Long term economic consequences of overgrazing s

LONG TERM ECONOMIC CONSEQUENCES OF OVERGRAZING FOR THE EXTENSIVE LIVESTOCK PRODUCTION SECTOR IN MONGOLIA

Cecile M.E. van Hezik MSc Thesis, May 2002 Wageningen University Supervisor: Prof. W. Heijman

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Summary The pastoral livestock sector in Mongolia currently faces many problems, an array from environmental to institutional and economic problems. A solution cannot be easily found. This study provides more insight in the relationship between the environmental and economic problems through the development and application of an econometric model for the pastoral livestock sector.

After the transition in 1990 the livestock numbers have grown in Mongolia, while the carrying capacity of the pastures has been decreasing. This has raised concerns about the sustainability of the Mongolian livestock sector. The large increase in animals occurred due to several factors, such as privatization, increase in herders and social insecurity.

In this study the impact of overgrazing on production was studied by looking at the stocking rate and carrying capacity and its impact on production per species in four aimags: Bulgan, Zavhan, Tรถv and Uvs. For this purpose an econometric model was developed, which integrates externalities -caused by overgrazing- into the production model. To our knowledge it is the first time overgrazing is incorporated in a production model. The major advantage of this model is that the main determinants of carrying capacity and production and the possible effects of overstocking and overgrazing could be identified, which in turn resulted in more complete and reliable regressions.

The findings showed large differences per species and between the four aimags. Despite the huge increase in animal numbers, aggregate production does not show a major increase. When we studied the production figures for each species separately we found an astounding close relationship between stocking rates and production for sheep, horse and, to a less extent, cattle. Increase in stocking rates of these three species led initially to an increase in their respective production but after a certain threshold level of stocking rate a decline in production was observed.

Goat production on the other hand showed an exponential increase with increase in stocking rate of goats. Moreover goat productivity seems positively affected by overgrazing. However the overgrazing model showed that goats are more detrimental to grassland than any other species. Therefore the current trend of increasing the number of goats should be limited as it does not only reduce the carrying capacity but it also reduces the production by sheep, horse and cattle.

The optimal stocking rate differs per aimags and depends on the weather, degree of overgrazing in the past, the resilience of the pasture and on economic and institutional factors.

We recommend a herd size and herd composition, which is adapted to the agro-ecological factors of each aimag. Herders should be made aware of the externalities they cause. A reduction in animal numbers will lead to more production.

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Glossary of Mongolian terms and Abbreviations Glossary Aimag

a primary unit, i.e. province, in contemporary Mongolia, consisting of several soums

Dzud

frozen snow-cover, which makes it difficult for animals to reach grass under the snow in winter, in combination with strong winds

Khot ail

a group of households camping together and sharing labour, with loose internal structure

Negdel

pastoral collective or agricultural cooperativs

Otor

rapid move of animals due to adverse local grazing conditions without moving the main camp

Abbreviations ADB

Asian Development Bank

BSTR

biologically optimal stocking rate

Bu

Bulgan

CC

carrying capacity

CMEA

council for mutual economic assistance

ESTR

Economically optimal stocking rate

FSU

former Soviet Union

SEFF

State Emergency Feed Fund

SSOM

State Statistical Office of Mongolia

STR

stocking rate

STRCF

optimal stocking rate per species after curve fitting

STRPV

optimal stocking rate ate maximum peak value

SU

sheep units

Za

Zavhan

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Table of Contents SUMMARY............................................................................................................................................. 2 GLOSSARY OF MONGOLIAN TERMS AND ABBREVIATIONS................................................ 3 TABLE OF CONTENTS ....................................................................................................................... 4 ACKNOWLEDGEMENTS ................................................................................................................... 6 1 INTRODUCTION .............................................................................................................................. 7 1.1 INTRODUCTION ............................................................................................................................... 7 1.2 OBJECTIVES OF THIS STUDY............................................................................................................. 9 1.2.1 Objectives ............................................................................................................................... 9 1.2.2 Outline of the study............................................................................................................... 10 2 MAIN DETERMINANTS, CONSTRAINTS AND DEVELOPMENTS IN THE MONGOLIAN PASTORAL LIVESTOCK SECTOR ................................................................................................ 11 2.1 NATURAL ENVIRONMENT ............................................................................................................. 11 2.1.1 Geography and climate.......................................................................................................... 11 2.1.2 Natural disasters.................................................................................................................... 13 2.1.3 Agro-ecological zonation...................................................................................................... 15 2.2 ECONOMIC BACKGROUND ............................................................................................................ 17 2.2.1 Macro economic factors ....................................................................................................... 17 2.2.2 Economic transition and reforms ......................................................................................... 18 2.2.3 Transition experiences in other Asian countries .................................................................. 19 2.2.4 The agricultural sector in the Mongolian economy.............................................................. 20 2.2.5 Risk minimising behaviour of herders .................................................................................. 21 2.3 INSTITUTIONAL AND ORGANISATIONAL STRUCTURE..................................................................... 23 2.3.1 Herders´ organisations......................................................................................................... 23 2.3.2 Financing and insurance system........................................................................................... 24 2.3.3 Land tenure and externalities ............................................................................................... 24 2.3.4 Property rights and resource management regimes ............................................................. 25 2.4 ANIMAL HUSBANDRY AND PASTURE MANAGEMENT ..................................................................... 28 2.4.1 Required inputs..................................................................................................................... 29 2.4.2 Livestock composition and interaction with pasture............................................................. 31 2.4.3 Animal productivity .............................................................................................................. 32 2.5 LAND DEGRADATION AND PASTURE MANAGEMENT ..................................................................... 34 2.5.1 Land degradation ................................................................................................................. 34 2.5.2 Causes of land degradation .................................................................................................. 36 2.5.3 Overgrazing and optimal grazing strategies ........................................................................ 38 2.5.4 Optimal stocking rate and carrying capacity ....................................................................... 40 3 DATA DESCRIPTION ..................................................................................................................... 43 3.1 STUDY AREA ................................................................................................................................ 43 3.2 DATA DESCRIPTION ...................................................................................................................... 44 4 METHODOLOGY ........................................................................................................................... 47 4.1 CHOICE OF METHOD ...................................................................................................................... 47 4.2 COINTEGRATION SERIES ................................................................................................................ 48 4.3 FORECASTING................................................................................................................................ 49 5 PASTORAL LIVESTOCK MODEL.............................................................................................. 50 5.1 CONCEPTUAL FRAMEWORK .......................................................................................................... 50 5.2 ECONOMIC THEORY ..................................................................................................................... 51 5.2.1 Investment and utility theory ................................................................................................ 51 5.2.2 Sustainable yield model ........................................................................................................ 52 5.2.3 An integrated intertemporal choice model for overgrazing.................................................. 53

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___________________________________________________________________________________ 6 APPLYING THE ECONOMIC THEORY TO THE LIVESTOCK MODEL ............................ 58 6.1 DATA REQUIREMENTS AND AVAILABILITY ................................................................................... 58 6.2 PROPOSED MODEL SPECIFICATION FOR INVESTMENTS AND LIVESTOCK ........................................ 58 6.2.1 Investments ............................................................................................................................ 58 6.2.2 A special asset: pasture ........................................................................................................ 59 6.3 LIVESTOCK NUMBERS AND LIVESTOCK PRODUCTION .................................................................... 60 6.3.1 Livestock Model.................................................................................................................... 61 6.3.2 Production model ................................................................................................................ 63 6.4 OVERVIEW OF TOTAL SET OF EQUATIONS AND VARIABLES ........................................................... 65 7 EMPIRICAL WORK AND RESULTS .......................................................................................... 66 7.1 DATA............................................................................................................................................. 66 7.1.1 Data requirements and sources ............................................................................................. 66 7.1.2 Problems with data............................................................................................................... 66 7.2 ESTIMATION RESULTS .................................................................................................................. 67 7.2.1 Factor analysis ..................................................................................................................... 67 7.2.2 Correlation ........................................................................................................................... 67 7.2.3 Regression ............................................................................................................................ 67 7.3 PRODUCTION DATA ....................................................................................................................... 71 7.2 OVERGRAZING AND PRODUCTION ................................................................................................. 72 7.4 FORECASTING RESULTS ................................................................................................................. 73 7.6 MODEL VALIDATION .................................................................................................................... 74 8 DISCUSSION..................................................................................................................................... 76 8.1 GENERAL DISCUSSION ................................................................................................................... 76 8.2 OPTIMAL STOCKING RATES........................................................................................................... 79 8.3 OPTIMAL STOCKING RATES .......................................................................................................... 83 8.4 CONCLUSION ................................................................................................................................ 85 8.5 RECOMMENDATIONS .................................................................................................................... 87 REFERENCES ..................................................................................................................................... 88 APPENDIX IA DATA DESCRIPTION OF VARIABLES USED IN CHAPTER 3,4 AND 5...... 92 APPENDIX IB DESCRIPTION OF VARIABLES USED IN CHAPTER 6 AND 7 ..................... 93 APPENDIX II DISCRIMINANT ANALYSIS................................................................................... 94 APPENDIX III CALCULATION OF WEATHER INDEX ............................................................. 95 APPENDIX IV REGRESSION ANALYSIS OF CARRYING CAPACITY.................................. 96 APPENDIX V REGRESSION ANALYSIS OF LIVESTOCK ....................................................... 98 APPENDIX VI REGRESSION ANALYSIS OF PRODUCTION ................................................. 102 APPENDIX VII RESULTS OF FORECASTING AND DIAGNOSTIC TESTING CARRYING CAPACITY PER AIMAG................................................................................................................. 106 APPENDIX VIII TOTAL PRODUCTION PER SPECIES AND STOCKING RATE OF THE SAME SPECIES................................................................................................................................. 107

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Acknowledgements This study was carried out as part of the thesis requirements for a MSc degree in Agricultural and Environmental Economics at Wageningen University. It was a very interesting experience to study the livestock sector in Mongolia, where changes are taking place rapidly in a challenging and dynamic environment. I learnt to care about Mongolia, a beautiful country, which deserves a healthy economy in a healthy environment. I hope this study contributes to the awareness of relevance of a sustainable livestock sector.

I would like to thank my supervisor Prof. Heijman for his support and for giving me the opportunity to get acquainted with Mongolia in various ways.

Furthermore I would like to thank all the people who have helped me in getting insight in the problem, and helped me with collection of the information. More specifically I would like to thank Nyamaa, Chuka, Suvdaa, Mr Purev and Mr EnkhAmgalan for all their help and advice.

Even though some people may be sceptical about pastoral herding as economic enterpreneurship, herding is more that that, it is a lifestyle. The Mongolian pastoral livestock sector can be turned into a rewarding economic activity within the natural constraints. Sustainability will be a key issue. Herding supplies social security to many Mongolians and is preferable to a life in poverty. However Mongolia should be aware that the current herding strategies born out of survival interfere with the other solid herding activities.

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1 Introduction 1.1 Introduction Mongolia has recently reached global headlines in the news as a country with a rather unfortunate pastoral livestock sector, which struggled to survive two consecutive severe winters. This has raised public awareness and, rather fortunate this time, international financial support as well. However the difficulties in the pastoral livestock were not a unique incident, nor merely a weather problem. The past ten years the problems in the livestock sector have aggravated, which has its roots in environmental, economic and institutional problems as will be clarified in this report.

The issues mentioned above have become visible in a declining production per animal head, and some argue that even the total production is declining, despite huge increases in number of livestock. How can this be clarified?

Figure 1.1 shows the total livestock production for whole Mongolia at constant prices on the y-axis and the stocking rate of animals on the x-axis. It seems that an increase in stocking rate increase the production to a certain extent, but after a certain threshold the production seems to drop.

100000

90000

80000

70000

60000

Observed Quadratic S

50000 40

50

60

stocking rate total livesto ck ( SU/1 00ha)

70

80

Source: SSOM

Figure 1.1 Total livestock production in Mongolia (at 1993 prices) and stocking rate (hd/100ha), with S- and quadratic- curvefitting

In 2000 about 43% of a total population of 2.408 million Mongolians were living in rural areas, of which in turn 41% were herdsmen. Traditionally the Mongolian herders keep five kinds of animals and live with the climates of four seasons, weather, pasture, water and fodder, amidst the mountains, steppe and desert of Central Asia (Enkhtuvshin and Tumurjav 2001). The major share of the Mongolian livestock sector concerns extensive livestock keeping or herding, a minor part is semiextensive or intensive livestock keeping. Extensive or pastoral livestock production is the predominant activity in the rural sector of Mongolia, and has traditionally played a significant role.

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The following three conditions have to be met by the herders in order to make the extensive livestock production system work (ADB 1997) • a sufficient number of livestock with reproduction rates high enough to ensure future offspring and concomitant animal products needed for consumption and trade • provision of husbandry needs of their livestock particularly nutritional needs, which will be achieved by forage production on native pastures • the political, social and environmental factors need to be in favour of external livestock keeping and in favour of the herders, and should not hamper access to natural pasture forage All of these three conditions have been under pressure in Mongolia. Even though livestock numbers have greatly increased since 1990, this has been more due to decrease in slaughter rate (as a result of economic uncertainty) than a sound reproduction rate. The second condition of sufficient forage production has become endangered in certain parts of Mongolia due to serious land degradation and soil erosion, lack of management skills and climatic conditions.

The final condition applies to transition in the economy and political system, which has created many problems. One of them is the reduction of supply of inputs by the state, e.g. veterinary services, supplemental feed, and watering facilities (ADB 1997). One of the main institutional shortcomings is the lack of property rights. The transition increased uncertainty and led to a shift of risks from state to the herders.

The livestock sector and related processing industries are to date the single most important source of income, employment and domestic food security in Mongolia. The past ten years the share of extensive livestock keeping has even been increasing, as the livestock sector has also become a social safety net for many inhabitants.

The total herd size, which consists of sheep, goats, horses, cattle and camel, has increased dramatically over the past ten years, from 25 million (1990) to 33 million (start of 1999), with a decline in 2000 due to a natural phenomenon called dzud. The number of herding households has almost tripled over the same period.

20 00

19 97

19 94

19 91

19 88

19 85

19 82

19 79

19 76

19 73

19 70

40000 35000 30000 25000 20000 15000 10000 5000 0

Source: SSOM

Figure 1.2 Total livestock numbers from 1970 - 2000 (thous. heads)

The demographic and agricultural developments together with extreme climate conditions in Mongolia, have put severe pressure on the vulnerable pastures and led to overgrazing in certain parts of the country. Soil erosion and desertification are common natural processes and have been taking place for many decades, however the process of land degradation seems to be accelerating at the moment, partly due to overgrazing.

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The past ten years considerable changes have taken place in Mongolia. In this study, an attempt has been made to develop an approach to estimate the optimal sustainable number of livestock by using an econometric model. Also we try to get inside in the effects of overgrazing on the production. Prior to development of the model, all relevant determinants and constraints of the pastoral livestock sector had to be identified and these were put schematically in one diagram (figure 2.1). In chapter 2 the diagram and its major components are discussed and a thorough analysis of the current problems is made.

The current situation in Mongolia is highly dynamic and very interesting changes are taking place. Unfortunately a selection of topics to be discussed here had to be made, we will not cover all of the livestock sector problems. However recently quite a few extensive livestock sector studies have been published (JICA, Agriteam, ADP, Worldbank).

1.2 Objectives of this study ‘The main policy objectives of the food and agricultural sector are to increase efficiency and productivity, to ensure growth, agricultural production,… and to develop the agricultural sector in the form of intensive, sustainable and effective production based on various types of ownership’ (Hanimhan 2000)

In figure 2.1 all factors are depicted that are related to the current problems in the extensive livestock sector. In Mongolia livestock keeping is more than an economic activity, it is also a way of living. Together with the dramatic increase in livestock numbers and the decline in pasture area and quality over the past ten years, urgent measures are required in order to preserve the pastoral livestock sector as part of the post socialist economy. Currently the government is designing and implementing policies to solve land problems by means of the land law. The general governmental policy is stated above.

In this paper we mainly want to focus on land degradation caused by livestock husbandry changes and overgrazing. These causes, however, are at the same time closely related to the natural causes. For example droughts exacerbate the impact of overgrazing or may even lead to overgrazing itself as herders mobilise their herds away from dry areas, causing overgrazing in others.

1.2.1 Objectives General Objectives • Identification of main determinants of pasture degradation in Mongolia • Identification of interaction between livestock and pasture • Identification of optimal stocking rate in Mongolia • Suggestions and recommendations for economic and institutional policymakers, concerning improvement of extensive livestock sector

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Research questions The research questions are: • What is the future development given the current situation?

• What is the optimal sustainable number of livestock that can be supported in each of the four study areas?

• What is the optimal herd composition?

• What is the optimal amount of herders?

• What are the major economic and environmental constraints?

• How to make the extensive livestock sector more efficient, can productivity be increased?

Hypotheses The derived hypotheses are: 1. Seasonal overstocking is the main determinant of pasture degradation 2. Continuation of the current increase in livestock numbers will accelerate the process of land degradation 3. The optimal sustainable number of livestock differs per agro-ecological region 4. The optimal herd composition differs per agro-ecological region 5. The extensive livestock sector can be made more efficient by changing the herd composition 6. Overgrazing leads to a decrease in productivity per head 7. Productivity and production can be increased by a decrease in stocking rate (head/ha) 8. A sustainable livestock system is more profitable then an unsustainable livestock system 1.2.2 Outline of the study In chapter two the main determinant, constraints and developments of the pastoral livestock sector in Mongolia are identified and discussed. For this purpose several environmental, institutional and economic factors have been identified. A description of the data and study area, on which the econometric model is based, is given in chapter three. Chapter four clarifies the methodology of cointegration analysis. The conceptual framework and underlying economic theory of the pastoral livestock model is discussed in chapter five. In the next chapter the specified livestock model for carrying capacity, livestock numbers and production is presented. Chapter seven gives an overview of the results from the regression analysis. In the final chapter the main findings are discussed, hypotheses are addressed and final conclusions are drawn. We end with giving some important recommendations based on new highlights from this study for the policymakers involved in the (Mongolian) pastoral livestock sector.

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