Tak­ing a closer look at Mon­go­lian cash­mere industry

Cash­mere Pro­gram sparks an­tic­i­pa­tion for na­tional pro­duc­ers

The UB Post - - Front Page - By B. DULGUUN

Cash­mere is Mon­go­lia’s third largest of­fi­cial ex­port, af­ter cop­per and gold, and pro­vides in­come to over 100,000 peo­ple, 90 per­cent of whom are women, and 80 per­cent are peo­ple be­low the age of 35.

Cur­rently, there are about 150 wool and cash­mere fac­to­ries ac­tive in Mon­go­lia.

Lo­cal and in­ter­na­tional ex­perts as­sessed that the qual­ity of raw cash­mere has de­graded over the years due to the lack of a proper na­tional strat­egy for live­stock health and gene pool and herders’ interests to grow goat pop­u­la­tion rather than pro­duce high-qual­ity prod­ucts. The pri­or­ity to in­crease the num­ber of adult goats has led herders to ne­glect the qual­ity of raw ma­te­ri­als from goats and thicken the av­er­age fiber di­am­e­ter for cash­mere, which is at­trib­uted to slight de­cline in pro­duc­tion and rev­enue.

In Mon­go­lia, herders gather fine cash­mere fibers from bound goats in March and April. Mon­go­lia has an es­ti­mated to­tal of 27 mil­lion goats and an an­nual cash­mere pro­duc­tion ca­pac­ity of 9,400 tons. This spring, herders are sell­ing their cash­mere to deal­ers for an av­er­age price of 105,000 MNT per kg, which is al­most 40,000 MNT higher than last year’s price, in­di­cated re­ports of the Mon­go­lian Agri­cul­tural Com­mod­ity Ex­change (MACE).

How­ever, do­mes­tic pro­duc­ers are fac­ing fi­nan­cial dif­fi­cul­ties in gath­er­ing raw cash­mere for their pro­duc­tion and herders have stated that for­eign com­pa­nies are di­rectly ap­proach­ing them for exclusive high-qual­ity cash­mere.

Although they wish to sup­port lo­cal pro­duc­ers, some herders said that they find of­fers by for­eign com­pa­nies tempt­ing, es­pe­cially be­cause they offer to pay up­front in cash.

This type of cash is ben­e­fi­cial to for­eign com­pa­nies as it al­lows them to pay much lower tax with­out be­ing charged with the cus­toms tax, ac­cord­ing to the Min­istry of Food, Agri­cul­ture and Light Industry. This isn’t the first time, for­eign busi­nesses have cooped up this type of ben­e­fi­cial ne­go­ti­a­tion for their side. In fact, it’s been on­go­ing for al­most a decade, ac­cord­ing to some deal­ers. Like so, Mon­go­lia con­tin­ues to let golden op­por­tu­ni­ties to gain high prof­its slip away by ex­port­ing raw and washed cash­mere with­out re­fin­ing.

As a re­sult, lo­cal pro­duc­ers face a short­age of raw cash­mere and uti­lize less than 60 per­cent of their full ca­pac­ity, which im­me­di­ately im­pact pro­duc­tiv­ity, work­ers’ wages, and thus, the num­ber of peo­ple in­ter­ested in work­ing in the sec­tor.

To re­solve these chal­lenges, the gov­ern­ment launched the Cash­mere Pro­gram in Fe­bru­ary this year.

SIL­VER LIN­ING FOR CASH­MERE

Both pub­lic and private sec­tors are ex­pect­ing ma­jor changes in the Mon­go­lian cash­mere industry over the next four years and hop­ing for large booms in the fol­low­ing years now that a new Cash­mere Pro­gram is un­der­way.

The four-year pro­gram fo­cuses on do­mes­tic pro­duc­tion of fi­nal cash­mere prod­ucts, tech­no­log­i­cal in­no­va­tions, and fi­nan­cial sup­port for cash­mere pro­duc­ers.

“Now that wash­ing and comb­ing pro­cesses of cash­mere pro­duc­tion have been up­graded, the pro­gram fo­cuses on sup­port­ing the next stages -- spin­ning process, yarn pro­duc­tion, pro­duc­tion of knit­ted prod­ucts, and ex­por­ta­tion. In par­tic­u­lar, its main idea is to keep do­mes­ti­cally pro­ducible cash­mere, use it to make fi­nal prod­ucts within the coun­try, and re­duce ex­por­ta­tion of cash­mere of low-level pro­cess­ing, or washed cash­mere,” stated First Deputy Chief Executive Officer of De­vel­op­ment Bank of Mon­go­lia Ch. Enkhbat.

The gov­ern­ment ex­pects the pro­gram to help keep 5,500 ex­ist­ing jobs in the tex­tile industry, while cre­at­ing 3,600 new jobs. It fore­casts that the pro­duc­tion and ex­port of fi­nal prod­ucts will surge by 5.7 times by the end of the pro­gram.

Other ex­pected re­sults in­clude in­creased in­vest­ment and dis­counted loans to cash­mere pro­duc­ers, launch of eco-friendly fi­nal cash­mere prod­ucts ca­pa­ble of com­pet­ing on the global plat­form, es­tab­lish­ment of a test­ing and re­search in­sti­tute, and diver­si­fied ser­vices pro­vided by pro­fes­sional agri­cul­tural as­so­ci­a­tions.

The Cash­mere Pro­gram will be im­ple­mented in two phases. The first phase is from 2018 to 2019. Dur­ing this pe­riod, the gov­ern­ment plans to use 40 per­cent of to­tal raw cash­mere in do­mes­tic pro­duc­tion, im­prove cur­rent leg­is­la­tion on cash­mere pro­duc­tion and sales, in­crease pro­duc­tion and ex­port vol­umes through ac­cu­rate fi­nan­cial sup­port to busi­nesses, ad­vance fi­nal-level pro­cess­ing, pro­mote clus­ter­ing, en­hance rep­u­ta­tions of Mon­go­lian cash­mere, and strengthen the prepa­ra­tion sys­tem of raw ma­te­ri­als.

The sec­ond phase will run from 2020 to 2021. Tar­gets for this pe­riod in­clude in­creas­ing the vol­ume of raw cash­mere used in do­mes­tic pro­duc­tion to 60 per­cent, and im­prove pro­duc­tiv­ity and qual­ity of fi­nal cash­mere prod­ucts us­ing ad­vanced tech­nolo­gies.

The fund­ing for the project will be sourced from the state bud­get, pro­vin­cial bud­gets, for­eign loans and aid, and gov­ern­ment se­cu­ri­ties.

Ch. Enkhbat said, “The pro­gram will run for four years. For starters, we plan to pro­vide work­ing cap­i­tal in­vest­ment for a pe­riod of two years depend­ing on pro­duc­tion stage to make it pos­si­ble to eval­u­ate and fix er­rors on the go. In spe­cific, the cash­mere comb­ing industry will re­ceive a work­ing cap­i­tal in­vest­ment for six to eight months, while knit­ting – fi­nal pro­cess­ing – will re­ceive in­vest­ment for up to two years. Ad­di­tional in­vest­ment will be al­lo­cated depend­ing on re­sults and if a com­pany man­aged to op­er­ate nor­mally with­out er­rors.

“The in­vest­ment for tech­no­log­i­cal in­no­va­tion, on the other hand, will be pro­vided for no less than five years. The in­ter­est rate for work­ing cap­i­tal in­vest­ment has been set at 12 per­cent a year. This rate can de­pre­ci­ate depend­ing on the eco­nomic sit­u­a­tion and bud­get.

For ex­am­ple, it’s pos­si­ble to re­duce the in­ter­est rate next year if the gov­ern­ment sup­ports the pro­gram and al­lo­cates a bud­get for fill­ing the in­ter­est rate gap. The in­ter­est rate and du­ra­tion vary for tech­no­log­i­cal in­no­va­tion loans be­cause it’s pos­si­ble to get dis­counted loans from Exim Banks of cash­mere tech­nol­ogy pro­ducer coun­tries. Hence, loan in­ter­est rates and du­ra­tion will be more fa­vor­able for pro­duc­ers.”

The per­for­mance of the pro­gram will be de­ter­mined based on the fol­low­ing cri­te­ria.

POS­I­TIVE SIGNS

The Na­tional Sta­tis­tics Of­fice re­ported that 12 per­cent of all cash­mere re­sources were pro­cessed last year, at­tribut­ing to 2.3 per­cent of the na­tional in­dus­tri­al­iza­tion, seven per­cent of in­dus­trial pro­cess­ing, and 55 per­cent of light industry.

GDP growth con­tri­bu­tion from agri­cul­ture in Mon­go­lia in­creased to slightly over 2.25 tril­lion MNT in the fourth quar­ter of 2017 from 1.82 tril­lion MNT in the third quar­ter of 2017. GDP from agri­cul­ture av­er­aged 992 bil­lion MNT from 2010 un­til 2017, reach­ing an all-time high of 2.25 tril­lion MNT in the fourth quar­ter of 2017 and a record low of 45.96 bil­lion MNT in the first quar­ter of 2011.

Last year, Mon­go­lia pro­duced 5,413 tons of washed cash­mere, 509 tons of combed cash­mere, and 915,000 pieces of knitwear. The ma­jor­ity of pro­duc­tion was first stage pro­cess­ing, with fi­nal prod­uct man­u­fac­tur­ing only ac­count­ing for 10 per­cent. The gov­ern­ment is cer­tain that 19.8 mil­lion tons of knitwear and tex­tile prod­ucts can be ex­ported for a to­tal of 2.2 tril­lion MNT to 4.3 tril­lion MNT in sales if Mon­go­lia be­gins to process and re­fine its cash­mere through the Cash­mere Pro­gram.

Mon­go­lia’s GDP from agri­cul­ture is pro­jected to be 566 bil­lion MNT in the first quar­ter of 2018, ac­cord­ing to a trad­ing eco­nom­ics poll.

The Cash­mere Pro­gram is al­ready show­ing good re­sults, peak­ing the price of raw cash­mere from 49,700 MNT per kg in Jan­uary 2017 to 105,000 MNT in April 2018.

STRIDES TO GLOBALIZE CASH­MERE TRADE

MACE sealed a deal with China’s Bo­hai Com­mod­ity Ex­change (BOCE) on March 30 to open a new on­line plat­form for global trade in an ef­fort to boost profit from sales of wool to some of the world's prici­est lux­ury fash­ion com­pa­nies.

MACE said the plat­form should be­gin trad­ing in mid-April. Un­til now, traders had to be phys­i­cally present to buy cash­mere from only per­mit­ted cash­mere trader in Mon­go­lia.

The ex­change said trad­ing in agri­cul­tural prod­ucts and also coal and cop­per could fol­low at a later date. But cash­mere cur­rently ac­counts for around 90 per­cent of the ex­change's to­tal trade. In 2017, 7,000 tons of washed cash­mere were sold on MACE with a to­tal value of 521 bil­lion MNT.

“Co­op­er­a­tion with the BOCE is open­ing up a mar­ket for Mon­go­lian com­modi­ties not only in China but to other coun­tries as well,” re­marked B. Chu­lu­un­baatar, the gen­eral man­ager of the MACE.

“Ital­ian buy­ers will be able to buy Mon­go­lian cash­mere via BOCE, for ex­am­ple. The on­line plat­form al­lows fac­to­ries to pur­chase Mon­go­lian cash­mere through the ex­change di­rectly, with­out send­ing their rep­re­sen­ta­tives to Mon­go­lia.”

...The gov­ern­ment ex­pects the pro­gram to help keep 5,500 ex­ist­ing jobs in the tex­tile industry, while cre­at­ing 3,600 new jobs. It fore­casts that the pro­duc­tion and ex­port of fi­nal prod­ucts will surge by 5.7 times by the end of the pro­gram...

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