Strong demand at home and abroad could prompt higher investment in Mongolia?s dairy industry as the country strives to return to self-sufficiency in milk, as well as capitalise on export potential in the region.
Mongolia?s agricultural industry remains key to the economy, with farming production accounting for 16.5% of GDP. Although it is gradually being supplanted by the mining sector, agriculture is the greatest single employer in the economy, representing 27.7% of the total labour pool, according to a recent report by the World Bank. The dairy and associated livestock segment is the greatest contributor to the sector, comprising around 50% of its workers and more than half its annual output in terms of value.
Traditionally the dairy segment has been a strong performer, with nomadic herding and traditional dairy-product making at the heart of Mongolian society. Self sufficient in milk production during the socialist era, the country suffered a downturn in the 1990s, due to a fall in state support and extensive livestock losses. Extreme climatic conditions at the turn of the century saw up to 30% of farm animals perish, including nearly all the dairy cows.
This loss in production capacity, combined with a lack of investment in processing technology in existing plants, saw the gap in supplies made up with imported materials.
Boosting investment and production
Under the 2007-16 National Dairy Plan the government set the target of boosting production capacity to meet 90% of domestic milk demand. While it is unlikely this goal can be achieved, with imports still necessary to bridge the supply gap, producers are looking for technological solutions, such as keeping products fresher for longer, and improving processing and quality, as well as local initiatives to promote small-scale, organic producers.
Investments could pay off in the medium term, as low domestic consumption rates offer an opportunity to develop the market, according to Ts. Erdenebileg, chief executive of mixed foods and beverages firm APU. ?Mongolia needs to develop its capacity in industrial dairy farming, as the segment offers strong potential for growth. Annual dairy consumption in the country is 70 kg per person compared to more than 150 kg in more developed markets,? he told OBG.
Further investment in the sector is needed to bolster existing infrastructure and improve output by raising food stock quality for cattle and developing higher quality breeding and quality control programmes, Erdenebileg said.
Organic milk production also poses an opportunity to create jobs in rural area, according to A. Tungalag, CEO of Darkhan Khuns JSC, a food producer, which provides grass and feed in exchange for fresh milk. ?If more companies begin doing this, Mongolia can be self-sufficient in milk,? he told OBG.
Export opportunities
Mongolia is a nomadic country and products such as milk and meat are 100% organic, which creates a big opportunity given the shift of consumer preferences towards natural products. Indeed, the organic dairy market is expected to be worth $15.9bn by 2019, according to Transparency Market Research, rising from $11.16bn in 2012.
In Mongolia, the dairy segment has the potential to grow its exports market, particularly in neighbouring countries like Russia, said B. Gantulga, the CEO of dairy producer Suu.
?The eastern region of Russia suffers from a deficit in fresh milk,? he told OBG. ?If Mongolia were able to effectively develop its domestic production capacity, it could begin exporting considerable quantities of milk to the country.?
Russia?s current ban on agriculture and food imports from the EU, a response to recently imposed sanctions over Moscow?s alleged involvement in military action in Ukraine, could also open doors for Mongolian produce.
Mongolia would be able to fill only a fraction of the $6.5bn gap created by the Russian ban on certain EU foodstuffs. But with dairy products among those covered by the bans, there could be a potential market opening up across the border. This opening was widened during the visit to Mongolia by Russian President, Vladimir Putin, in early September. Putin said there were significant opportunities for Mongolian primary producers to export meat and other animal husbandry products to his country, and that cooperation in agriculture among other fields could be stepped up.
