggled. Therefore, collection of the export tax is a major concern.
The 30 percent export tax of raw cashmere was put into place to discourage the extreme flow of raw cashmere into China. Preceding the transformation, exports were discouraged with a ban on the sale of raw cashmere.
Today the price of cashmere has reached an unprecedented MNT53,000 per kilo in the eastern aimags where the product is of the best quality.
At first glance this would seem very welcome, more so when herders have been badly hit by the weather and livestock loss, but the price rise is artificially manipulated by Chinese traders and their apparent generosity is more likely to have a sting in the tail for the Mongolian economy.
By any reckoning, given the global price of one kg of raw cashmere is now USD 65-70, this high price is not realistic.
Mongolia-based industries such as Gobi and Goyo have also had to pay the price jacked up by Chinese traders.
With their limited capital they have naturally been able to buy far less than their actual needs. The bubble blown up by Chinese policy will soon burst and prices will plunge as supply of raw cashmere increases. However, Mongolian companies will no longer have the money to buy.
The game seems to go like this: first, the Chinese manipulate an initial price rise so that Mongolian buyers exhaust their resources; then when prices fall, the Mongolian companies have no funds to take advantage of it, so the Chinese buy as much as they wish; finally, when Mongolian companies badly need cashmere, they find nothing for sale in the country and have to import Mongolian cashmere from China at a price dictated by traders who had originally taken it away.
This is what happened last year and it seems a repetition is more than likely.
There are a few options that herders in Mongolia have for selling their raw cashmere. Herders can sell their products to the Chinese, to Mongolian traders, or directly to Mongolian processing plants.
Mongolian herders would rather sell to Mongolians rather than to China, but many can not because the Chinese pay more for raw cashmere than Mongolian traders and processors do and they pay in cash. Many of the buyers are unable to get cash because the cost of borrowing is extremely high, therefore the Mongolian buyers can only exchange goods for raw cashmere.
The processing plants in Mongolia are going under because they do not have enough goods to run at capacity due to Mongolian herders selling their cashmere to China. Other Mongolian herders take their cashmere to the Chinese border themselves, or sell to those who do.
Mongolia has an abundance of natural resources. The environmental problems that Mongolia faces are caused by natural forces and human impact. An example of a natural force is a drought. A zud is caused by a harsh winter followed by a very dry summer.
The zud last winter killed hundreds of thousands of animals. Human impacts cause problems such as desertification, mining, logging, waste, and air pollution which threaten the livelihood of the country. Protection of the biodiversity and national parks are also a concern. Other concerns include sustaining the mineral, forest, and water resources.
Threats to the biodiversity of Mongolia and therefore future growth are: overgrazing which leads to desertification, over exploitation of animals and plants, pollution, soil erosion, and loss of land to oil and mining. Too often, development programs forget that the ecological health of the grasslands is vital to agriculture.
When the ecology of Mongolia is not protected, it threatens the whole pastoral lifestyle that is inherent to the culture and happiness of Mongolians. Another problem is that current laws need to be clarified and enforced in order to protect the environment.
There also needs to be effective mechanisms set up for inspecting, regulating, taxing, and collecting fees.
Desertification is the largest environmental threat to the cashmere industry in Mongolia. Many herders are losing their connection with the land, and over-grazing is one result of this loss.
Over-grazing leads to desertification. Almost 30 percent of Mongolia’s territory has the conditions necessary for desertification to occur.
One percent of Mongolia is severely affected by desertification. About 13 percent of this is due to nature and the other 87 percent of desertification in Mongolia is caused by humans.
Over the last four decades, the area of land covered by sand has increased to 8.7 percent. Desertification has affected 30 percent of pasture lands in Mongolia. Pasture lands account for a total of 80 percent of Mongolia’s land mass.
The population of goats (where cashmere comes from) is a problem because goats destroy grasslands and soil. These environmental problems are caused to a large extent by the very thing that Mongolians make their living by doing. Globalization may lead to a worsening of this problem because of the need to produce more and more products and also because the connection to the land is lost.
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