The Crippling Cost of Luxury: Mongolian Cashmere
Buyers cruised the makeshift aisles of Ulaanbaatar’s State Circus building this Saturday, taking in some of Mongolia’s finest textiles at a one off wool leather and cashmere market.
The lookers may have well outweighed the buyers however, as the cost of Mongolian cashmere continues to spike.
Mongolia’s top cashmere brands were forced to pass the costs on, with single scarves selling for over MNT 200 000 each. It’s symptomatic of a trend that has been developing over the past year, and according to leading cashmere retailers, the high rates are here to stay.
“We are now paying for the cheaper cashmere prices from the past 4-5 years” said Don Fox of Rhode Island based Alashan Cashmere. “The costs to raise cashmere goats continue to rise and the returns on these animals have not risen for some years.”
The high cost of cashmere production in Mongolia is due to an unfortunate mix of environmental and and economic factors.
The demand for luxury textiles in Asia, particularly China, has risen markedly in the last decade.
According to a Reuters article published last year, the pull of the Asian market is causing a global vacuum, forcing up the prices of raw textiles such as wool and cashmere.
At the same time, the world's second biggest producer of cashmere, Mongolia, has experienced a drop in supply. Goats made up half of the country's livestock in 2009, a 300 percent rise on the 1990 figure according to the United Nations Industrial Development Organisation, UNIDO. However a vicious dzud in 2010 has a drastic effect on the numbers of cashmere goats, culling millions.
The 2010 dzud not only reduced numbers of cashmere goats but also changed the age and sex composition of the herds, producing a poorer product. According to USAid report, the damaging weather conditions kill of younger goats, who have a finer hair composition. Similarly, while female goats have finer hair, male goats were better equipped to survive the cold conditions.
The drop in quality has damaged the country’s international reputation in textiles, creating a widening gap between Mongolian and Chinese production rates.
The country is yet to recover from the 2010 dzud, as is its cashmere industry. However the disaster has also highlighted another critical issue in Mongolia's cashmere production. The absence of vertically integrated cooperations has stunted the country’s growth on the international market.
Vertical integration is the combination of production, manufacturing and retail processes under a single institution, done in order to take advantage of consistent market values. A large majority of Mongolia's cashmere is sold in raw form, directly to China. While price rises in manufactured cashmere products such as clothing are often absorbed to some extent, raw cashmere is much more susceptible to massive fluctuation.
Similarly, much of the raw cashmere bought for manufacturing in Mongolia is sourced from China, highlighting the critical inefficiencies in cashmere production chains.
Aside from the financially unstable elements of selling and buying raw cashmere, the absence of vertically integrated production chains means that producers find it difficult to arrange formal market agreements with local manufacturers, thus missing out on programs to enhance farming and breeding techniques.
In many ways, Mongolia’s sporadic cashmere industry is a symptom of its young free market economy.
During the Soviet era, Mongolia had Quantative Restrictions in place that stopped certain imports from flooding the market and destroying local textile production. after the fall of communism the country faced a shaky economic period, whereby it was still reliant on the restrictions.
In 1995, the World Trade Organisation’s (WTO) Agreement on Textiles and Clothing provided a ten year transitional program to remove the restriction quotas, in favour of more market friendly tariffs. Despite the efforts made in the decade long operation, the Mongolian cashmere industry still experienced a crash when the restrictions were annulled in 2005.
According to a report from the UN Economic and Social Commission for Asia and the Pacific (ESCAP), the growth rate of Mongolia’s cashmere industry dropped to just a third of its previous rate. There was also a 42 percent decline in US imports, one of the key buyers at the time.
Despite the initial crash, the Mongolian cashmere industry enjoyed some substantial growth in the second half of the decade, mostly due to intervention. Temporary safeguards on Chinese imports, which resembled Quantitative Restrictions in many ways, allowed Mongolia’s cashmere industry to gain a slightly firmer foothold.
The trend of economic intervention measures continues on a local scale in Mongolia. Last year, the Government committed MNT 110 billion in loans to key cashmere companies in an attempt to raise the profile of the country’s cashmere manufacturing sector.
Unfortunately the move was overshadowed by controversy when Altai Cashmere LLC owned by Prime Minister Batbold, was forced to leave the umbrella organisation of cashmere producers eligible for the fund due to a conflict of interest.
The economic issues of the current global market pose a present threat to the growth of Mongolia’s cashmere industry. Environmental factors pose a future threat.
Along with mining, the industry shares a daunting reputation for desertification. In Inner Mongolia and parts of China goat farmers are required to pay a larger premium for grazing land if they run goats. It’s a policy that is reaching up into Mongolia.
While sheep merely sheer vegetation, goats remove the whole plant, causing desertification. The cashmere producing animals have been blamed for the expansion of the Gobi desert. According to a 2010 CNN article, “The sheer number of animals grazing is putting a considerable strain on the limited pastureland. Goats are much more voracious eaters than other livestock”
While cashmere remains one of the most sought after luxury clothing items in the world, the Mongolian industry can expect numerous issues in supply and manufacturing in the years to come. The future of the world’s second biggest cashmere producer is uncertain, dwarfed by it’s industrial neighbour, and crippled by its young economy.
The lookers may have well outweighed the buyers however, as the cost of Mongolian cashmere continues to spike.
Mongolia’s top cashmere brands were forced to pass the costs on, with single scarves selling for over MNT 200 000 each. It’s symptomatic of a trend that has been developing over the past year, and according to leading cashmere retailers, the high rates are here to stay.
“We are now paying for the cheaper cashmere prices from the past 4-5 years” said Don Fox of Rhode Island based Alashan Cashmere. “The costs to raise cashmere goats continue to rise and the returns on these animals have not risen for some years.”
The high cost of cashmere production in Mongolia is due to an unfortunate mix of environmental and and economic factors.
The demand for luxury textiles in Asia, particularly China, has risen markedly in the last decade.
According to a Reuters article published last year, the pull of the Asian market is causing a global vacuum, forcing up the prices of raw textiles such as wool and cashmere.
At the same time, the world's second biggest producer of cashmere, Mongolia, has experienced a drop in supply. Goats made up half of the country's livestock in 2009, a 300 percent rise on the 1990 figure according to the United Nations Industrial Development Organisation, UNIDO. However a vicious dzud in 2010 has a drastic effect on the numbers of cashmere goats, culling millions.
The 2010 dzud not only reduced numbers of cashmere goats but also changed the age and sex composition of the herds, producing a poorer product. According to USAid report, the damaging weather conditions kill of younger goats, who have a finer hair composition. Similarly, while female goats have finer hair, male goats were better equipped to survive the cold conditions.
The drop in quality has damaged the country’s international reputation in textiles, creating a widening gap between Mongolian and Chinese production rates.
The country is yet to recover from the 2010 dzud, as is its cashmere industry. However the disaster has also highlighted another critical issue in Mongolia's cashmere production. The absence of vertically integrated cooperations has stunted the country’s growth on the international market.
Vertical integration is the combination of production, manufacturing and retail processes under a single institution, done in order to take advantage of consistent market values. A large majority of Mongolia's cashmere is sold in raw form, directly to China. While price rises in manufactured cashmere products such as clothing are often absorbed to some extent, raw cashmere is much more susceptible to massive fluctuation.
Similarly, much of the raw cashmere bought for manufacturing in Mongolia is sourced from China, highlighting the critical inefficiencies in cashmere production chains.
Aside from the financially unstable elements of selling and buying raw cashmere, the absence of vertically integrated production chains means that producers find it difficult to arrange formal market agreements with local manufacturers, thus missing out on programs to enhance farming and breeding techniques.
In many ways, Mongolia’s sporadic cashmere industry is a symptom of its young free market economy.
During the Soviet era, Mongolia had Quantative Restrictions in place that stopped certain imports from flooding the market and destroying local textile production. after the fall of communism the country faced a shaky economic period, whereby it was still reliant on the restrictions.
In 1995, the World Trade Organisation’s (WTO) Agreement on Textiles and Clothing provided a ten year transitional program to remove the restriction quotas, in favour of more market friendly tariffs. Despite the efforts made in the decade long operation, the Mongolian cashmere industry still experienced a crash when the restrictions were annulled in 2005.
According to a report from the UN Economic and Social Commission for Asia and the Pacific (ESCAP), the growth rate of Mongolia’s cashmere industry dropped to just a third of its previous rate. There was also a 42 percent decline in US imports, one of the key buyers at the time.
Despite the initial crash, the Mongolian cashmere industry enjoyed some substantial growth in the second half of the decade, mostly due to intervention. Temporary safeguards on Chinese imports, which resembled Quantitative Restrictions in many ways, allowed Mongolia’s cashmere industry to gain a slightly firmer foothold.
The trend of economic intervention measures continues on a local scale in Mongolia. Last year, the Government committed MNT 110 billion in loans to key cashmere companies in an attempt to raise the profile of the country’s cashmere manufacturing sector.
Unfortunately the move was overshadowed by controversy when Altai Cashmere LLC owned by Prime Minister Batbold, was forced to leave the umbrella organisation of cashmere producers eligible for the fund due to a conflict of interest.
The economic issues of the current global market pose a present threat to the growth of Mongolia’s cashmere industry. Environmental factors pose a future threat.
Along with mining, the industry shares a daunting reputation for desertification. In Inner Mongolia and parts of China goat farmers are required to pay a larger premium for grazing land if they run goats. It’s a policy that is reaching up into Mongolia.
While sheep merely sheer vegetation, goats remove the whole plant, causing desertification. The cashmere producing animals have been blamed for the expansion of the Gobi desert. According to a 2010 CNN article, “The sheer number of animals grazing is putting a considerable strain on the limited pastureland. Goats are much more voracious eaters than other livestock”
While cashmere remains one of the most sought after luxury clothing items in the world, the Mongolian industry can expect numerous issues in supply and manufacturing in the years to come. The future of the world’s second biggest cashmere producer is uncertain, dwarfed by it’s industrial neighbour, and crippled by its young economy.
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