IMF NEWS

Sheep and goats graze in western Mongolia (photo: isarescheewin/istock photo)

• IMF Country Focus

Greening Growth in Mongolia

December 10, 2019

Mongolia’s livestock industry, once the primary engine of the economy, now faces threats from climate change and overgrazing. Without prompt policy action, the national and regional costs will continue to grow, weighing on both economic growth and inequality.

The livestock industry in Mongolia accounts for about 90 percent of agricultural production and employs 1 in 4 Mongolians—more than any other sector. But the industry is facing major challenges. Hotter, drier summers and massive overgrazing have resulted in sharply rising land degradation. The damaged land then undermines the food supply for the livestock and leaves animals ill-prepared to survive increasingly frequent extreme cold spells.

While it is difficult to reverse the effects of climate change, particularly in the short run, policies to prevent overgrazing are feasible and could have a positive and lasting impact on the sector.  This is important because a stronger and more sustainable livestock sector would help Mongolia diversify away from mining and achieve more inclusive economic growth.

The overgrazing in Mongolia stems from soaring global cashmere prices amid a lack of land-use regulations or pasture management standards. Since 1990, the number of animals has tripled to 70 million, vastly exceeding the carrying capacity of the land. IMF analysis finds that the percentage of livestock deaths following cold spells is greatest in the provinces that had the largest increase in their livestock population. In total, these losses of wealth can reach 12 percent of GDP during extreme winters.

This rise in challenges facing herders and their families has triggered massive migration to the capital, Ulaanbaatar. Today, about 1 in 4 Mongolians lives in shantytowns, known as the ger district, in the outskirts of the capital—most of whom are former herders. This has placed large strains on the city’s infrastructure and contributed to a sharp increase in air pollution.

Another implication of land degradation and desertification is the so-called yellow dust storms, which have resulted in rising health and economic costs. The dust storms plague not only Mongolia, but also neighboring countries across East Asia, including China, Japan, and South Korea.

Policy action

The Mongolian government has attempted to stem the land degradation with official livestock targets in the National Livestock Program. These targets set limits on the number of livestock, which reflect the carrying capacity of the grasslands, but have gone largely unheeded and actual livestock numbers are twice the required levels.

To firmly place the livestock industry on a sustainable path and boost livelihoods of the most vulnerable households, Mongolia needs to address overgrazing and balance the size of its herds with nature’s capacity for pasture regrowth. Official targets are a start but have not been enforced.

In its most recent assessment of the Mongolian economy, the IMF recommends various economic policies. First, reintroducing a pasture tax (with an exemption for small/medium herders) could help reduce herd size. Second, incentives to boost quality of animal products—for example, training herders on techniques that improve the quality of the cashmere, can improve profit margins and reduce the reliance on large herds. And third, increasing the size of the meat industry—livestock for consumption rather than just cashmere—would provide a natural limitation on herd size and further incentivize herders to focus on quality over quantity.

Mongolia’s regional neighbors can also play a role via trade policy, which could encourage better land-use management policies. For example, helping Mongolia expand the external markets for its meat industry would both increase Mongolian incomes and reduce land degradation via smaller herds.

More broadly, end-consumers and retailers across the world can practice ethical supply principles in their procurement of goods. For example, Patagonia’s commitment to promote use of recycled cashmere or the Wildlife Conservation Society’s initiative to improve sustainability of cashmere production could help reduce the environmental burden on the fragile Mongolian grasslands.