FAO/UNICEF/UNDP Report

Joint Food Security Assessment Mission to Mongolia

Ulaanbaatar, Mongolia

April 2007

• INTRODUCTION
• 1. Executive Summary
• 2. Macro-economic Context
• 3. GENERAL FRAMEWORK of Food Security
• 4. National food security
• 5. WHO ARE THE VULNERABLE AND FOOD INSECURE?
• Recommendations
• Annex 1

INTRODUCTION

At the request of the Ministry of Food and Agriculture of Mongolia (MoFA), a UN Joint Food Security Assessment Mission visited the country from 2 to 20 October 2006. The Mission was composed of FAO, UNICEF and UNDP experts and worked in close collaboration with national counterpart partners. The overall objective of the assessment was to have a better understanding of food security at national, sub-national and household levels and to make recommendations on activities to address food insecurity. The major components of the Mission included a two-day Technical Consultation on Food Security in Ulaanbaatar (UB) and the assessment of the food security situation using rapid appraisal techniques. The Mission held meetings with relevant institutions, including Government, international agencies, donors, NGOs and the private sector, and reviewed available data and information on food security from different sources. Field trips to selected aimags (provinces) and soums (districts) were organized in four teams covering: 1) Central provinces (Selenge, Darham, Orhon) and “Ger”¹ districts of UB; 2) Western provinces (Uvs and Bayan Olgii); 3) Highlands provinces (Houvsgol, Bulgan and Arkahngai) and 4) Gobi provinces (Dungobi). Overall, the Mission covered 9 aimags and the capital city. During the field visits the Mission met with representatives of the public and private sectors, including traders. In all locations the Mission visited markets and shops, health facilities and schools. Extensive household interviews were conducted in aimag and soum centres, as well as with herder and farmer households in the countryside. Prior to its departure, the Mission had debriefing sessions with Government authorities and UN agencies in the country.

1. Executive Summary

With the economy growing at steady rates since 2004 and mining exports soaring, supported by record prices of minerals, the overall economic context is favourable for food security.

At national level, the food security situation is satisfactory. Availability of main food staples (wheat, meat, milk and vegetables) is adequate reflecting the recovery of the agricultural sector in the past three years and increased food imports. Trade liberalization has contributed to improve availability and stability of food supplies. Markets throughout the country are well-stocked with national and imported food products. Prices of most basic foods, except meat, have remained stable or have declined in real terms since 2000. The terms of trade between meat/flour and meat/potatoes have improved benefiting access to food by herder populations.

Average per capita annual consumption of basic foods has been augmenting in recent years and rates of meat and dairy products intakes are high by regional standards. Nutritional indicators show general positive trends, with declines in children malnutrition rates. However, micro-nutrient deficiencies persist.

The bright panorama at national level, nevertheless, hides the vulnerability and food insecurity of large numbers of households in Ulaanbaatar and centres of aimags and soums², where about 60 percent of the country’s population is concentrated. The livelihood of these populations depends on cash incomes and the main cause of their food insecurity is insufficient purchasing power as a result of unemployment and underemployment. Food insecurity is more severe in winter months reflecting reduced availability of working opportunities and increased cost of leaving due to heating expenses. The cost of heating in the cities is higher in the ger dwellings, where the majority of the poor live, than in apartments with central heating facilities.

There is abundant data on poverty but little information on food security at household level. Exception to this is the food security surveys conducted by NGOs in local areas of intervention. Poverty and food security are not interchangeable concepts. Food security refers to the access to nutritious food and poverty to the inability to achieve acceptable standards of living. However, given the close relation between poverty and food insecure in urban areas, poverty estimates could provide a rough approximation of the magnitude of food insecurity. According to the latest national surveys on poverty, dating back to 2002/03 and defining the poverty line as the cost of the basic food and non-food consumption basket, over one-quarter of the population in Ulaanbaatar, one-third of that in the aimag centres and almost half of that in soum centres are classified as poor.

Despite the higher poverty levels in soum centres, severe food insecurity was observed to be lower than in Ulaanbaatar and capitals of aimags as a result of strong kinship networks. Differences between poverty statistics at the national level and at aimag and soum levels were observed by the Mission, pointing to the need to reconcile available information.

Herder population, accounting for two-thirds of the rural population and some 28 percent of the national total, appears to have an overall adequate food security situation. In general, this population has a sufficient intake of food, which includes wheat, meat and milk. Nevertheless, herders show micro-nutrient deficiencies because of poor diet diversification. Farmer population is concentrated in Central provinces where they mainly cultivate wheat and vegetables on commercial basis. Their food security situation is also satisfactory.

At the same time, however, herders and farmers are the most vulnerable group of population due to the high risk of extreme weather changes, mainly “dzuds"³ and droughts, coupled with the lack of livelihood diversification. Large sections of this population can become destitute and food insecure from one season to the other if livestock is lost. This is particularly the case for poor households (commonly defined as those having 25 or less heads), which represent about one-quarter of the total herder population. Poor herders are also subject to temporary food insecurity in early spring, when winter stocks of meat and milk products are exhausted and pastures have not yet regenerated.

While the risks and vulnerability of rural and urban populations are different, there is a logical link between vulnerability in agricultural areas and food insecurity in the cities. The urban food insecure people are often vulnerable herders who lost their animals as a result of adverse weather and migrated to the cities in search of a job but remained unemployed.

Given the dynamics between rural and urban areas, the Mission recommends to strengthen actions to prevent vulnerable groups in rural areas from falling into food insecurity. It also recommends to improve targeting of the vulnerable and food insecure populations and to intensify urban poverty alleviation measures.

The National Plan of Action for Food Security, Safety and Nutrition 2001-2010 remains a sound and comprehensive instrument for food security planning. Its implementation, however, has been hampered by lack of funding both from the public and private sectors, as well as by its holistic approach. The Mission recommends the review, update and prioritization of the Plan with a view to resource mobilization.

In particular, the Mission recommends concentrating efforts on activities aiming to the rehabilitation of the meat and dairy formal markets, as the country has comparative advantages in the production of these products and a large export potential. The development of the meat and dairy sub-sectors will improve food safety of the population in urban centres, reduce imports, increase exports and, above all, contribute to reduce vulnerability and food insecurity by generating employment and providing regular incomes in rural and urban areas. Similarly, the Mission recommends the review of existing project proposals to develop “brand products” at aimag level and their prioritization based on cost-effectiveness criteria.

In order to address the multi-dimensional aspects of food security, the Mission also recommends the setting-up of a Food Security Unit in charge of coordinating activities in this area, including nutrition policies.

In the area of nutrition, the Micro-Nutrients National Strategy should be revisited as its execution has been inadequate mainly due to financial constraints. In particular, it is recommended to distribute iron supplements as part of the ongoing vitamins distribution programme, expand the programme on flour fortification, consider the feasibility of fortifying milk and explore the possibility of escalating the multiple micro-nutrient supplements with “Sprinkles” to “Children Under 5 Programme” started by World Vision International.

There was widespread and strong concern about food safety at all levels and in all places visited by the Mission. Most of the concern was about food imports from China and much less with traditional processing of domestically-produced meat and dairy products. It seems, however, that scientific evidence concerning this problem is still not available. While the Mission recognized the importance to have technical analysis and judgment on food safety issues, it did not have the expertise and equipment required to undertake such a task.

2. Macro-economic Context

The overall macro-economic environment is positive. Mongolia’s economy has increased at sustained rates for five consecutive years. An expected real GPD growth of 7.5 percent in 2006 followed rates of 10.6 percent in 2004 and 6.2 percent in 2005 (Table 1). As a result of this good performance, the country achieved a per capita income of about US$730 in 2005 which, although still low, is almost twice the level of 2000. While the agricultural sector has recovered from the loss of livestock in 1999-2002, services and mining sectors have been the most dynamics underpinning the overall economic expansion. Growth of mineral production has accelerated since 2004 with a dramatic rise in gold extraction. Generous tax incentives have attracted substantial foreign investment in the mining sector, although the Government announced new regulations last year. Performance of the services sector in 2006 has also been robust driven by an increase in tourist arrivals, an upturn in the restaurants and hotels sector and strong mobile-phone services.

Table 1. Mongolia: Key economic indicators 1998-2006

Total trade deficit has decreased from the high level of US$185 million in 2003 to US$84 million in 2005, reflecting strong export growth of minerals. Copper is Mongolia’s largest export earner, accounting for more than 30 percent of total export incomes. Exports of copper concentrates and gold rose strongly in the period January-September 2006 benefiting from surging world metals prices, with quotations of gold reaching a 25-year high in early 2006. The higher mining incomes have improved the country’s financial capabilities.

3. GENERAL FRAMEWORK of Food Security

3.1 Mongolia’s particular characteristics

Mongolia presents unique geographic, economic, social and cultural characteristics which have important connotations for understanding the food security of different groups of population.

Low density of population: With an area of 1 564 sq km (more than three time the size of France) and a population of 2.65 million (2005), Mongolia has a population density of 1.7 people per sq km, one of the lowest in the world, ranking in the 227^th position out of 230 countries, above only of Western Sahara, the Falklands Islands and Greenland⁴. This low density of population is even more marked in rural areas due to the high concentration of urban population.

Extensive pastures: Grasslands and arid grazing cover some 80 percent of the land area, while arable land accounts for less than 1 percent of the total.

Extreme weather conditions: The country’s harsh climatic extremes include long, cold, dry winters and short, hot, dry summers. Temperatures during the year fluctuate from as low as minus 50°C in the steppe in winter, to plus 40°C in the Gobi desert in summer. Snowstorms, dust storms, droughts and dzuds are frequent. Ulaanbaatar is the coldest capital city in the world.

Landlocked country between China and Russia: Mongolia has 4 677 km of borders with China and 3 543 km with Russia, countries with the highest number of population and largest extension of territory in the world respectively. Access to the sea is through the Chinese port of Tianjin, 1 000 km from the frontier.

Poor transport infrastructure: There are few hard-surfaced roads and tracks are predominant throughout the country. The main Russia-China railway traverses the country but there are no internal lines.

Extensive social services: Infrastructure and basic services, mainly transport and electricity, are still insufficient in most rural areas, but the remarkable progress made during the socialist era in the areas of education, health, gender equality and welfare have been maintained in the new political and economic context.

Social relations: An ancient culture based on strong social and family relations persists despite heavy influence of western life-style and rapid urbanization.

While taken individually these characteristics are not intrinsically unique to Mongolia, combined create a Mongolia’s context, that is difficult to equate with that of other developing countries and that has resulted in specific features having implications on food security.

3.2 Specific factors related to food security

Traditional nomadic pastoral system in rural areas

As Mongolia’s climate and natural resources are mostly suitable for extensive grazing, the agricultural sector is dominated by the herding of livestock with traditional methods, including transhumance. Livestock production is a major economic activity of the country. According to the livestock census of 2005, Mongolia has 30.4 million heads of animals (cattle, horses, camels, sheep and goats), equivalent to some 11.5 animals per inhabitant. With the exception of widespread cropping activities in central provinces (Selenge and Darkhan Uul) and limited vegetable growing elsewhere, most of the rural population is engaged solely on livestock activities. Traditionally, herders do not cultivate the land and their economy and life-style is entirely pastoral. This makes the rural population very vulnerable to a decline in livestock numbers, which will have a large negative impact on households since they have no other alternative sources of income to meet their consumption requirements.

Extreme vulnerability of herders and farmers

The vulnerability of the rural population due to the lack of livelihood diversification is aggravated by the extreme weather conditions of the country. Herders and farmers may loose all their animals or crops from one season to the other as a result of adverse weather and become destitute and food insecure. The combined effects of droughts and dzuds in the period 1999-2002 caused the loss of 4.5 million animal heads (in bod⁵ units), or some 40 percent of the animal population, and prompted migration to the cities of large numbers of rural people.

Isolation of rural households and communities

Poor road infrastructure, together with the low density of population, has resulted in great isolation of rural communities and herder households that must move seasonally with their animals in search of pastures. Long distances to markets of soum and aimag centres prevent optimal market performance and hamper access to a variety of food by the herder households. Yet herders depend on markets to trade their livestock and animal products in exchange of cereals and other food commodities that they do not produce. Herders without access to transport are reliant on traders’ visits and are often price-takers. Remoteness and isolation of the rural population also add to the costs of public provisioning of basic infrastructure and social services.

High concentration of urban population

The difficulties associated with surviving in the countryside if animals are lost have resulted in the continuous migration to the cities of people affected by loss of animals due to natural disasters or animal diseases. Migration to the cities, in particular to the capital, is also prompted by the search of better services, especially in the areas of education and health. About 60 percent of the population of Mongolia lived in urban areas in 2005, concentrated in three main cities of the central region: Ulaanbaatar (38 percent of the total population), Erdenet and Darkham, where unemployment and under-employment rates are high and chronic and temporary food insecurity prevail.

Unique food consumption patterns

The pastoral system of Mongolia is linked to unique food consumption patterns, with high in-take of proteins from meat and milk products. Annual average per capita consumption of meat and milk amounts to 100 kg and 140 kg respectively, well above Asian standards and around those in the developed world. In rural areas, where consumption is even higher, these basic food staples come from the households’ own production so that the degree of food self-sufficiency of herders is pronounced. Wheat flour is another important component of the Mongolia diet but consumption of vegetables and fruits is low at national level and almost negligible among the herder population which has resulted in serious micro-nutrient deficiencies.

Seasonality of food consumption

Marked changes in winter and summer temperatures result in distinct seasonality of food availability and consumption. More meat products are consumed in winter, after the slaughtering of animals in autumn, and more milk, dairy products and vegetables are consumed in summer after the rainy season. Spring is traditionally the leanest season of the year, when availability of food decreases and prices of crop and meat products increase. Seasonality also impacts employment in the cities, especially for the poor populations who are dependent on temporary labour. Several productive activities, such as construction and mining, may not be undertaken in winter months and little work is available during this period, reducing thus the amount of money available to purchase food. At the same, extreme changes in temperatures impact also nutritional requirements as a higher caloric intake is required in the cold winter.

Traditional food processing practices

Among the herder population, slaughtering and milking of animals, processing of meat and dairy products, and storage of food products during winter months is done domestically, using traditional practices. This is favoured by the cold and dry weather of Mongolia (same processing methods apply in other parts of the world would result in serious hygienic problems). Meat, milk and dairy products elaborated traditionally are consumed by the households but also sold in the local, regional and Ulaanbaatar markets. At national level, only 7 percent of the milk and 3 percent of the meat produced in Mongolia undergo any form of industrial processing, which has raised concerns about food safety, particularly in the cities.

Neighbouring countries large exporters

Mongolia joined the WTO in 1997. In the prevailing context of world trade liberalization, the fact that the country is locked between two big exporter countries has meant that markets have been flooded by food and non-food products from Russia and China. The lower economic development of Mongolia compared to that of its neighbours, and its considerable smaller population, make more difficult for the country to compete with cheap imported products in several sectors, not least of which is food.

Universal education and health services, extensive safety nets

As a result of an extensive school system, with kindergartens and primary schools (boarding schools) in all capitals of provinces and districts, the ratios of primary enrolment are very high and the rate of literacy in the country reached 98 percent in 2002, well above the average levels in Asia. Unlike in many other countries, the number of graduates in higher educational institutions shows a “reverse gender gap”, with 65 percent of graduates in 2004/05 being women. Although availability and quality of health services vary considerably from urban to rural areas, there is universal vaccination coverage and doctors reached nomadic families in remote areas. Mongolia maintains an extensive portfolio of social assistance, including pension payments, disability payments, wedding bonuses and monthly payments for all children under eighteen, which reach urban and rural areas. These records have a clear positive impact on food security and are impressive for a low-income food-deficit country, in particular when considering the physical isolation of rural communities and the nomadic life-style of large sections of the population. In particular, social benefits are a crucial source of income for poor households and, in some cases, the only source of cash income.

Strong traditional culture and community relations

A unique Mongolian cultural identity persists despite heavy influence of urbanization and western life-style. In remote areas, families combine horses and camels with motorcycles and cars for their transport; watch satellite TV and DVDs using solar panels, but at the same time maintain strong traditional social ties. Social cohesion and the importance of family and community spirit are prevalent characteristics of the Mongolian society. Support from kinship networks, both reciprocal and charity based, form an important vector of supply and exchange of food at the household, soum and aimag levels. Some chronically poor households rely outright on their community’s charity to survive. This is particularly noticeable in rural areas, where severe food insecurity is prevented by informal social networks and homelessness is an unknown phenomenon.

4. National food security

Overall, the food security situation at national level is satisfactory, with large availability of basic food staples, improved stability of supplies, declining food prices and relatively high levels of average food consumption.

4.1 Food consumption patterns

Population

According to official statistics Mongolia had a population of 2.562 million inhabitants in 2005 (Table 2). The country has experienced a rapid urbanization process in recent years, with rural population declining from 2001 to 2005. The population of the capital city has increased by almost a quarter in the past five years, growing at an annual average rate of 4.5 percent. By 2005, some 60 percent of the population was considered urban, comprising people living in Ulaanbaatar and in the capital of provinces. Rural population includes mostly nomadic herders and farmers (two-thirds of the rural population) but also people living in the capital of districts.

Table 2. Mongolia: Population (urban and rural) and herder households

Food intake and diet

Data on average daily calorie intake varies from 1 921 to 2 570 calories/capita/day, according to different sources⁶, while the recommended nutritional intake, dating back to 1997, is 2 700 calories per person per day, which is well above international standards.

Flour, meat and milk products are the main food staples of Mongolia (Table 3). According to estimates made in the framework of the “Household Income and Expenditure Survey/Living Standards Measurement Survey 2002/03”, these three products cover some 86 percent of the daily caloric intake (Table 4). Although consumption of animal products is among the highest in the world, cereals are still the main source of energy providing in average 55 percent of the daily intake. Meat and meat products (in terms of meat) and milk and dairy products (in terms of milk) cover 20 percent and 11 percent of the daily caloric intake, respectively. Despite rapid increases in consumption of potatoes, vegetables and fruits in recent years, particularly in urban areas, the diet of Mongolians remains deficient in these products with annual average per capita consumptions of 43 kg, 25 kg and 12 kg respectively, that are well below Asian standards.

Table 3. Mongolia: Per capita annual food consumption by main food groups (kg)

Table 4. Mongolia: Composition of per capita daily caloric intake by main food groups (%)

Consumption differences in rural and urban areas

There are marked disparities in the consumption patterns of rural and urban populations. Based mostly on self-production, rural people consume in average three to five times more milk and dairy products than people in the cities⁷, about 50 percent more meat products and only slightly less flour and flour products. Consequently, the average daily calorie intake in rural areas is estimated to be some 15 percent higher than in urban areas. However, the diet is much more diversified in the cities, particularly in Ulaanbaatar, and includes vegetables, fruits, fish products, eggs and vegetable oils. Consumption of potatoes and vegetables in rural areas is only one-third to one-half of the levels in the cities.

Another difference between rural and urban areas is that nomadic families consumed a wide range of customary meat and milk products (there are over 500 different dairy products) all of which are prepared and stored in the household using traditional processing techniques. In urban areas, about half of the meat and milk products are industrially processed.

There are no substantial variations in the overall composition of the diet by geographical regions. However, the frequency of the meals and the quantities of food consumed change according to the level of incomes and occupation of the family members. In both rural and urban areas, one main meat meal is taken in the evening. During the day, flour and dairy products, accompanied by salted milk tea, are consumed with frequencies that fluctuate from two to more than ten times per day. An important distinction observed by the Mission was in terms of the composition of the tea, by far the most popular beverage in Mongolia. Poor households drink black tea, essentially tea leaves, water and salt, while more wealthy households and herder households drink milk tea which can represent a considerable intake of protein.

Seasonality plays a major role in food consumption in Mongolia. Issues related with seasonality of food availability, prices and consumption will be discussed in section 4.4 of this report.

4.2 Food availability

Production of main food staples have recovered from the dzuds and drought-affected levels of 1999-2002. Outputs of meat, milk and vegetables have been increasing steady in the past three years. Wheat production in 2006 has doubled the poor level of the previous year and is expected to cover some 45 percent of the national consumption requirements in marketing year 2006/07 (October/September). Imports of wheat and rice, potatoes, vegetables and fruits have also increased and, despite concerns on food safety, have contributed to improve supplies in remote areas. In general, the Mission found that markets in Ulaanbaatar and the capitals of aimags and soums were well-supplied with national and imported food products.

Wheat

During the socialist period up to 1990, the country was self-sufficient in wheat and an occasional exporter. However, the break-up of the Soviet Union and the subsequent loss of massive Government subsidies resulted in the collapse of the input service system. Wheat production has declined steadily since then and commercial imports and food aid of wheat and wheat flour have increased (Figure 1). In the past five years, domestic wheat output has met an average of 40 percent of the total utilization.

* Imports include wheat flour in wheat equivalent.

Source: 1989-2005, NSO, 2006 Mission’s estimate.

As a result of severe drought during the 2005 cropping season, Mongolia gathered only 74 000 tonnes of wheat, the lowest crop on record, while utilization requirements in 2005/06 marketing year (October/September) amounted to 375 000 tonnes (Table 5). The shortfall of 251 000 tonnes was covered by imports. Production of wheat has recovered in 2006 mainly reflecting favourable weather in the major growing areas. The Mission visited the North-Central producing aimags of Selenge, Bulkan, Tov and Darkhan-Uul, where yields have reportedly doubled the levels of last year. The 2006 wheat output is tentatively estimated at 145 000 tonnes and the import requirement in 2006/07 is expected to decrease to 230 000 tonnes.

Table 5. Mongolia: Wheat supply/demand balance 2001/02-2006/07 (October/September) ('000 tonnes)

Supply of wheat flour is adequate throughout the country. The Mission could verify that markets were well-stocked with Mongolian and Russian flour. Apparent per capita consumption of wheat has remained stable in the past five years and is forecast at around 117 kg/person in 2006/07.

Although food security does not imply food self-sufficiency, production of wheat is a key issue in Mongolia’s food security. Wheat is the main crop in the country and wheat flour is the major food staple, covering approximately 59 percent and 52 percent of the daily caloric intake in urban and rural areas respectively. In particular, wheat flour is essential in the diets of the extreme poor populations of the cities who could not afford to buy meat and milk products. Therefore, there is Government concern about the role of domestic production in assuring adequate food availability and in reaching higher levels of self-sufficiency. At the same time, however, there is need to assure stable supplies of wheat flour at affordable prices. The problem is complex and relates to the cost/benefit of rehabilitating the wheat sector, the wheat production potential of the country and its comparative advantages and competitiveness vis-à-vis neighbouring countries.

Rice

Imports of rice, which is not produced in the country, have been increasing in recent years averaging 20 000 tonnes per year in the period 2000-2005. However, consumption of rice remains limited when compared to wheat.

Livestock

With over 30 million camels, horses, cattle, sheep and goats, livestock production is one of the country’s key economic activities. Livestock accounts for 85 percent of the agricultural sector output, which according to preliminary official data for 2005, accounts for about 22 percent of the national product, second only to the trade sector, and is by far the first source of employment attracting 40 percent of the labour force. Besides providing a large part of the country’s food supplies, the livestock is also the main source of fuel for cooking, heating and transport in rural areas.

Despite the end of the Government’s intervention in the livestock sector in 1991, the number of animals increased during the 1990s mainly as a result of higher mobility of herds after the Socialist period. The severe dzuds and droughts of 1999-2002 resulted in the loss of about 10 million of animals (Table 6). The sub-sector has recovered since 2004 and preliminary estimates indicate that the numbers of livestock in 2006 are similar to the 1999 levels. This reflects successive years of favourable weather conditions, investments in response to good cashmere and wool prices and in the dairy farming, as well as low animal take-off as part of risk minimization strategies by herders. It is worth to note, however, that in bod terms numbers are considerably different than in 1999. The 2005 bod units are 3 465 000, or 30 percent lower than in 1999, mainly due to higher numbers of goats. Both, the composition of the herd and the high number of animals are giving concern about pressure on pasture resources and over-stocking. This is particularly the case when considering the limited availability of hay and fodder, which makes the survival of animals in harsh winters basically dependent on autumn pasture conditions and herding skills.

Table 6. Mongolia: Livestock numbers, output and trade of animal products

Meat

The country is self-sufficient in meat and has an exportable surplus. Most of the meat consumed in the country is processed in rural households and in soum and aimag centres using traditional techniques. The formal meat industry collapsed with the privatization of livestock in 1991 and while production of meat increased steadily until 2000, exports of meat, intestine and edible offal products fell by one-third. Following the severe loss of animals in 2000-2002, meat output declined sharply from 2001 to 2003. Despite some recovery in past years, production of meat has remained well below the levels of the 1990s and exports are very limited. This is mainly attributed to herders’ behaviour aiming to build up their animal numbers to pre-1999 figures, but also to changes in the herd composition in terms of size (larger number of small animals).

As a result of the lower availability, average consumption of meat in 2005 is estimated to be 17 percent lower than in 2000, although it remains high by international levels.

Milk

The bulk of the milk consumed in rural areas (245 kg per person per year) is in the form of customary dairy products. Only a small proportion of the total milk produced in the country is processed by the formal dairy industry, which coupled with modern consumption tastes developed with the urbanization process, has resulted in the fact that most of the milk consumed in cities is imported, in spite of the large domestic supplies.

Similar to the rest of the food sector, the dairy industry collapsed during the abrupt transition from State to private ownership in the early 1990s and by the end of the decade Mongolia was importing three-quarters of its processed milk and dairy products. The decline of the national herd in 2000-2002 resulted in the plummeting of the milk production and the import of almost all the milk sold in urban markets. Total milk production has been recovering since then and by 2005, production, at 335 tonnes, was 21 percent higher than in 2002. The formal milk and dairy sub-sector is also reviving, supported since 2004 by a Government/FAO project, and the component of domestic produced milk in the formal processed milk has increased from some 3 percent in 2003 to about 7 percent in 2005.

Overall, urban and rural markets are well stocked of milk products from imported and domestic sources. While availability is higher in rural areas, increasing concern is being raised about the quality and safety of the informally produced milk.

Potatoes and vegetables

Mongolia also produces potatoes and vegetables but the planting areas are very small related to wheat crop. Cabbage, carrots, cucumbers and red peppers are popular. Similar to wheat, potato and vegetable growing is concentrated in the Central provinces and the capital city, that together account for about 60-70 percent of the country’s total output.

Along with most other food industries, the sub-sector collapsed in the early 1990s. By 2002 production of potatoes and vegetables was only one-third of its level in 1989 and imports increased steadily (Table 7). While recovery in production has been considerable in recent years, far more impressive has been the increase in imports in recent years. Imports of potatoes, mostly from China, have increased from 9 000 tonnes in 1999 to 41 000 tonnes in 2005. Concern about the quality and safety of the Chinese imported vegetables and fruits is widespread in the country and there is a clear market preference for locally-grown products, despite their higher prices.

The remarkable increase in supplies of potatoes and vegetables has translated into higher consumption levels, particularly in urban areas, and among poorest population that cannot afford animal products.

Table 7. Mongolia: Production and imports of potatoes, vegetables and fresh fruits ('000 tonnes)

Fruits

Limited quantities of fruits, such as watermelons and various types of berries, are also grown on a small scale in urban gardens⁸. Imports have increased in recent years improving availability and consumption, mainly in urban areas.

4.3 Markets and access to food

Marketing system and markets integration

Markets in Mongolia have a particular importance for access to food since the majority of the population lives in urban areas and are buyers of food. In rural areas, herders are self-sufficient in meat and dairy products but need to acquire all other food products, in particular flour, an important component in their diets.

Imports of cereals (wheat, wheat flour and rice), potatoes, vegetables and fruits have increased considerably since trade liberalization in the early 1990s, and international markets are playing a significant role in Mongolia’s food supply. Following its accession to the WTO in 1997, Mongolia took measures to liberalize foreign trade, including the reduction of tariffs which were bounded at a ceiling of 20 percent for the majority of goods. Since 2002, the country has applied a 5 percent customs duty rate on all imported goods, with the exception of wheat flour and certain vegetables that are subject to a 15 percent seasonal tariff from 1 August to 1 April of each year.

The main food market is in the capital Ulaanbaatar but there are markets in all aimag and soum centres including those in remote locations. Regional markets are generally well-integrated with Ulaanbaatar and international markets. However, integration varies greatly according to commodity. For the main staple flour, Ulaanbaatar is a major consumption (final destination) and wholesale market. Substantial quantities of domestically produced and imported flour from Russia and Kazakhstan arrived directly into Ulaanbaatar and then are distributed to other markets in aimag and soum centres. As a result, both Mongolian and Russian flour prices have the lowest quotations in Ulaanbaatar. However, price disparity between markets is small, as illustrated in Figure 2 showing wheat quotations in Uvs, Bulgan, Selenge and Sukhbaatar, located in the West, Highland, Centre and East regions respectively. Price differentials are mainly due to transport costs and traders’ margins, indicating integration with the Ulaanbaatar market and, in border areas, with neighbouring countries markets. Prices of wheat follow movements in the international markets (mainly Russia), with domestic production having limited impact on market flour prices. This was evident in marketing year 2005/06 (October/September) when despite a sharply reduced wheat harvest, prices of flour and bread remained stable (Figure 3).

With a small percentage of the country’s meat production processed in major abattoirs (mainly for the export market), the major meat marketing channel is through direct sale by herders to wholesalers. Carcasses are then transported to the cities and sold in the markets by retailers. Another important, although not quantified source of marketing, is the gift of animals or carcasses from rural families to relatives and friends living in the cities. The amount of meat entering the markets of the main cities of Ulaanbaatar, Darhan and Erdenet is difficult to estimate. In general, there is a lack of formal processing and storage facilities and limited control of hygienic conditions. The Mission could verify adequate supplies of meat in all aimags centres, but there were large variations in meat prices according to different regional markets. As shown in Figure 4, quotations range from 1 500 togrogs/kg in Donrnod (East region) to more than 3 000 togrogs/kg in Omnugobi (Central and Gobi regions), indicating lack of market integration. Many private herders in distant locations cannot sell their animals and products or are reliant on traders’ visits and often price-takers.

Mongolia has been a net meat exporter and meat prices in domestic markets are well below those in the world market (Figure 5), highlighting the potential of the country as an exporter, but also the difficulties to import in times of crisis. The domestic meat market is mainly influenced by domestic supply and demand, and is not well integrated into world markets as shown the price differences in Figure 5. Another feature that reflects this lack of integration is the fact that in several aimag and soum markets all meat cuts are sold at the same price.

Market disintegration is even more striking in the case of milk, as reflected by the fact that most of the milk processed in the formal sector (and consumed in urban areas) is imported. The lack of collection points and processing infrastructure prevent the connection of producers and consumers and have resulted in consumption levels of milk 4 to 5 times higher in rural areas.

Prices of food staples

Trade liberalization has had beneficial effects and prices of basic food in real terms have declined in the past five years (Table 8). Only meat prices have been increasing due to lower animal off-take. While the decline in prices of basic food has generally favoured access to food, the largest reductions have been in prices of flour products and vegetables, which are the main staples of the low-income groups of the population. The changes in food prices have also resulted in an improvement in the terms of trade between meat/flour and meat/potatoes, favouring access to these products by herder populations.

Table 8. Annual average prices of main food in Ulaanbaatar (in real terms at 2000 prices)