Fiber value chains13

Fiber value chains – AVSF’s experience in Mongolia Munguntsetseg TSENDAYUSH Assistant National Coordinator AVSF Mongolia Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Agenda 1. AVSF introduction 2. Mongolian fiber value chains – the example of cashmere 3. AVSF’s work on fiber value-chains

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

AVSF in brief

Supporting Herders and Herders’ organizations‌ 12 years of continuous presence in Mongolia : contribute to strengthen the resilience and improve the livelihoods of Mongolian rural communities through more efficient and sustainable livestock herding.

Sustainable collective management of pastoral resources, and reduced vulnerability to climate risks.

Improvement of herd productivity, better market valuation of livestock products (improved genetic and zoo-technical management, improved animal health follow-up).

Support to products transformation, positioning strategies for high quality livestock products, on local and international markets.

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Support for creation and capacity building of herder representative organizations: Cooperatives

Agenda 1. AVSF introduction 2. Mongolian fibres value chains – the example of Cashmere 3. AVSF’s work on fibres value-chains

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Elements of global Cashmere Value Chain Governance  Buyer-driven value chain: power is held by retailers / branded manufacturers  Fluctuations in volumes and product specifications depending on stocks / fashion cycle  US, EU, JPN, CN markets drive demand

 Vertical disintegration = limited influence from brands over how the upstream of the value chain organizes the sourcing

 but… increasing will from high end brands to have traceability and influence over the upstream of the value chain  Consumer and NGO pressure  Critical long term sourcing issue (e.g. climate change)  Raw material producers (herders) now on some brands’ agenda

 China domination – dependence to Chinese suppliers  +70% of Mongolian cashmere processed in Chinese factories – blended with low quality cashmere -> deterioration or gap of image.

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

 Mongolian cashmere -> 35% of world raw cashmere production - only 15% processed domestically (2014)  High importance for rural income generation and overall employment all along the value chain (7000 jobs)

Mongolia and the world Cashmere market  Cashmere market trends: growth for medium / low quality cashmere market segment -> price driven competition  Which markets / market segments for Mongolian cashmere fibres ?

 Mongolian high quality cashmere decreasing in % of overall domestic cashmere production but not in absolutes –> herd composition (age) and numbers evolution  More goats -> overgrazing + climate change > degradation of cashmere quality + impact on volumes (Zud cycle) ?  Sustainability compulsory for long term growth prospects -> less livestock, less goats in some areas Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Alternatives  More cashmere processed in Mongolia vs. better cashmere processed in Mongolia ?  Can the Mongolian cashmere industry compete on on price with the Chinese one?

 Multiple niche strategy ? Sustainable, high quality fibres blends, specific baby goats, dark colors, natural colors etc. ?  High quality / low volume -> high added value

A vicious circle for mongolian herders

Consequence: a vicious circle

 Switch from planned economy (herders are employees) to free market context (herders are producers); absence of policy or marketbased mechanisms to control livestock numbers.  Lack of access to fairly priced markets for livestock products / high level of debt of herders.

Capitalization strategy -> Increase of livestock numbers without regulations Specialization in the most profitable animal specie: goats

Overgrazing: decrease of the quality of pastureland

 High vulnerability of herders to climatic conditions.

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Decrease of the quantity of fodder and impact on animal nutrition

Increased herd vulnerability to climatic conditions and desertification

Experimenting a Sustainable Cashmere Value Chain  What a Sustainable Cashmere Value Chain could look like…

A virtuous circle?

Qualitative strategy -> Livestock headcount does not exceed carrying capacity of the pastureland, vulnerability to Dzud is decreased.

Sustainable quality cashmere is for a part sold on export markets, where the sustainable market is increasing .

 Alternative Value Chain, with relatively small volumes, over a limited area but… with the potential to be replicated and to make Mongolia the only producer able to offer at the same time very high specific qualities (fibres & services) and sustainable  Direct contribution to strengthen the resilience and improve the livelihoods of Mongolian Herders.

Herders are compensated for regular destocking.

Herders obtain a price premium for better quality and Sustainable Cashmere.

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Mapping of Value Chain actors and (perceived) constraints 1/3 Supporting ecosystem services Pastureland and fodder

Water Goats

Raw fiber collection Herders Herder cooperatives Middlemen (changers)

Scouring, dehairing, dyeing

Spinning

Scouring and dehairing plants

Mongolian spinning companies

Vertically integrated textile companies

Foreign spinning companies Vertically integrated textile companies

Knitting / weaving Mongolian Knitting / weaving plants

Wholesalers

Foreign knitting / weaving plants

Foreign brands

Vertically integrated textile companies

AVSF’ main areas of intervention

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Retail

Mongolian brands

Vertically integrated textile companies

Mapping of Value Chain actors and (perceived) constraints 2/3 Supporting ecosystem services

Raw fiber collection

Herders  Pastureland degradation  Vulnerability to climate  Access to fairly priced markets  Market price fluctuations vs. cash constraints  Low bargaining power Herder organizations  Access to low interest funding  Lack of professional skills  Governance issues

Spinning

Knitting / weaving

Middlemen  Smuggling  Loss of traceability  Access to low interest funding  No price premium for quality Scouring, dehairing , dyeing

Scouring and dehairing plants  Grading, sorting and baling at the plant : no price premium for quality  Access to low interest funding  Overcapacity  Technology and qualified operators

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Retail

Mongolian spinning companies  Access to low interest funding  Production capacity underutilized  Technology and qualified operators  Access to export markets Mongolian Knitting / weaving plants  Spinning capacity bottleneck  Access to low interest funding  Production capacity underutilized  Technology and qualified operators  Small domestic market vs. limited access to export markets -> positioning / brand visibility / distribution channels Vertically integrated textile companies  Spinning capacity bottleneck  Small domestic market vs. limited access to export markets -> positioning / brand visibility / distribution channels Mongolian brands  Small domestic market vs. limited access to export markets -> positioning / brand visibility / distribution channels

AVSF’s observations and works on the Value Chain  A long Value Chain, geographically distributed -> cooperation between actors is uneasy  In Mongolia, trading system through middlemen.  Lack of alignment of interests between different types of industry actors.

 Upstream and downstream rarely interact (herders and processors, processors and market) -> knowledge gap about expectations

 Different types of governance at different stages of the value chain  Raw material collection - Low level of formalization – no contracts, no standards  Cashmere processing - High level of formalization – contracts + standards + industry rules

 First step in improving the quality of the end-products is to deal with the quality of the raw material -> ensure a reproducible quality of the input fibers.  Need some level of organization on the producers’ side -> cooperative

At the producer level  Ensure quality, volumes -> sustainability  Limited visibility of Mongolian cashmere brands on the international market.

At the market level  build connections between value chain actors  Herders and processors  Processors and brands  Herders and brands ?

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

Agenda 1. AVSF introduction 2. Mongolian fibres Value Chains – the example of Cashmere 3. AVSF’s work on fibres Value Chains

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

AVSF’s works on Value Chains Yak down  Since 2010  3 consecutive projects  One cooperative - Arkhangai  Premium dehaired baby yak down, yarns, garments

Cashmere  Since 2014  2 simultaneous projects  Five cooperatives - Bayankhongor  Sustainable – high quality dehaired cashmere

Common project components  Sustainable natural resources management  Capacity building – herders and herders’ organizations  Technical – quality (genetic selection, livestock nutrition and health, combing – sorting…)  Organizational – governance, management, finance…

 Marketing / branding  Strategy and positioning: niche, premium, export oriented, certified + diversification  Market linkage and communication

 Sustainable income/ employment for rural communities / Improved visibility of Mongolian fibres’ quality on international markets Support to employment creation in Mongolia (SECiM) – 12th of April 2016

 56,5 million MNT direct additional 

income created in 2015 for Arkhangai rural communities +50 new rural jobs created since 2010

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

AVSF’s Value Chain programs in Mongolia 2014 -2017

➔ Increase the added value of animal productions in order to generate extra incomes and employment opportunities through the setting up of a yak fiber productions value chain initiated by an Arkhangai Cooperative CAAD. ➔ Improve the productivity and sanitary quality of animal productions by supporting brucellosis control program and through genetic activities with herders. ➔ Initiate a co-management of pastureland and water resources with herder’s groups. ➔ Generate alternative income through smallscale horticultural production units. ➔ Reinforcement Agricultural sector Non State Actors capacity: Arkhangai Herder’s Federation and Cooperative.

Support to employment creation in Mongolia (SECiM) – 12th of April 2016

2015 -2016

2014 – 2018

➔ Increase animal products added value and sustainable incomes for livestock producers, assistance to cooperatives for setting up and funding for activities related to pasture sustainable use. ➔ Technical assistance for pasture sustainability, pasture collective management ➔ Assistance to activities for quality and productivity improvement: animal breeding, nutrition. ➔ Reinforcement and assistance to Federations and Cooperatives for better financial management and technical capacities. ➔ Assistance to communication and marketing in order to add value to livestock products.

Fiber value chains – AVSF’s experience in Mongolia Munguntsetseg TSENDAYUSH Assistant National Coordinator t.munguntsetseg@avsf.org

AVSF Mongolia Support to employment creation in Mongolia (SECiM) – 12th of April 2016