Livestockdevelopmentpotentialsincitydistricts

Study on Development Potentials of the Intensification of Selected Livestock Production Scenarios in City Districts in Mongolia Executive Report

Authors Batsaikhan Usukh Gombojav Chimed Erkhembayar Lombo Gantulga Garamdorj Martin Raaflaub Fritz Schneider

Leader study team, UNDP Member study team, UNDP Member study team, UNDP Member study team, UNDP Consultant, SDC, Swiss College of Agriculture, Zollikofen, Switzerland Consultant, SDC, Swiss College of Agriculture, Zollikofen, Switzerland

Ulaanbaataar, April 2007

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Table of contents Executive summary Acknowledgements Part I: Summary report (Surveys and Analyses) 1. Introduction 1.1. Frame conditions of the livestock sector in Mongolia 1.2. Recent developments of the frame conditions 1.3. Background of the study 1.4. Rationale of the Mandate 1.5. Institutional Setting 2. Objectives and Methodology of the Study 2.1. Objectives 2.2. The Methodology of the study 3. Milk, and Meat Production, Deamdn and Supply 3.1. Milk Production, Demand and Supply 3.2. Meat Production, Demand and Supply 4. Economic Analysis 4.1. Method, Procedure and Terminology 4.2. Economic Analysis of Ectensive Livestock Herders 4.3. Economic Analysis of Dairy Farms 5. Ecological Analysis 6. Social Analysis Part II: Intensification scenarios 7. Scenarios to cope with limited availability of feedstuffs 8. Improving profitability of dairy farming by intensified feeding strategies 9. Strategies of fattening animals in feedlots 10. Scenarios for the intensification of pastoral livestock husbandry 11. Effect of intensified lamb and calf feeding strategies on pasturing animal density 12. Conclusions Part III: Recommendations 13. Recommendations for Governmental Policy Interventions 14. Recommndations for Farmers 15. Recommendations for feed-lot fattening schemes 16. Additional Recommendations Part IV: Bibliography Part V. List of Annexes

4 8 9 9 9 9 10 10 10 11 11 12 14 14 17 20 20 21 25 28 30 31 31 32 35 40 44 46 49 49 50 51 52 54 59

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Table of tables Table 1.The types and numbers of the respondents.........................................................................................................12 Table 2. Effective and projected demand for milk and dairy products (x1000 tonnes) ................................................14 Table 3. The average prices for the milk produced near the cities and local dairy products (MNT) ..........................15 Table 4. Meat production volume (thousand tons) ............................................................................................................17 Table 5: Prices for red meat (mutton, beef) in retail commerce (MNT/kg) .....................................................................18 Table 6: Prices paid by middlemen ......................................................................................................................................19 Table 7: meat prices as paid on public markets (retail).....................................................................................................19 Table 8: Share of livestock in different groups ...................................................................................................................21 Table 9. Total profit/loss of extensive herder......................................................................................................................22 Table 10. Profit per sheep unit..............................................................................................................................................22 Table 11. Total income structure (%)...................................................................................................................................23 Table 12. Expenditure structure (%) ....................................................................................................................................24 Table 13. Assets of Farmers .................................................................................................................................................25 Table 14. total profit of dairy farms.......................................................................................................................................25 Table 15. Profit per cow of dairy farms................................................................................................................................25 Table 16: Total farm profits of intensive and extensive farms..........................................................................................26 Table 17: Profits per cow, compared between intensive and extensive farms..............................................................26 Table 18. Income of dairy farms (%)....................................................................................................................................26 Table 19: meteorological data of Jargalant (Central Mongolia) .......................................................................................28 Table 20: Net energy content and prices of Mongolian feeds..........................................................................................31 Table 21: Nutrient analysis of Mongolian hay.....................................................................................................................31 Table 22: feeding costs and income of a ration in winter..................................................................................................33 Table 23: feeding costs and income of a ration in spring / autumn .................................................................................33 Table 24: Calving end of spring, milk peak in summer .....................................................................................................33 Table 25: Calving end of autumn, milk peak in winter.......................................................................................................34 Table 26: Costs of milk production with supplementary feed...........................................................................................35 Table 27: Feeding Technologies for Beef Feedlot .............................................................................................................37 Table 28: Modellized production results for a crop-livestock integrated farm................................................................37 Table 29: Feeding Technologies for Beef Feedlot .............................................................................................................38 Table 30: Modellized production results for a crop-livestock integrated farm................................................................38 Table 31: comparison of different feeding strategies to raise mutton .............................................................................40 Table 32: properties of fodder used in the following proposals........................................................................................41 Table 33: The fodder requirements for a sheep after lambing.........................................................................................41 Table 34: The fodder requirements for a lamb ...................................................................................................................42 Table 35: Feeding costs.........................................................................................................................................................42 Table 36: Income and profit from intensified pastoral lamb upbringing ..........................................................................42 Table 37: The fodder requirements for a cow after calving ..............................................................................................43 Table 38: The fodder requirements for wintering of a calf separated from the cow......................................................43 Table 39: Fodder costs ..........................................................................................................................................................43 Table 40: income and profit from intensified pastoral cattle upbringing .........................................................................43 Table 41: Comparison of different feeding strategies to raise mutton ............................................................................45 Table 42: comparison of different feeding strategies to raise beef..................................................................................45

Table of figures Figure 1. Development of the consumer price for milk since 2002. ................................................................................15 Figure 2. Meat production in Mongolia since 1997 ............................................................................................................18 Figure 3. Meat and meat products export ...........................................................................................................................18 Figure 4: Correlation between total herd profits and number of animals........................................................................22 Figure 5. Income from milk (by season) ..............................................................................................................................27

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Executive summary Study concept Background. The demand for livestock products in Mongolia is increasing, while the national livestock production stagnates. A major part of the milk products today is imported, and the exported quantities of meat are considerably lower than they were in past years. The increasing degradation of the Mongolian pastureland shows that the present extensive livestock production cannot yield the present food demand in a sustainable way, much less increase its production quantities. There is a high interest in intensified agriculture and livestock production in Mongolia.

Rationale of the study. There is an urgent need to start taking measures targeted, to provide reliable food supply for the population with domestically produced good quality and safe products, to decrease pasture degradation and at the same time to take measures to improve the sustainability of herder’s livelihood. GoM takes this issue into consideration and identifies the development of intensive livestock production as one element of the solution to the above mentioned problems. MoFA has initiated the study to get detailed information on the economics of various livestock production systems in order to be able to identify potential intensification scenarios in Mongolia in general and in city districts in particular.

Institutional setting. MoFA has approached UNDP with the request to conduct the study. UNDP has approached SDC to jointly conduct the study. MoFA is the mandater. UNDP was responsible to recruit, finance, support and supervise the local team and for the logistics of the study. UNDP delegated one person to the Steering Committee. SDC provided the international support and delegated one person to the Steering Committee. SDC delegated the support and backstopping to the Swiss College of Agriculture in Zollikofen, Switzerland.

Objectives. The overall objective of the study is to define in details the economic effectiveness of livestock husbandry around major cities, its impact on the environment, the current social condition of the herders and other persons engaged in it. Based on the analytical part, the study was mandated to propose and develop intensification scenarios for livestock production in the city districts and intensification at herders’ level and to reflect on necessary policy implications and put policy recommendations up for discussion.

Methodology. The following methodology was applied: • Field survey. 85 farming and herding operations close to main roads within 100 km from UB, Darkhan and Erdenet were selected for the survey. The study used questionnaires.

• Economic analysis. In addition, market and price data were collected and analyzed from 27 soum, district and village administrations, 5 dairy and 4 meat processing enterprises, 6 decision-makers, 2 food markets and 3 livestock raw material markets.

• Sustainability assessment. In a separate study the sustainability of the analyzed systems was assessed. The Response-Inducing Sustainability Evaluation RISE is a computer-based tool that allows assessing the sustainability of agricultural production and trends hereof at farm level. 21 farms in Tuv and Selenge Aimag have been evaluated.

Study team. The local study team consisted of two economists, two livestock specialists and for a short while a social scientist. The international support was given by one agro-economist and one livestock specialist.

The sustainability study was conducted by a Swiss agronomist (3 months in Mongolia) supported by the RISE team at SHL.

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Products. The study is documented in the present executive report containing the summary report the proposed intensification scenarios the policy recommendations A preliminary report was produced as a working paper which is not being published as a whole. The most relevant chapters are presented in the annexes.

A summary of the sustainability report is presented in the annex, too. The full sustainability report is presented as a separate document.

Results of the analytical part Milk market. Milk prices in Mongolia have increased less than meat prices. Imports seem to have absorbed some of the price surge exerted by the growing gap between national supply and offer. Meat prices are solely influenced by supply and offer on the Mongolian market and took a higher rise.

Meat market. Mongolia’s traditional market for mutton export is the Russian Federation. However, exports have decreased by half since 2002. There are several reasons for this reduction: Dzud, draught, pasture degradation, as well as replacement of sheep with goats and increased national demand.

Economic analysis at herder’s level. Profit per sheep is relatively constant among herd size. Highest profits can be found in the herd size 300 to 800 animals. Herding efficiency is independent of herd size and total herd profit is directly correlated to herd size, as profit per animal is constant. This is probably the most important motivation to increase herd size. Furthermore: Herders invest their income surplus in animals, possibly because there is no alternative investment at their reach.

Meteorologically good years lead directly to higher pasture degradation in following years due to herders’ preference for animal assets, herd size increases.

For the herders with less than 300 animals, milk is the main source, and for the rest of the herders, meat is the main source of income. Share of income from cashmere increases with the increasing number of animals.

Depreciation and maintenance of fixed assets contributes the major share to the total expenditures.

Even herders invest considerably in winter sheds for their animals, vehicles and agricultural machinery.

Economic analysis of dairy farms.

Big farms were profitable in 2006, whereas small farms were not able to cover all their calculated costs.

Small farms have the highest gross margin, but the profit is annihilated by high calculated costs.

This means that they use their production inputs (mainly fodder) effectively, but seem to be at a major disadvantage to spread the fixed costs over a small herd.

Small farms in the study have reduced their herd size. If this happens over several years, small dairy farms leave the sector in the long run.

The highest share of milk income is generated in winter, although milk production is lowest. Milk income is more influenced by the milk price than by milk quantity.

Today, there are practically no loans on the farms. Total assets consist usually completely of own assets. There is a need to develop a system that creates access to investment credits with low (reasonable) interest rates.

Ecological and sustainability analysis. The ecological and sustainability analysis shows a rather favourable picture concerning intensification measures: The risk of water pollution and nutrient leaching is only slightly increased due to the dry nature of the country.

There is a certain risk of increased erosion on ploughed surfaces.

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Vulnerability to dzud is reduced.

Animals reared in intensified production systems tax the natural pastures to a lesser extent.

Social analysis The analysis of the social aspects has to be seen as a side product of the study as the foreseen social scientist joined the study team only for a short period. Nevertheless the following results may be relevant for the intensification scenarios: • The potential beneficial economical effects of intensification can improve social parameters, as basic needs can more easily be provided for.

• If the benefits of intensification can only be harvested by big farms, growing wealth discrepancies may cause social unrest.

Interpretative part Based on the results of the analytical part, the study identified constraints in quality and availability of Mongolian feeds and fodder and proposes the development of potential intensification scenarios.

Constraints in the Mongolian feed and fodder base. The following are the main constraints in the Mongolian feed and fodder base and management thereof: Hay is cut much too late and its content in energy and protein is low Fodder and silage production is not common any more High quality supplementary feedstuffs are not commonly used and are perceived as too expensive (exception: wheat milling by-product) These constraints are addressed both in the intensification scenarios as well as in the policy recommendations Intensified milk production. The analysis of the dairy sector showed, that milk production can be profitable both in a situation where fodder is being produced on farm (crop-livestock integration) as well as with purchased fodder.

Low profitability can have its roots by reluctant spending on quality feedstuffs Money spent for good fodder and good supplementary feed generates profit Producing milk for the winter pays off, in spite of higher fodder costs • Farmers should be encouraged to follow market (price) signals With the development of corresponding frame conditions, dairying is a potentially profitable scenario, especially if the main focus is put on milk production in wintertime. To focus on milk production in wintertime would also mean to put a strong focus on good quality conserved fodder (hay and silage), as well as good quality concentrate feed.

Intensive beef and mutton production in feedlots and crop-livestock integration. The purposes of feedlot production are the following ones: Feeding for increased weight gain Feeding for improved carcass quality and increased prices per kg live weight Planning the feed-lot period to take advantage of seasonal price changes The analyses of the economical parameter show, that feedlot fattening of both mutton and beef is only profitable if the product can be sold at a premium rate. The study concludes: Feedlot production is only profitable when seasonal price hikes can be obtained, thus feedlots may only be used from autumn to spring Marketing efforts for value addition for higher quality are recommendable Using silage improves weight increases and profitability considerably Additionally, the feedlot operation can contribute to the reduction on grazing pressure (see intensification at herder’s level).

Intensified beef and mutton production at herder’s level. There are multiple purposes of intensification at herder’s level such as increase of income, reduction of grazing pressure by a higher number of animals sold annually (better relation of animals sold vs. animals grazing) and, very important, to get a

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better end product (slaughter at a younger age and with better carcass quality), either directly on pasture or via collaboration with feedlots. Herd intensification strategies will contain: • Lambing and calving earlier in the year (February instead of March) • Supplementary feeding of mother and offspring until April (a bigger offspring is able to better valorise the pasture grass) • This strategy will allow to slaughter at 8-9 months and 32-35 kg live weight for the lamb and to sell to a feedlot at 8-9 months for the calf at 150-180 kg live weight.

The reduction of the herd size at the herders’ level can be up to 20 % in sheep and up to 30 % in cattle when the calf is sold to the feedlot after one summer or 15 % after two summers on pasture, and this with equal or higher income The intensification scenarios at herders’ level will only yield an ecological benefit, if pasture use policies ensure a limitation on stocking rates for pastures. Otherwise the herders might compensate the higher off-take of young animals by replacing them with additional livestock of any species and thus not reducing the livestock pressure on the pastures.

Conclusions: The model calculation and the economic analysis show, that intensification in dairy production, be it by improving the grass-based diets or by increased use of concentrated feed, is feasible and profitable.

Intensified fattening of beef and mutton can be done profitably, but only if advantage can be taken from cyclic price increases between autumn and early summer. This means that feedlots cannot be run yearround. It also shows that meat production in Mongolia will always take place in close connection to the pastureland and the herders and thus rather depend on productive pastures than substitute them.

Recommendations to public authorities and private organizations: Capacity building and knowledge transfer. Intensification on existing dairy farms needs an efficient build up and transfer of knowledge. It is recommended to establish a process of continued competence building, accessible to practising farmers and herders. The establishment of pioneer farms in different regions should be considered. The lead should be with MoFA in collaboration with international agencies.

Genetic improvement of Mongolian livestock breeds. It is proposed that MoFA develops a programme for genetic improvement of the Mongolian livestock breeds with the assistance of international agencies.

Recommendation for farmers and herders: Improvement of fodder quality and feed rations on farm level: Earlier hay cut, silage instead of hay, using feeds supplemented with urea, make more use of concentrated feeds like milling by-products, and compound feed, planning milk production to peak in winter instead of summer.

Recommendations for feed-lot fattening schemes: Monitoring of price relations: Orienting the production cycles in tune with cyclic price changes, i.e. by buying young animals in autumn and selling fattened animals in spring or summer.

For further details, on calculation methods etc. please contact: Batsaikhan Usukh: Gombojav Chimed: Martin Raaflaub:

batsaikh@hawaii.edu goyo-has@yahoo.com martin.raaflaub@shl.bfh.ch

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Acknowledgements The study team expresses its thanks and appreciation for the support it received throughout the study to the following institutions and persons: Resource persons. First and foremost the study team thanks all the farmers, herders, aimag and soum administration officials, entrepreneurs and business persons who spent their valuable time to answer questions and fill in questionnaires. As far as possible the study team has provided a feedback to the persons interviewed. The team, however, is aware that not all resource persons have received an adequate feedback and apologizes for this shortcoming.

MoFA for the mandate and the confidence extended to the study team. To Mr. Binye, Head of Strategic Policy Division and chairman of the Steering Committee, for the support throughout the study.

UNDP for financing the study team and providing the logistic support. Special thanks go to Mr. Batjargal N., National Project Manager, Sustainable Grassland Management Project, for the supervision of the local study team and to Mrs. Batkhishig B., Rural Development Specialist, for her contribution as member of the Steering Committee.

SDC for financing the international support, logistics support for international travel as well as for the sustainability assessment part of the study. Special thanks to Enkhie T., National Programme Officer, for her contribution as member of the Steering Committee and to Markus Dubach, Counsellor, Consulate of Switzerland, for his advice and support.

RISE team Swiss College of Agriculture. Christoph Bär, Agronomist, for conducting the sustainability assessment study in Mongolia and Christoph Studer, Christian Thalmann and Hans Porsche from the RISE team in Switzerland for their coaching and always quick responses to questions from the field.

Translators, drivers, support staff. Last but not least great thanks and gratitude to the drivers, the numerous translators and support staff, who supported the study throughout its lifespan.

Ulaanbaatar, in April, 2007 The Study Team

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Part I: Summary report (Surveys and Analyses) 1. Introduction 1.1.

Frame conditions of the livestock sector in Mongolia

Agriculture in Mongolia is subjected to many challenges. We firstly mention the climatic and meteorological conditions: The growing season lasts only for 3 months. Rainfall is generally scarce, below the optimum for good grass growth. However, Mongolia has ample pastureland and, mainly in the north, also good soils that are suitable for crop production.

Mongolia has open borders. Importation of milk and meat is free, only the general import tax of 5% of the product value is levied at the border. Thus, in the milk market, Mongolia competes rather directly with the most competitive countries of the world market, protected only by its distance from sea ports and the related transportation cost.

General production and working costs are low in comparison with the cost levels of the main competitors in the milk production market and the main meat export customer Russia. Growing export earnings of the Mongolian mineral sector could, however, lead to an increase of the value of the Mongolian Tugrik. Changes in the exchange rate of the Mongolian currency have the potential to considerably affect the competitivity of the livestock sector.

1.2.

Recent developments of the frame conditions

According to the statistical data, the total urban population, including Ulan Bator, Darkhan and Erdenet city residents increased from 1.166 Million in 1990 to 1543 Million in 2005. This is an increase by 32% within 15 years, while the total Mongolian population increased by only 19%. This shows that the consistent supply of urban population with food products of livestock origin is becoming an important issue in Mongolia. With the implementation of the Government policy to improve the food supply of the population, scientific and technological breakthroughs of the livestock industry have been introduced in Mongolia since 1960 and the development of intensified livestock sector has began since. In 1990, 45 mechanized dairy farms were established in Mongolia with 16207 pure and cross bred dairy cows (Komiyama 2005) and 1’171’000 meat and wool producing pure and cross bred sheep were counted in total (Statistical Yearbook 1990).

The privatization of livestock started in 1990 lead to the collapse of intensified farming, negatively affecting the government policy on appropriate breeding of pure and cross bred animals due to the decentralised ownership of the breeding stock .

Per capita estimation of meat and milk product consumption decreased from 119.9 kg and 152.1 liters respectively in 1990 down to 75.4 kg and 130.8 liters respectively in 2005. This drop in consumption reflects partly the reduced product offer, but is probably also the result of a change from administrated food allocation to market prices.

The number of pasture animals, however, has increased. The number of animals of 1990 exceeds by approximately 2 million the number of animals of 2005. This illustrates the imbalance of herd structure of today’s livestock sector with its low portion of large animals. At the same time, the number of goats increased by 2.6 times, whereas the number of other animals decreased by 1.1-2.1 times, showing a severe distortion of the herd structure. This situation has negatively affected the meat and milk production and may have contributed to the acceleration of the pasture degradation. According to the study of the “Green Gold” programme (funded by SDC), 46.6% of total pasture surface surrounding Ulaanbaatar city is severely degraded.

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1.3.

Background of the study

The Government policy for the livestock sector aims at the regional development of pasture and intensified livestock production to supply safe food products and raw material of high quality to the domestic market and to increase the export resources. Progress in moving towards the goals mentioned above has been hindered by the lack of reliable, objective information about the productivity of present extensive and intensive livestock systems, and particularly about their development potential and what it entails to develop them.

To reduce pressure on pasture land, the exploration of alternative sources of income for herders and ways to add value to products and thereby reducing the need for more and more animals needs to be considered urgently.

1.4.

Rationale of the Mandate

Markets prices for livestock products such as milk, meat, hides and skins have increased considerably in the past years. Increasing prices are the base to develop intensive production in line with existing largely extensive system. Mongolia imports milk and milk products in increasing quantities. 50% of milk and milk products consumed in UB are imported, mainly from Russia. Meat consumption in Mongolia is very high with an average of 83 kg of meat consumed per person and year. The demand for quality meat in UB is constantly growing despite a fourfold price increase in the past few years. On one hand, availability of live animals for slaughter that meet consumers’ requirements in terms of quality barely meets the growing demand in UB, on the other hand export potentials are reduced by the low quality of Mongolian slaughter animals.

Looking at all these data, it can be concluded that there is an urgent need to start taking measures towards providing reliable food supply for the population with domestically produced safe products of good quality decreasing pasture degradation and taking measures to improve the sustainability of herder’s livelihood The Government takes this issue into consideration and fully recognizes the development of an intensive livestock industry as one element of the solution to the above mentioned problems. The development of an intensified livestock sector will positively influence the following issues: Improvement of the food supply of the population Rehabilitation and rational utilization of pastures by decreasing the number of animals with low productivity with the replacement of fewer animals with high productivity, reducing the negative effect of animals to the pasture Increase the productivity and the economic efficiency of livestock sector Increase the utilization and the efficiency of agricultural land Reduction of rural poverty Solution of social problems by creating new jobs, etc.

1.5.

Institutional Setting

The Ministry of Agriculture MoFA has approached UNDP with the request to conduct the study. Since the development approach and the areas of interventions in parts of their programmes are similar, UNDP has approached SDC with the idea of a joint venture to conduct the study. The two organizations have agreed to undertake the study together with the following sharing of tasks and responsibilities:

MoFA is the mandater of the study.

UNDP is responsible to recruit, finance, support and supervise the local team. Furthermore, UNDP is responsible for the logistics of the study such as office space, transport, travel allowances for the local team and communication (telephone, internet, etc.). For all operational issues the study team is supported by UNDP. UNDP delegates one person to the Steering Committee of the study.

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